Bear on the cheap: JP Morgan rescues the market Update: Being “silly”?
posted at 7:23 am on March 17, 2008 by Ed Morrissey
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One of the major Wall Street firms just sold itself for about 6% of its value as of Friday, and analysts somehow see this as a positive sign for the economy? Bear Stearns, which had a market capitalization of over $3.5 billion on Friday, will go for a mere $236 million today to JP Morgan, who can apparently absorb the crash of Bear Stearns’ credit business. The Fed and JP Morgan attempted a bailout last week, but it apparently wasn’t enough:
Bear Stearns Cos. reached an agreement to sell itself to J.P. Morgan Chase & Co., as worries grew that failing to find a buyer for the beleaguered investment bank could cause the crisis of confidence gripping Wall Street to worsen.
The deal calls for J.P. Morgan to pay $2 a share in a stock-swap transaction, with J.P. Morgan Chase exchanging 0.05473 share of its common stock for each Bear Stearns share. Both companies’ boards have approved the transaction, which values Bear Stearns at just $236 million based on the number of shares outstanding as of Feb. 16. At Friday’s close, Bear Stearns’s stock-market value was about $3.54 billion. It finished at $30 a share in 4 p.m. New York Stock Exchange composite trading Friday.
Effective immediately, J.P. Morgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. The deal isn’t subject to any conditions, except shareholder approval. It is expected to close before the end of the second quarter.
Watch the open for today’s market to see whether investors believe this to be an improvement in the overall financial market or a signal that much more instability will follow. Bear Stearns sold for as much as $170 per share as late as January 2007. The rapid descent of one of Wall Street’s most prominent firms will likely give many investors the bends, and we can expect people to start rethinking their money placement even more than before.
Another question will be how much protection JP Morgan got from the liabilities Bear Stearns created for itself. The Fed and the Comptroller of the Currency apparently cheerleaded this bid, and perhaps they did a little more than cheerlead. JP Morgan played a major role in last week’s bailout and now winds up owning the whole company. Did Washington agree to share the exposure even further in order to save some confidence in the banking and credit markets? How much intervention will the Bush administration use?
One last interesting point in this article concerns the speculation that a foreign bank might buy Bear Stearns before this deal was announced. The Wall Street Journal reports that Bear Stearns employees had hoped for such a rescue as it would mean fewer lost jobs. With all of the concern over sovereign wealth funds, did the Fed arrange this specifically to keep an SWF from taking control over one of the major financial firms in the US?
Update: How badly were analysts caught on the collapse of Bear Stearns? Last Tuesday, Jim Cramer was scolding people for “being silly” by thinking about dumping their stock — at $65:
Cramer may want to look for a new line of work.
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Umm,I think each stocks were bought for
a price of 1/2 gallon of milk,$2.00 each!
I think the value of each share was $50.00
to $55.00 before it tanked.
Ouch,thats gotta hurt!
canopfor on March 17, 2008 at 7:34 AM
“With all of the concern over sovereign wealth funds, did the Fed arrange this specifically to keep an SWF from taking control over one of the major financial firms in the US?”
I think that the Feds were absolutely panicked over what would happen to the market today if Bear hadn’t been taken over, and Bear started defaulting on counterparty trades - I just think that a SWF couldn’t move fast enough for the US government’s purposes.
Realist on March 17, 2008 at 7:43 AM
I’ve been waiting for this post to show up.
Question: What’s wrong with this sentence (hint in bold):
Answer: The Federal Reserve is not part of our Federal Government! It is a group of international bankers who have more control over our economy than the President of the United States.
At least this article comes closer to the truth:
Does it bother anyone else that our economy is controlled by foreign interests who “brief” our President on their actions?
Red Pill on March 17, 2008 at 7:45 AM
Two days ago I read that the worthless/difficult to value subprime securities owned by Bear and now on Chase’s book have been “guaranteed” by the US gov’t. That means gov’t bailout using taxpayer money with no risk to Chase. I will try to find that link and post it here.
