I agree with above and with Cutten's take on it. Ponder this: if BSC value can go from billions-plus to negative in months -- its bldg in NYC is worth more than the price JPM is paying -- how much worse is this funny-money infection more generally? Consider that hedge funds are freezing withdrawals for extended periods because they dare not mark the garbage in their books, and on a anecdotal basis, I know property owners who have not paid a penny in months on mortgage loans that banks dare not foreclose on. In short, many or most are holding their breath hoping that these gargantuan losses somehow won't be realized.
What does the futures going down have anything to do with the Fed bailout costing dollar holders? Futures down or not, the Fed providing a free put to JP Morgan so they can buy Bear is a cost to dollar holders in the form of dollar devaluation. In fact, the dollar getting slaughtered against the yen tonight is proof that the market has spoken, that dollars are worth less because of Fed action. Puts are not free, especially when they involve backstopping a leveraged time bomb like Bear Stearns. JP Morgan doesn't buy Bear without the Fed guaranteeing that they will be covered in case there are any losses from the deal. The $2 price tag basically puts negative worth on Bear's business, and only gives value to its real estate in prime Manhattan.
You could get a break from the Japs. BOJ is our currency thugs if needed. They could well intervene tonight if this gets worse. Fierce squeeze in dollar when they did it last time in 04 I think it was.
The thing is, it's true. BSC and similar actually *are* too important to be allowed to collapse outright. The Fed was right to bail them out. That's an unusual privilege in our market economy.. to be spared market forces that would otherwise blow up in your face. The problem is that that privilige doesn't carry any additional responsibility with it. If they're taking public money, they need to be subject to public scrutiny. They need to throw open their books and start digging around. The FBI and the SEC should be occupying their offices and the homes of the top managers at this moment. With an institution privileged to be spared market forces, they need to institute severe penalties for malfeasance on an individual level. At the very least, all the execs need to be paying back their bonuses. Probably some of them should go to jail, and I'm not talking about a country club jail with tennis courts, but hard time in a real prison. Only then will they stop pulling this crap and expecting the taxpayers to bail them out.
IMO motive in supporting BSC is that any OTC contract with BSC becomes void if it fails and so what was hedged suddenly is not hedged so the banks/funds who had BSC as a counterparty have to write down more assets - which with the precarious equity levels would probably push a few more to the point where no amount of Level 3 games could hide the stark reality of insolvency. Strictly speaking if you enter into an OTC contract the financial standing of your counterparty is your responsibility, not the responsibility of the American people. Institution risk is the FIRST thing some bansks look at, not the quote. No bank can be allowed to declare inslvency.
the government helped cause this mess in the first place. a 25% correction might have been for the best. either way, this is far from over and BSC will not be the only negative market event to slap around global markets.
detective, what I have to notice I said swing - that means market went from +2% to -3% which means -5% so try to be at least attentive when you answer and don't try to brainwash everybody with your wild free capitalism ideas
The Fed is funding the deal - if it goes sour then they are on the hook for the loss. Their ability to print money means that effectively they can tap the public for any losses they suffer. So ultimately the public does back the Fed. Saying "taxpayers" was sloppy of me - read "any holder of US dollars" instead. BSC stock is trading >$0, therefore stockholders are being bailed out. Then there's the question of why homebuilders and mortgage companies are allowed to fail, whilst investment banks are not.
Trudat. The Fed is effectively taxing all $USD holders/suckers. Watch for the Fed 28 day AAA bailout to fall apart and be swept under the table.
I mostly agree. You cannot have a put funded by dollar holders (mostly US citizens) when things go wrong; and then when things go right, you get all the upside. The profits earned by Bear Stearns shareholders, executives, employees and directors were not true market profits. They were subsidized by the Fed and thus the dollar-holding public. Therefore the rewards should not accrue to the former alone whilst the disaster risks are borne mainly by the latter. If it is viewed as necessary to subsidize financial institutions with a disaster put, then their profits and the salaries of the executives must be charged a fair market rate for the Fed/government put that they are granted each year, and their risk taking should be regulated and curbed. Better still, abolish the Fed and the fractional reserve system entirely.