# Bear Stearns The New Northern Rock



## wayneL (15 March 2008)

How long before the Neo-Con Socialists (now there's one for the books) nationalize the 4th biggest US investment bank?

They can't just let it slide into oblivion now can they.

Hooooooooooooooooly Crap!


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## macca (15 March 2008)

Hi Wayne,

I am stunned that the Yanks are surprised, I liked this on Yahoo

http://finance.yahoo.com/tech-ticke...Stearns-Bailout:-Who-to-Blame?tickers=bsc,jpm

Oh so true

Macca


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## noirua (15 March 2008)

Bear Stearns is an investment bank and Northern Rock (formerly Northern Rock Building Society) is a mortgage bank, or should be.
The Fed had a policy of not bailing out investments banks and now they've stood on their heads and have done precisely what they agreed not to. That agreement was ennacted after the 1987 crash.
Always let these investment banks go down and let others pick up the pieces for peanuts.


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## wayneL (15 March 2008)

I'm still freakin stunned than many of us little guys trading at home in our underwear foresaw something like this happening years ago, yet "they" didn't.

We could have had a nice little recession in 2002-2004 and be growing nicely out of it now. But instead, we are now looking down the barrel of something extraordinarily serious... yet the Fed continues the actions that brought us here.

We seriously need revolution.


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## Aussiejeff (15 March 2008)

wayneL said:


> I'm still freakin stunned than many of us little guys trading at home in our underwear foresaw something like this happening years ago, yet "they" didn't.
> 
> We could have had a nice little recession in 2002-2004 and be growing nicely out of it now. But instead, we are now looking down the barrel of something extraordinarily serious... yet the Fed continues the actions that brought us here.
> 
> *We seriously need revolution.*




_"Obama, Obama, Obama"_ - how revolutionary would it be to have the first black Prez in history?

Oh, and I hope you change your undies dailly, wayneL !! LOL


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## wayneL (15 March 2008)

Aussiejeff said:


> _"Obama, Obama, Obama"_ - how revolutionary would it be to have the first black Prez in history?
> 
> Oh, and I hope you change your undies dailly, wayneL !! LOL




Only when I start scratching. LOL


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## dhukka (15 March 2008)

Aussiejeff said:


> _"Obama, Obama, Obama"_ - how revolutionary would it be to have the first black Prez in history?
> 
> Oh, and I hope you change your undies dailly, wayneL !! LOL




The US had it's chance for real change with Ron Paul but predictably they choose not to deal with reality and continue to prop a system that quite clearly doesn't work. 

It seems Bear Stearns has been put in the 'TOO BIG TO FAIL CAMP'. I wonder how many more will fall into that camp in the coming months as the good ol U.S.A (United Socialists of America)  continue their policy of privatizing the profits and socializing the losses?


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## Aussiejeff (15 March 2008)

dhukka said:


> The US had it's chance for real change with Ron Paul but predictably they choose not to deal with reality and continue to prop a system that quite clearly doesn't work.
> 
> It seems Bear Stearns has been put in the 'TOO BIG TO FAIL CAMP'. I wonder how many more will fall into that camp in the coming months as the good ol U.S.A (United Socialists of America)  continue their policy of privatizing the profits and socializing the losses?




I guess it all comes down to *"how deep are the Fed's pockets"?*

If they get stuck, maybe they could sell some of that mountain of gold bricks they have stashed away in Fort Knox to raise some cash to bail out their high finance buddies, thus pushing gold down and boosting the greenback in the process? LOL

Anythings possible now, ain't it?



AJ


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## vishalt (15 March 2008)

Aussiejeff said:


> I guess it all comes down to *"how deep are the Fed's pockets"?*
> 
> If they get stuck, maybe they could sell some of that mountain of gold bricks they have stashed away in Fort Knox to raise some cash to bail out their high finance buddies, thus pushing gold down and boosting the greenback in the process? LOL
> 
> ...



ahahahah that was funny


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## prawn_86 (15 March 2008)

Wow, i didnt read about this until just then. Quite scary, and highly stupid of the Fed

Perhaps ASF members should pool some funds together and put in a bid ...


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## noirua (15 March 2008)

prawn_86 said:


> Wow, i didnt read about this until just then. Quite scary, and highly stupid of the Fed
> 
> Perhaps ASF members should pool some funds together and put in a bid ...




I suggest a bid of minus US$400 million.


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## explod (15 March 2008)

Aussiejeff said:


> _"Obama, Obama, Obama"_ - how revolutionary would it be to have the first black Prez in history?
> 
> Oh, and I hope you change your undies dailly, wayneL !! LOL




Yes the way things are going he will get in.