JiangxiDad on March 17, 2008 at 7:49 AM
Just repeating what I heard yesterday on “Money Talk” on the way home.. Bear Stearns was hit very hard by the sub prime lending, JP Morgan was largely untouched by it.
Based on just that, if I’m interpreting it correctly, I say good bye and fare well to Bear Sterns. I hope it will be seen as a good thing, but who knows. I just want my companies stock to go up again =(
Dash on March 17, 2008 at 7:53 AM
This is not definitive, but it’s revealing. From the NYT:
JiangxiDad on March 17, 2008 at 7:53 AM
My eyes glazed over at “market capitalization”.
Seriously, though. How does one buy up a company on Monday for $236M when that company was valued at $3.5B at the close of trading on Friday? Does Bear Stearns hold that much bad debt?
flipflop on March 17, 2008 at 7:55 AM
“Does Bear Stearns hold that much bad debt?”
Yes. Not only was the debt bad, but the mind-numbing complexity of how the debt was structured made it impossible to value.
Realist on March 17, 2008 at 8:00 AM
what “fund 30 billion of assets” means is gov’t bailout. Which Wall st. firm is next? Lehman Bros. is being whispered about.
http://obsidianwings.blogs.com/obsidian_wings/2008/03/bear-stearns.html
JiangxiDad on March 17, 2008 at 8:02 AM
Uh, it isn’t JP that has rescued the market; it’s you and me. While JPMorgan is paying about $240 million for Bear Stearns, the Fed is ponying up $30 Billion in guarantees in order to get the deal done. This deal is squarely on the taxpayer’s backs.
BigAnge on March 17, 2008 at 8:05 AM
FYI, Lehman is called 27% lower pre-mkt this morning….fast money is heeding the whispers.
BigAnge on March 17, 2008 at 8:07 AM
JP Morgan buying Bear Sterns is better than the shock and uncertainty of the latter limping into bankruptcy. I too would like to see how much the Federal Reserve guaranteed Bear’s bad debt. I also would like to see what kind of golden parachutes Bear’s execs will get. Some are contractual and tough for JP to re-negotiate. But I hope those that put Bear in the situation they’re in don’t get a windfall. Bear’s stockholders already got punished. The same should happen to the managers.
As for Bear’s problems it stemmed from hedge funds and complex financial instruments based on the subprime lending market.
This is a case where I think Ron Paul’s analysis (based on Austrian economics) was pretty spot-on. The Fed reduced interest rates too low creating too much money. That excess had to go somewhere and the housing market was the “lucky” recipient. A bubble formed and the misallocation of resources eventually had to be fixed. We’re seeing the painful healing process.
seanhackbarth on March 17, 2008 at 8:12 AM
Your views intrigue me and I would like to subscribe to your newsletter.
billy on March 17, 2008 at 8:13 AM
BigAnge:
The emphasis on guarantees. We have no idea how much the Fed will eventually pay out to JP Morgan. It’s not a full-blown subsidy. I do want to see more details like any golden parachutes for Bear execs. (I’m worried about moral hazzard.)
This isn’t great news, but it may have been better than Bear limping slowing into bankrupcty (with another firm buying it eventually) and freaking out the stock markets along with it.
seanhackbarth on March 17, 2008 at 8:16 AM
Apparently, it holds enough potentially bad debt to sink Bear Sterns and to significantly burden JPMChase, at least temporarily.
We should feel sorry for anyone who has significant retirement funds in Bear Sterns’ stock.
I recall that in the past Chase was accused of ‘redlining,’ which we now view as a sober caution about credit quality. To what degree does that old accusation bear on the current (relative) circumstances of Bear Sterns and JPMChase?
There is a certain irony in all of this, since in the days before the Fed, it was J. Pierpont who pulled the biggest financiers together to prevent market (and dollar) collapses. The only sure parallel, of course, is that JPMChase is (one of?) the biggest private actors in the market.
njcommuter on March 17, 2008 at 8:17 AM
njcommuter:
I think Bear’s problems stem from their hedge funds and complex financial instruments based on subprime mortgages. They’re not in the direct home lending market like Chase is.
seanhackbarth on March 17, 2008 at 8:21 AM
Not so sure it was interest rates that were too low as they were more or less in line with inflation rates. But political decisions were made to try and get another 10% or so of the pop. to become homeowners. That’s why no strict lending and borrowing rules. That backfired,as it was destined to. Capitalism doesn’t work like that, socialism does.
