Letters to the Editor
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Bear Stearns as Canary in the coal mine?
Bear is only the lastest in a downward spiral. You could point to last year when BNP Paribas froze investment funds and the entire structured products markets started to freeze up as the first canary. Plus look at all the "equity injections" ( aka buying major stakes) of the Sovereign Wealth Funds into blue chip finance companies like Citi and Merrill.
It looks like we are in deep doo and those cranky critics of the Fiat monetary system might actually have the gall to be proved correct.
Link
http://www.forbes.com/2007/08/09/bnp-paribas-subprime-markets-equity-cx_ll_0809markets06.html
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"Bargain Basement" Price for Bear, Stearns?
The freaking firm was worthless! Don't you get it?
JP Morgan Chase, with prodding from the Fed, paid a nominal $2 a share; Bear, Stearns stock was $80 a share a month ago.
Even the Sovereign Investment Funds (SIF) mentioned in an earlier post wouldn't get their fingernails dirty with this one.
And, by the way, these SIF are government entities of the oil producing states such as the House of Saud and the House of Putin that are BUYING, not lending, money to Merrill Lynch, Citigroup and the rest---pleasant thought, huh?
The financial-systemic crisis is the most serious one faced by the Western democracies since the Great Depression. Only this time the economies are logarithmically larger and more complex than those of the 1930's. The Fed and other central banks may not have the resources or the knowledge to rectify the mostly unemerged problems buried deep within the financials of Citigroup et al.
Imagine an announcement by Citi on Tuesday: "We regret to inform our depositors that we are compelled to freeze their deposits effective immediately for a 30-day period during which we will attempt to re-organize our financial structure."
What does the average Joan do if she has a deposit in XYZ Bank? She hightails it over there to get it out.
Jimmy Stewart, where are you now that we need you?
[My Blog: proteanPerspectives ]
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"Bank"... what's in a name?
Bear Stearns, as I understand it, is not a bank in that they are not regulated in the same way "banks" are. Specifically, banks are required to have deposit insurance--Bear Stearns wasn't.
Also, banks have the ability to borrow at the Fed discount window rate, which as we've seen is getting lower all the time. A bank like Citi would therefor have a significant advantage over Bear in the event of a similar meltdown.
One likely regulatory change to come out of this mess is that financial institutions will be required to carry deposit insurance based on the services they provide, not whether they choose to call themselves a bank.
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What's in a Name
While Bear Stearns is not a bank in the same sense as Citibank or Chase, that distinction is blurry at best and non-existent at worst. The Glass-Steagall Act which separated investment banking aka Bear Stearns from Commercial banking i.e. Citibank was repealed in 1999 by Congress and Signed into law by Clinton. Did that repeal contribute to current crisis we're in today is a topic in itself. The recently announced Term Lending Facilities that would've gone into effect in a little over 3 weeks would've let banks such as Bear Stearns borrow at the discount window. Apparently it was too little too late.
As for Bear Stearn's woes, those are woes that can be faced by any bank (investment or otherwise). The run on the bank is not coming from depositors but other creditors, i.e. other banks. Bank and other financial institutions are tied together by a complex web of credits and debits. When it's running smoothly things are great and money flows freely, but when things go bad it resemble a house of cards. Bear's creditors demand immediate payment, therefore Bear can't make them and other payments, those other payments put another bank in precarious situation and so forth.
I had hoped the financial markets would've been more resilient and been able to work itself out a bit more. I guess I was wrong. This exact thing happened on smaller scale when Enron went belly up eroding the financial footing of the entire power marketing industry. That industry which I work survived a difficult 3 years, and Enron was by far the largest player in that industry. The collapse of Enron is more akin to the collapse of Citi, JP Morgan Chase, Goldman, and Merrill combined.
I'm personally a little surprised that Bear was too big too fail. If it was truly was too "big" then clearly there's something seriously wrong with risk management on Wall Street. And if it wasn't then the Fed is setting a dangerous precedent.
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The dominoes are now falling ...
There is no end to it now ... the Fed has no credibility to stop the malaise... They will be out of money themselves shortly ... The toxic paper that has circled the globe has Greenspan Fed written all over it , noone , noone, trusts the Fed anymore.
It is time to fire the privately owned and operated Federak Reserve and institute a public central bank that creates the currency without interest to the tax payers. Why bail out this corrupt private bank at tax payer expense ... again .... Fire the Fed !
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Canaries were never allowed into this coal mine!
Wall Street is nothing more than the rich man's Las Vegas, with the big boy's running the tables by their own rules. They deal and set the rules. Small investors can get lucky, but they don't understand that big money drives the market. Their IRA's and 401K's will be worthless by the time Wall Street is done, which won't be long.
Where else can bad managers get huge bonuses and the federal government makes borrowing easier so that they can lose more. It's as though the casino owner tells the big loser, "No problem. We'll just give you more credit. Sooner or later you'll win it back."
It could happen, but not so long as Americans are told to BUY, BUY, BUY. Keep the economy going by buying. It used to be money to lend came from savings. Today it comes from the printing presses. Few people realize that we are headed directly toward hyperinflation just like Germany experienced before Hitler took control. Those poor people thought that he was the solution.
The solution is to do away with the Fed and force banks to do credit checks and be responsible once again for their loans and not be allowed to bundle them and sell them to others. The U.S. and world economies must suffer now to return to sanity. I wish that it weren't so, but it is. We are on the verge of another depression, one that is overdue.