But the foundations are so bad it will contiue to get worse.

Then there will, prolly be one a dem ssasination's.

Then they will choose the Republicans to save them again and they will all be walking in the streets.

There will be a revolution all right but it will take 30 years for the USA to come back from it all in MHO.

You think what some of us have been inferring has been doom and gloom.  Reading the Financial Review today says (between tghe lines) its coming through and we aint seen nothing yet .


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## prawn_86 (17 March 2008)

> March 16 (Bloomberg) -- JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for about $2 a share after a run on the company ended 85 years of independence for Wall Street's fifth- largest securities firm and prompted a bailout by the Federal Reserve.
> 
> The central bank will fund as much as $30 billion of Bear Stearns's ``less-liquid assets,'' the two companies said in a statement today. The deal values New York-based Bear Stearns, with 14,000 employees, about $270 million, far less than the $4 billion market value on March 14. The stock had fallen 80 percent in the past 12 months.




http://www.bloomberg.com/apps/news?pid=20601103&sid=ar0QxIGdOnWI&refer=news

Amazing. 

Am i gunna be able to get a job when i graduate...?


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## reece55 (17 March 2008)

prawn_86 said:


> http://www.bloomberg.com/apps/news?pid=20601103&sid=ar0QxIGdOnWI&refer=news
> 
> Amazing.
> 
> Am i gunna be able to get a job when i graduate...?




Imagine how the people who purchased the stock on Friday feel.....

An instant 93% loss on investment..... ouch......

Cheers


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## Kauri (17 March 2008)

reece55 said:


> Imagine how the people who purchased the stock on Friday feel.....
> 
> An instant 93% loss on investment..... ouch......
> 
> Cheers




  or even better....


> Sunday Times..UK.., Joe Lewis, the 71-year-old currency trading tycoon, has lost close to 800 MLN USD in the collapse of the stock price of Bear Stearns, as he owns nearly 10% of the investment bank"s shares that he bought when the price was *above 100 USD*. Bear Stearns closed on Friday around 27 USD. The Times States that the huge paper losses could force Lewis to sell out of some of his other positions in order to meet margin calls from his lending banks.


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## wayneL (17 March 2008)

At least they didn't drag the entrails through the streets for months, as was the case with Northern cRock of Sh!te.


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## mayk (17 March 2008)

$2 is not a fair value for Bear Stearns, Their plaza in Manhattan is worth more than $1B. I don't know, what is the benefit of going so cheap . The deal was supposed to be around $20 not $2.
http://money.cnn.com/2008/03/16/news/companies/jpmorgan_bear_stearns/?postversion=2008031618

Well, now I know that in this volatile world it is best to stay away from financials even if they seem extremely cheap...


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## Kauri (17 March 2008)

I think it is a Fed bailout thinly disguised... JP.. apart from picking it up for $2 a share, have also got *Fed guarantees of $30bln* to go with it... kinda makes it an early Christmas... 
and BS was due to report tonight..
with Lehman and GS tomorrow
and MS the day after...  
Cheers
............Kauri

  get ready for a shorting frenzy on other US banks this week as punters take positions on who will fall next...


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## Julia (17 March 2008)

A couple of months ago I'd have ridiculed the suggestion that I'd be asking the following question, but what would be the situation here should one of our major banks be subject to a run or fail under unsustainable write-downs?

Would the RBA bail them out?

Are all of us who are feeling safe with our funds pulled out of the share market and tucked away into term deposits really safe?

In the event of a bank failing, who has first call on the assets?


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## dhukka (17 March 2008)

mayk said:


> $2 is not a fair value for Bear Stearns, Their plaza in Manhattan is worth more than $1B. I don't know, what is the benefit of going so cheap . The deal was supposed to be around $20 not $2.
> http://money.cnn.com/2008/03/16/news/companies/jpmorgan_bear_stearns/?postversion=2008031618
> 
> Well, now I know that in this volatile world it is best to stay away from financials even if they seem extremely cheap...




I don't know how anyone could call this cheap considering the amount of crap Bear Stearns has on their balance sheet. 

This is from Bear Stearns 2007 10K filing



> As of November 30, 2007 and 2006, the Company had notional/contract amounts of approximately $13.40 trillion and $8.74 trillion, respectively, of derivative financial instruments, of which $1.85 trillion and $1.25 trillion, respectively, were listed futures and option contracts.
> 
> The aggregate notional/contract value of derivative contracts is a reflection of the level of activity and does not represent the amounts that are recorded in the Consolidated Statements of Financial Condition. The Company's derivative financial instruments outstanding, which either are used to offset trading positions, modify the interest rate characteristics of its long- and short-term debt, or are part of its derivative dealer activities, are marked to fair value.
> 
> The Company's derivatives had a notional weighted average maturity of approximately 4.2 years at November 30, 2007 and 4.1 years at November 30, 2006. The maturities of notional/contract amounts outstanding for derivative financial instruments as of November 30, 2007 were as follows:




This was written on the Prudent Bear forum:



> *I found the Bear Stearns "smoking gun"*
> 
> It took a little digging, but I found it.
> 
> ...