Btw, because we borrow so much from abroad to fund our deficit and debt, and consume so much from abroad, our ability to manage our own currency is severely curtailed from what was the case years ago. We just don’t have the same kind of ability to lower interest rates in order to prop up the domestic economy that we used to. The effect, of course, is seen in the dramatic decline of the dollar abroad, the lessening inclination of foreigners to hold dollars, and the rising costs to Americans of almost everything.
I think you’d have to go back to the 1800’s to find a time like now when it was the safer and prudent thing to do to have a substantial portion of your wealth invested in non-US dollar denominated assets, and commodities, and gold, etc. Every day the gov’t tries to fix this mtg mess here at home, they force people here and abroad out of the dollar. Who the hell wants to hold US dollars at a negative real return?
JiangxiDad on March 17, 2008 at 8:22 AM
Can’t agree with you here. Why would anyone, particularly someone in the business, put too many of their retirement eggs in one basket? Enron??
Socialism isn’t capitalism. You can’t have both
njcommuter on March 17, 2008 at 8:17 AM
JiangxiDad on March 17, 2008 at 8:26 AM
Based on the way the Asian Stock Market went tumbling into the toilet today, you can kind of tell that this loopy purchase of Bears Sterns by JP Morgan/Chase isn’t exactly thrilling investors overseas.
pilamaye on March 17, 2008 at 8:42 AM
Hopefully that emailer didn’t take his advice. If they did, well, I don’t think they’ll be watching his show anymore.
Roebuck on March 17, 2008 at 8:44 AM
I don’t think it’s the bailout they don’t like, as they tend to be more statist economies than we are. It’s the lack of info. about the possible depth of the problem elsewhere. Transparency is the issue. You can be sure the gov’t knows, but they ain’t telling. Haven’t seen any of the media asking any particularly demanding questions. Also, Asian banks themselves hold these CDO’s. Many, if not most big int’l banks do.
JiangxiDad on March 17, 2008 at 8:46 AM
The huge problem is:
Tha means that we taxpayers are the ones who get to pay the price for the stupidity of Bear Stearns’ management, not the management itself nor the investors.
We used to have something called capitalism in this country; I don’t know what happened to it when failure for fiscal irresponsibility is not allowed to come with a price.
michaelo on March 17, 2008 at 8:51 AM
After news of the bailout hit the wires Bear went up to like 67 in pre-market then tanked.
also, mysteriously around 25K mar 25 puts were bought right before this. somebody knew something.
thebrokenchair on March 17, 2008 at 8:54 AM
OK, you tell me which branch of our federal government (Executive, Legislative, Judicial) the “Federal Reserve” falls under? What Constitutional power does the “Federal Reserve” have?
Red Pill on March 17, 2008 at 8:58 AM
My sense is that if there was too much money we’d be seeing a lot of inflation, and it hasn’t happened. I don’t think the money supply is the core issue here, but rather bad decision making in the financial services market.
JohnTant on March 17, 2008 at 8:59 AM
Well, this is the case of a bank run. I happen to think the Fed did exactly what needed to be done.
While I take your point, I have reluctantly come to the conclusion that there are a few things in the world that benefit from a less-than-capitalist approach. To me, this is one of them. Letting bank runs destroy institutions have severe implications that the Invisible Hand isn’t very efficient in addressing. Unfortunately.
I’d prefer that this action be coupled with strengthening the dollar, but then we’re getting into the realm of the political.
