someone explain to me how

Discussion in 'Economics' started by cashmoney69, Apr 3, 2008.

  1. A company like bear sterns can have such an impact on the ENTIRE effing country..i dont understand

    "Federal regulators and top executives at JPMorgan Chase and Bear Stearns told lawmakers Thursday that the 11th-hour deal between the two firms prevented a collapse that could have inflicted serious damage to the American financial system and the broader economy.
  2. Look up Credit Default Swaps. The counterparty risks were so large that a bear bankruptcy at a time when everyone else is on the brink themselves would have dragged others over the cliff. Think of the banking system as a group of moutaineers, they are all tied together.
  3. Because they were all in bed together.

    If one failed, since they were dealing with each other in trillions, it would be like a group of people with one rope tied around their waists hanging on by their fingernails to the side of a cliff.

    One falls - bye-bye all.....

    Whereas individual mortgage holders fall, so what? Not significant enough to care about it.
  4. think of it like this

    u own 1mm dollar home, get insurance for 1.2MM

    bad day at in the kitchem and boom...a fire, u will probally get the money.

    now consider: 1mm dollar insuance times 100 other homeowners. ur counterparty, in this rought example, BSC, gets up w/ 100 claims for 1.2mm each. expect bsc doesint' have the cash, and to make this worse, if bsc can't comeup w/ cash, it may require others to comeup and $$ and now guess what!! they ain't got it either.

    now take the above example and think in billions. :eek: :eek: :eek:

    ALSO google CDO
  5. and this is what jim cramer got so mad about a while back?...he

    had an investment with bear and he wanted the fed to pump

    money in so they wouldnt fail...or something like that?

    and when a firm like Bear needs buying power..who do they turn

    to for more leverage?