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## prawn_86 (17 March 2008)

So what would happen if 13 trillion $ worth of derivatives were allowed to fail? Or if BS went broke instead of being bailed out?


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## freddy2 (17 March 2008)

This all leads back to the bail out of Long Term Capital Management in 1998.

From http://en.wikipedia.org/wiki/Long-Term_Capital_Management
Some industry officials said that Federal Reserve Bank of New York involvement in the rescue, however benign, would encourage large financial institutions to assume more risk, in the belief that the Federal Reserve would intervene on their behalf in the event of trouble. Federal Reserve Bank of New York actions raised concerns among some market observers that it could create Moral hazard. [4]


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## freddy2 (17 March 2008)

Below is an excellent article on why this is all happening: Modern Portfolio theory and the authority given to it by the "Nobel Prize" in economics. How many 1 in a million year crashes do we have to have before this stuff is discredited?

http://www.ft.com/cms/s/0/4eb6ae86-8166-11dc-a351-0000779fd2ac.html?nclick_check=1


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## mayk (17 March 2008)

Dhukka, Nice info, so then JP Morgan is also indestructible ....


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## ShareIt (17 March 2008)

wayneL said:


> I'm still freakin stunned than many of us little guys trading at home in our underwear foresaw something like this happening years ago, yet "they" didn't.




I ain't stunned about the underwear part


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## ShareIt (17 March 2008)

This is a really worrying situation! $2 a share... the books must have looked really bad to strike up a price like that, which I believe is the fair value, you always pay for something for what you believe it is worth... next question is, who is next???


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## dhukka (17 March 2008)

mayk said:


> Dhukka, Nice info, so then JP Morgan is also indestructible ....




Next up on the chopping block for broker dealers is Lehman Bros, also watch Washington Mutual amongst the large US banks for possible chapter 11/takeover potential.


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## Sean K (17 March 2008)

This is really going to be a golden period for those with lots of cash.


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## Kauri (17 March 2008)

dhukka said:


> Next up on the chopping block for broker dealers is Lehman Bros, also watch Washington Mutual amongst the large US banks for possible chapter 11/takeover potential.





Another firm might face financial problems. The price for insuring Lehman Brothers" debt jumped to 478 USD per 10,000 USD in bonds on Friday afternoon, from 385 USD in the morning. The cost for Bear debt was up to 830 USD, from 530 USD...


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## prawn_86 (17 March 2008)

kennas said:


> This is really going to be a golden period for those with lots of cash.




Once it sorts itself out it sure will be.

Might still take another year though the way some things are looking.

Im gunna havta start saving so i have as much cash as possible


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## Kauri (17 March 2008)

A timetable of the failure.  *fron the FT*... see any similarities with any other insto???

*Declining fortunes*
*Jun 14, 2007* Bear Stearns reports second-quarter profits down 10 per cent to $486 million 
*Jun 22 *Bear Stearns pledges up to $3.2 billion in loans to bail out two hedge funds hit by sub-prime losses and investor redemptions 
*Jul 19* Writes to clients informing them that two of its hedge funds contain “very little” or “effectively no value” 
*Aug 1 *Two Bear Stearns hedge funds file for bankruptcy and another has its assets frozen 
*Sept 20 *Reports third-quarter profit down 61 per cent to $171 million 
*Oct 4* _*James Cayne, chief executive, says: “Most of our businesses are beginning to rebound.” Alan Schwartz, president, says: “The market is in the early stages of a recovery”*_ 
*Oct 22* Outlines an agreement with CITIC, of China, under which both will invest $1 billion in each other. The deal is now in doubt 
*Nov 28* Bear Stearns announces it will cut 650 jobs 
*Dec 20 *Posts fourth-quarter loss of $854 million, the first quarterly loss in its 85-year history 
*Dec 20 *Barclays sues Bear Stearns for allegedly misleading the UK bank over the performance of two collapsed hedge funds 
*Dec 28*_ *Mr Cayne sells $15.4 million of the bank’s stock*_
*Jan 9, 2008 *Mr Cayne resigns as chief executive but stays as chairman; Mr Schwartz takes over 
*Mar 10 *Bear Stearns states that *“*_*there is absolutely no truth to the rumours of liquidity problems* _that circulated today in the market” 
*Mar 12 *Mr Schwartz says: “_*We don’t see any pressure on our liquidity, let alone a liquidity crisis” *_
*Mar 14* Bear Stearns confirms it has secured a funding agreement with JPMorgan Chase and the Federal Reserve Bank of New York. Mr Schwartz says: “Bear Stearns has been the subject of a multitude of market rumours regarding our liquidity. Amidst this chatter, our liquidity position in the last 24 hours had significanty deteriorated”


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## prawn_86 (17 March 2008)

Have ASIC and other such American regulators given up?