JohnTant on March 17, 2008 at 9:10 AM
Rising commodities may be an indication of too much money going around. When the fed reduced interest rates that extra currency had to go somewhere. Firms found that lending cheaply to homebuyers and speculators was better than having it sit in a bank account earning 1-2%.
seanhackbarth on March 17, 2008 at 9:14 AM
Chase is going to come out of all of this smelling like a rose. Jamie Dimon is about to go down as one of the top 5 bankers in the history of the industry after the dust settles. He got Bear Stearns in a fire sale while being protected from major losses by the government. Chase is going to pick off at least one, possibly two or three super regional banks later this year, again at very favorable valuations. The biggest shame is that the management of these banks who have “captained their ships” into the rocks are going to walk away not only “unpunished” by the market, but more wealthy than before. Lower level employees by the thousands are going to be on pins and needles, hoping to keep their jobs in the midst of a toughening economic environment.
Sugar Land on March 17, 2008 at 9:16 AM
Don’t think so. I believe it’s an indication that US int. rates are too low. There’s an awfully large part of commodities prices that has nothing to do with supply/demand, but rather the market putting a real value on a currency.
If the fed lowers rates by 1/4 pt and the dollar price of gold goes up, what really happened? Did the value of an ounce of gold rise, or did the value of the dollar fall?
JiangxiDad on March 17, 2008 at 9:18 AM
So Chase somehow didn’t get caught up in the congressionally mandated mortgage bonanza? I wonder how they avoided that?
Or were congressional directives to be more “fair” with granting mortgages to high-risk borrowers only suggestions?
funky chicken on March 17, 2008 at 9:24 AM
If you’re a young couple starting out and looking for a home, things might look great. There are winners and losers in capitalism. Chase bought Bear, instead of vice-versa, because it apparently had much less exposure to these sub prime debt instruments. That decision had consequences. When Chase buys WaMu for example, it’s because WaMu has been poorly run. Maybe Dimon deserves some legit. credit. As for the low level employees, losing a job in America because an industry disappears to overseas comp., or because of poor management, or changing tastes/demographics etc. is pretty much the norm. Who hasn’t?
JiangxiDad on March 17, 2008 at 9:24 AM
The biggest shame is that the management of these banks who have “captained their ships” into the rocks are going to walk away not only “unpunished” by the market, but more wealthy than before. Lower level employees by the thousands are going to be on pins and needles, hoping to keep their jobs in the midst of a toughening economic environment.
Sugar Land on March 17, 2008 at 9:16 AM
funky chicken on March 17, 2008 at 9:25 AM
Oh no, another Bush administration “corporate bailout” for the Dems to throw in people’s faces.
We should instead bail out minority 100% financing mortgage holders who offered no proof of income and had no clue what “adjustable rate” meant.
Neo on March 17, 2008 at 9:28 AM
Cramer tip one: Hold Bear Stearns.
Check.
Now, what about buggy whips? I hear their value is dropping. Buy, hold, or sell?
Yikes. Missed it by that much. /Maxwell_Smart
AnonymousDrivel on March 17, 2008 at 9:29 AM
The financial markets are still strong and this will pass. However, look for the Democrats and the MSM to create a scenario of gloom and doom in an attempt to instill fear and hopelessness in the public. After all, it’s a proven tactic . . . Hitler used it quite successfully.
rplat on March 17, 2008 at 9:30 AM
The financial markets never looked shakier. The taxpayers have come to the rescue. Everyone should take a bow. It’s you who are strong.
JiangxiDad on March 17, 2008 at 9:34 AM
From Drudge today:
Hyperbole? Some. But not all.
JiangxiDad on March 17, 2008 at 9:37 AM
JiangxiDad, the financial markets are still strong in that buying and selling are still taking place. The markets are still functioning. The markets will weaken if they’re surprised by another Bear Sterns-like scenario. Then many will wonder how many bad firms are out there.
As for inflation and too much money I point you to Gerald O’Driscoll’s recent article in the WSJ.
seanhackbarth on March 17, 2008 at 9:41 AM
But as we all know, Cramer is an idiot.
tlynch001 on March 17, 2008 at 9:45 AM
If Bear didn’t open today it would be chaos. Bear is one of the seven NYSE specialists that set prices on stocks. If 1/7th of the NYSE stock market couldn’t be bought or sold it would be chaos.
You could see the signs last week that Bear was in trouble. And even a casual observer of US capital markets would know what strategic role Bear Stearns plays in it. Therefore, making some timely bets on options isn’t really an indicator that “someone knew”. They just made an educated guess and were right.
gabriel sutherland on March 17, 2008 at 9:49 AM
Ed,
I’m pretty sure Cramer was talking about getting money out of Bear Stearns’ bank accounts. I think the question was should I take my cash out of my bear Stearns accounts, due to their liquidity problems? Cramer said not to be silly. At worst, B.S. would just get taken over by another big player and your money would be liquid by the new buyer.
Yishai on March 17, 2008 at 9:54 AM
I agree with both you and the article about too much money now. I didn’t agree that that has been a persistent problem during the Bush administration. I think our current mess in largely political, and that our markets and ability to correct the errors are jeopardized because of political constraints that have little part in a capitalist society.
When the Asian financial crisis hit several years back, many of those economies took very hard lumps, with asset values and living standards and stocks decimated. But they also came roaring back relatively quickly. We could do the same, but then again we’re not as economically free as some of them– I’m thinking HOng Kong, Singapore.
JiangxiDad on March 17, 2008 at 9:55 AM
Cap’n Ed,
JP Morgan acted as the Fed Chairman before this country had a central bank. Not surprising his legacy could rescue the economy.
SeniorD on March 17, 2008 at 9:57 AM
Rapid descent has nothing to do with getting the bends…getting bent is caused by ascending (rapidly or slowly) without the required decompression stops to outgas nitrogen from the bloodstream.
James on March 17, 2008 at 10:05 AM
JiangxiDad, I’d have to do some digging at recent economic history to compare interest rate changes with the housing boom.
I see this situation much like the tech boom. Interest rates were low and firms had to put that excess money somewhere. Then it was dot coms. This time it was housing. Government encouragement of home ownership probably played a role. How big? I’m not certain.
We’re at a point now where policy makers have to stabilize things. That will allow smarter people to have the time to evaluate convoluted mortgage-backed securities that sunk Bear. They should be able to find some value and price it appropriately. But right now many are concerned about staying afloat than eying profitable opportunities.
seanhackbarth on March 17, 2008 at 10:05 AM
One thing I’m sure of the stimulus package quickly pushed through Congress and signed by President Bush won’t do much to fix the financial markets. A government check doesn’t change economic incentives to boost growth, and it doesn’t do anything to help firms unwind bad financial bets.
seanhackbarth on March 17, 2008 at 10:07 AM
Agree. Good luck with your investments. Trying to minimize the damage has been difficult, even when you thought you were insulated.
JiangxiDad on March 17, 2008 at 10:07 AM
the financial markets are still strong and this will pass
rplat on March 17, 2008 at 9:30 AM
Thanks I need a good laugh today. Only a very few people understand the cliff we are on. Do you think the dems and rep came together and passed a 150billion tax rebate in record time on a whim? Just the fact that the dems and rep came together quickly with no fighting and passed the bill and the president signed again with no arguments should have been a gaint wakeup call for the nation. there are very dangerous times ahead. Not since 1929 has this country been in this bind. If the government and Fed had not “bailedout” bear streans and do not contiue to bailiout the banks and wall street. bread lines and soup kitchens are a good possibility. The difference between 1929 and 2008 is that in 1929 the fed government was not on the hook for ALL depsoits at the banks. If the nations banks go unders TRILLIONS in FDIC insured deposits are on the governments bill. Therefore spending 30billion to save you a bill of trillions is a very good move. The gov i.e the taxpayer is going to pay one way or another. We can pay now or we can pay 10 times/100 times more later. The banks of this country are insolvent. They are not “strong” they are broke. If the majority of AMerica understood this we would have a run on all banks and the final nail in the coffin would be closed. We are on the cliff. Hopefully are leaders do the right thing ignore public anger over “bailouts” and proceed to “bailout” everyone they can.
unseen on March 17, 2008 at 10:10 AM
Drudge is a douchebag. Who cares what he puts in screaming bold type on his little vanity page?
funky chicken on March 17, 2008 at 10:12 AM
JiangxiDad, I wish I had the extra cash and financial acumen to take a few risks. I always seem to be in semi-weak financial straights when potential buying opportunities come my way.
seanhackbarth on March 17, 2008 at 10:22 AM
Feel free to educate yourself here.