What do they actually do??

There no longer (was there ever, im too young) any disclosure to do with margin loans, loans from other comapnies. CEOs can say what they like in OFFICIAL releases and then a day later change their mind/postion.

Whatever happened to a (relatively) level playing field?

If you are not on the board you do not know what is happening. Simple as that


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## Kauri (17 March 2008)

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/17/cnbanks117.xml


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## Aussiejeff (17 March 2008)

kennas said:


> This is really going to be a golden period for those with lots of cash.




Just so long as you don't hold that cash in a bank! The manufacturers of bomb-proof under-floor safes must be doing a good trade atm....


Chiz,


AJ


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## jonojpsg (17 March 2008)

Wow!

Are we all glad that didn't happen or what??!! Maybe I'll just cash out now and hide it under my mattress


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## spartn (17 March 2008)

Hi guys

It said in an article today that "Bear Sterns survived the Great Depression, Two World Wars and countless recessions". And yet after just 1 year from its all time high it gets sold for almost nothing, after this subprime thing.

This is just the beginning.

Spartn

:viking:


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## explod (17 March 2008)

spartn said:


> Hi guys
> 
> It said in an article today that "Bear Sterns survived the Great Depression, Two World Wars and countless recessions". And yet after just 1 year from its all time high it gets sold for almost nothing, after this subprime thing.
> 
> ...




Exactly, the Wall Street pundits have said that it is different this time.  

 .                                     .


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## prawn_86 (17 March 2008)

Its funny, 

Sitting here at uni virtually everyone has no idea of what is happening around them. 

Sometimes i wish i didn't either... 

it will be interesting to see how this all plays out, as i bet my old man there would not be a depression like the great depression in our lifetimes


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## Aussiejeff (17 March 2008)

prawn_86 said:


> Its funny,
> 
> Sitting here at uni virtually everyone has no idea of what is happening around them.
> 
> ...




Ooooer....

How MUCH did you bet ..... ??


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## prawn_86 (17 March 2008)

Aussiejeff said:


> Ooooer....
> 
> How MUCH did you bet ..... ??




It was a slab of premium beer. 

As that way it is a staple which is constant, and would still be 'worth' the same amount in X years time, rather than a set $ value.


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## ShareIt (17 March 2008)

I'm betting on a great depression... it seems to come about every 50 years


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## sassa (24 March 2008)

Why Bear Stearns is trading at $6 instead of $2.

Bear Stearns is trading at $6 instead of $2 because unelected bureaucrats went beyond their legal mandates, delivered a windfall to a single private company at public expense, entered agreements that violate the the public trust, and created a situation where even if the bureaucratic malfeasance stands, the shareholders of Bear Stearns will either reject the deal or be deprived of their right to determine the fate of the company they own. Very simply, Bear Stearns is still in play. Still, when all is said and done, my own impression is that the ultimate value of the stock will not be $2, but exactly zero. 

In effect, the Federal Reserve decided last week to overstep its legal boundaries – going beyond providing liquidity to the banking system and attempting to ensure the solvency of a non-bank entity. Specifically, the Fed agreed to provide a $30 billion “non-recourse loan” to J.P. Morgan, secured only by the worst tranche of Bear Stearns' mortgage debt. But the bank – J.P. Morgan – was in no financial trouble. Instead, it was effectively offered a subsidy by the Fed at public expense. Rick Santelli of CNBC is exactly right. If this is how the U.S. government is going to operate in a democratic, free-market society, “we might as well put a hammer and sickle on the flag.” 
http://hussmanfunds.com/wmc/wmc080324.htm


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## sassa (24 March 2008)

Have just read the story in the NYTimes that JPMorgan wants to quintuple its offer for the buyout of Bear Stearns.
http://www.nytimes.com/2008/03/24/business/24deal.html?_r=1&hp&oref=slogin
Something smells here.Why is JP upping its bid?
The New York Times story suggests JPM is negotiating with Bear, the Fed is not keen to reopen the deal.Why? 
The stock is trading around $6.Why offer $10?


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