From the website:
DCA on March 17, 2008 at 10:46 AM
The question is can the Fed keep these banks afloat till after the election.
Ed is missing the point. Last week BS was forced to close two of their funds that were leveraged 32 : 1. The current trend was to issue very short-term low-interest notes to pay for their higher interest debt that they had purchased, allowing them too subsequently book the difference in the interest rates as profit. When the market for these short-term notes dried up they lost their ability to redeem the ones that were coming due, creating a devastating margin call. This was the game that most of the investment banks were using to build their bottom lines over the last five years.
The next headache happens when the Fed is forced to react to inflation and raise interest rates to the point where these guys can no longer cover the cost of the longer term debt, which they are holding, with lower-rate short term money. Each time the Fed cuts rates, the game keeps going. It has only been a little over two years when the Fed started raising rates and the “biggies” started having troubles, this will happen again and again as long as the Fed feeds the cycle and prevents the unwinding of these debt instruments.
fredaa on March 17, 2008 at 10:54 AM
The battle for control of our banking system has historically been a fierce battle in this country. Many people don’t know the history of it. Our country is over 231 years old, but the Federal Reserve is less than 100 years old.
The only problem is, that act is unconstitutional. When the Legislative and Executive branches create laws that directly contradict the Constitution, it is the responsibility of the Supreme Court to declare it so, but first a case must be brought to it.
The way to make it constitutional is with an amendment to the Constitution.
The bottom line is still what I said earlier:
Does it bother anyone else that our economy is controlled by foreign interests who “brief” our President on their actions?
With the dollar tanking and the price of gold soaring, don’t you wish this country was still on the Gold Standard?
I’m sure the Ron Paul supporters are with me on this one.
Red Pill on March 17, 2008 at 10:59 AM
It actually bothers me that there are people still willing to gulp Lew Rockwell’s kool-aid.
JohnTant on March 17, 2008 at 11:01 AM
Do your homework. Read the Federal Reserve Act and read the Constitution of the United States of America. Compare and contrast, then come back and explain to me how the Federal Reserve Act is or is not constitutional.
When an act of Congress contradicts the Constitution, the Constitution wins.
Most of us accept the Federal Reserve because it’s older than we are. We’ve never known anything different. You are living in a pod in The Matrix, and you don’t even know it…
Red Pill on March 17, 2008 at 11:06 AM
Answer: Pawn your whips to the Fed as collateral for money you can use to invest in horseless carriages.
shuzilla on March 17, 2008 at 11:10 AM
Gold bugs are buying gold for no other reason than fear. There is neither an appreciable increase in the demand for gold products nor an appreciable decrerase in gold production. Outside of these fundamentals, the price of gold will be set by a combination of a weakening dollar and investor speculation. Speculation will build a new bubble. When that bubble breaks like housing just did, ask me again whether I want the dollar on the gold standard.
shuzilla on March 17, 2008 at 11:15 AM
Who specifically are these foreign interests that brief POTUS?
I don’t see anyone with known foreign interests sitting on the Board of Governors or the Federal Open Market Committee (FOMC). Further details here.
From what I can tell, those are the people who are doing the POTUS briefing.
So I guess I just don’t understand where you get your information supporting your claim that foreign interests are
briefing our President. Any link, book, or other data point you can reference would be appreciated. I checked the link you provided and must have missed the part that supports your claim.
DCA on March 17, 2008 at 11:20 AM
America is going broke and the rest of the world knows it.
Bernanke has been playing the equivalent of Whac-A-Mole.
- Former Fed Vice Chairman Alan Blinder
Rising inflation and falling dollar.
Got Gold?
MB4 on March 17, 2008 at 11:20 AM
Key word emphasized.
Red Pill on March 17, 2008 at 11:22 AM
Well that and falling dollar, rising inflation, rising oil and much of Wall Street being revealed as a highly leveraged House of Cards.
MB4 on March 17, 2008 at 11:23 AM
Bingo.
MB4 on March 17, 2008 at 11:25 AM
Trilateral Commission
Red Pill on March 17, 2008 at 11:26 AM
Well the one “saving grace” there is that most
AmericansDebtmericans don’t have much, if any, money in the banks. Credit Card debt, mortgage debt, car payment debt, well now, that is another matter.MB4 on March 17, 2008 at 11:31 AM
Thanks, now I see where you are coming from even though I may not agree, your argument makes more sense.
DCA on March 17, 2008 at 11:35 AM
I’d also like to know exactly who John McCain has been meeting with on his most recent trip. While it’s nice he’s visiting the troops in Iraq, it’s a cover for something else. He took with him his top VP choices to meet with people we haven’t been told about. Dick Cheney went, too. I’m not saying they didn’t have “real work” to do in Iraq. I am saying that meetings you haven’t been told about also took place, and I’d like to know who was invited to those meetings. We need one of Drudge’s sources to tell us.
Red Pill on March 17, 2008 at 11:36 AM
= Fear.
As those issues subside, and gold positions are re-evaluated, the sell-off will deflate the bubble. Many investors understand that they may lose money in the long run with gold, but believe they still need to have some money in it for insurance against financial armaggedon. But as with any bubble, there’s no denying gold is gaining in value in the short term, but that is meaningless unless you time your sale at or near it’s peak.
Housing prices will take years to bottom, having started down two years ago in many places. Gold can drop in weeks or days back to $800 or less. Time it well.
shuzilla on March 17, 2008 at 11:39 AM
Red Pill on March 17, 2008 at 11:42 AM
I think home prices will fall enough for us to produce about 20 million people with negative equity. That’s almost a quarter of U.S. homes. We’re probably heading for $6 trillion or $7 trillion in capital losses in housing.
My preferred metric is the ratio of home prices to rental rates. By that measure, average home prices nationally got way too high. We’ll probably basically retrace all that. So that’s about a 25% decline in overall home prices. Only a fraction of that’s happened so far. Of course, it varies a lot. In places like Houston or Atlanta, where home prices have not risen much compared with underlying rents, the decline will be relatively small. In places like Miami or Los Angeles, you could be looking at 40% or 50% declines.
- Paul Krugman
MB4 on March 17, 2008 at 11:44 AM
Where does the Illuminati fit in…..?
JohnTant on March 17, 2008 at 11:54 AM
Sub-prime collapse ‘beyond the US Federal Reserve’
Red Pill on March 17, 2008 at 12:02 PM
I assume you are mocking. Correct?
Red Pill on March 17, 2008 at 12:03 PM
Now that I think about it, those aliens who crash landed in Roswell probably had something to do with it as well. I bet we were forced to allow sinister financiers from the planet Crosuxus underwrite our war debt. FDR was actually a Crosuxian and forced us into war so his cronies would get leverage over us and gain a foothold in our quadrant of the galaxy.
Speaking of leverage, I’m still fuzzy on the involvement of the Psychlos, which is why I’ve submitted FOIA requests of every governmental agency in existence. I’ll get to the bottom of this!
JohnTant on March 17, 2008 at 12:15 PM
Good points. In the short term the question is how much of that loss of wealth and consumer spending have the equity markets already discounted for? Longer term, what will be the full impact of that level of decline? Certainly the speculators will be clobbered, moreso in some geographic areas than others. Municipalities in the worst areas will have budget shortfalls. Most people who can afford their mortgage payments will be able to ride the market out for another 5 years. Boomers who were looking to retire based on the forever escalating value of their home may have to postpone that retirement.
dedalus on March 17, 2008 at 12:24 PM
I don’t know how much better our macroeconomic monetary policy would be if our Congress was still determining its direction. Would it be any better than the Federal Reserve System? Would it be worse?
I’m a skeptic of the Fed and the specialist firms like Bear Stearns. As private corporations, they really only have to disclose what the law requires them to disclose. As private corporations, they are infinitely bestowed with the option to protect their secrets. Does this mean they can protect what foreign interests may control them?
gabriel sutherland on March 17, 2008 at 12:53 PM
Anyone who actually makes investment decisions based on what an annoying, manic gnome says on TV deserves to lose his shirt.
Travis Bickle on March 17, 2008 at 1:19 PM
Apart from the… intriguing… theories espoused in the comments, one interesting tidbit I found in an article about this sale (wsj?) was that the price of Bear Stearns (236 million) is less than the value of its building (1 billion). The reason cited was the expense involved in clearing the balance sheet of bad debts, perhaps a few billion. If you factor in the assumption of bad debt, the price jumps from 236 million to maybe 5-8 billion.
Of course, the fed is backing up the process in some (expensive) ways as well.
cs89 on March 17, 2008 at 1:25 PM
The market likes the deal that JPM got. They’ve added about $10B in market cap since Friday. So some of the BSC market cap disappeared and some went into the pockets of Jamie Dimon’s shareholders.
dedalus on March 17, 2008 at 3:09 PM
JP Morgan, LOL! There is no JP Morgan. It was acquired by long time enemy and competitor Chase Manhattan in who was then later acquired by Bank One, who then acquires Bear. It’s call from Chemical Bank.
Egfrow on March 17, 2008 at 3:40 PM
It’s really sad how this story only lived for less than 24 hours on the “blog” side of HotAir.com before a host of other stories made it scroll of the main page and into the archives…
This is a monumentally important story that affects the life of every American. It would have been better for us if Bear Sterns had gone bankrupt! That would have meant that their creditors would have lost their money. Instead, the Federal Reserve Board, which operates independently of our “sovereign” nation’s executive branch, has decided that the creditors should get their money and the American taxpayers should be responsible for paying the bill…up to $30 billion. This decision was not made by the President of the United States. It was made by the Chairman of the Federal Reserve, who then had the Treasury Secretary “brief” the President. President Bush was deceived into thinking that it was a good thing that the Federal Reserve “rescued” Bear Sterns from bankruptcy and he had his press secretary say how much he appreciates them doing so.
It would be comical if it weren’t for the fact that we just got hit with a $30 billion debt to pay, so that the international bankers behind the Federal Reserve don’t lose their money.
Unbelievable…
And it got less than 24 hours of news attention.
Wake up, Neo…
Red Pill on March 18, 2008 at 9:13 AM
This doesn’t sound funny to me. Why was a fraudulent name used? Who benefits from calling it “JP Morgan” instead of what it really is?
I don’t know the answers to those questions, but my guess is that to the average Joe “JP Morgan” sounds official, whereas the average Joe would say, “Chemical, what’s Chemical?” I feel confident that the Federal Reserve didn’t want people asking that question, or any other question about the $30 Billion bill they just stuck us with.
Follow the money. Find out the truth about what just happened. Who wins? Who loses? Why is it set up that way? Why is the President of the United States “briefed” on this instead of being the decision-maker?
Those who control the money control the real power. Compare the power of the President of the United States to the power of the Chairman of the Federal Reserve System. How much power does the President have over the economy?
How much power does the Chairman of the Federal Reserve System have over the economy?
When the President speaks, do the financial markets respond?
When the Chairman of the Federal Reserve System speaks, do the financial markets respond?
Who really has the power, and why?
The Federal Reserve Act is unconstitutional. It unconstitutionally hands American sovereignty over to another organization.
Wake up, Neo…
Red Pill on March 18, 2008 at 9:28 AM
$3.5B market cap is nothing compared to $30B in debt. They should have gone bankrupt. Instead, we are left footing the bill.
Wake up, Neo…
Red Pill on March 18, 2008 at 9:30 AM
Now, smack dab in the middle of “March Madness” while people are distracted, the Federal Reserve is trying to get even more power:
Treasury Dept. Plan Would Give Fed Wide New Power
Red Pill on March 29, 2008 at 12:02 PM