The cash-strapped Wall Street investment bank Bear Stearns was rescued from the brink of collapse tonight through a takeover by rival JP Morgan Chase for the rock-bottom price of $236m.
After a weekend of frenetic negotiations, Bear Stearns' board approved a stock-for-stock buyout at a valuation of just $2 per share. In a sign of the desperation of Bear Stearns' plight, the deal is at a 94% discount to the bank's closing share price of $30 on Friday night.
"The past week has been an incredibly difficult time for Bear Stearns," said the 85-year-old firm's chief executive Alan Schwartz.
"This transaction represents the best outcome for all of our constituencies based upon the current circumstances."
Before the credit crunch set in, Bear Stearns had a market capitalisation of more than $140bn. But the firm was hit by an evaporation in confidence culminating in a bank run by clients last week.
Without a buyout, Bear Stearns would almost certainly have been forced to declare itself bankrupt. Senior management rushed to negotiate a takeover before the start of the week's trading on Asian markets to avert mass withdrawals of funds by clients in Japan, China and elsewhere.
Asian nations hold massive quantities of dollars. We'll update this post when news on today's Asian market sentiment becomes clear.
Dow Jones Market Watch also reports that the Fed has cut the funds rate to 3%, to inject more cheap money into the failing economy.
Gold is now trading at $1027 on the international spot market as we enter this data, BTW... up twenty bucks an ounce from only three hours ago. Still a bargain, in our view, at least in the long run.
Fascinating action in the world financial markets news today, in the wake of Bear Stearn's weekend meltdown. In the wake of the fear in Asian Markets earlier today, US markets responded with a yawn by today' US market closings.
By way of background, BTW, The Fed apparently put a rubber hose to the Bear Sterns Board of Directors over the weekend and convinced them that they should sell their company for pennies on the dollar. As we'll see, we'll wonder whether the BSC stockholders will go along with the FED plan to wipe out all stockholder equity.:
Here's the wrap-up for today's market trading activity:
Asian stocks took a big hit early today, while today's trading on the NYSE reveals that most NYSE traders yawned, gulped another few Prozac tablets, and accepted the fact that nanny government will avoid market forces, and enact "Happy Times." Yes. The Dow finally finishes up a 20 points.
Gold, which went as high as $1030 last night, has now settled down to 104.30 at this very moment.
People who are concerned about the current condition of the US economy should chime in here right now!
We predict that when the economy finally tanks, as it inevitably will, the pain will be much worse, than if the government ( and the Fed) had stood back and allowed out economy to fall into the situation now... rather than later.
With yesterday's announcement of the most massive federal bailout of all time, it's now official: Fannie Mae and Freddie Mac, the two largest mortgage lenders on Earth, are bankrupt.
Some Washington bigwigs and bureaucrats will inevitably try to spin it. They'll avoid the "b" word with vengeance. They'll push the "c" word (conservatorship) with passion. And in the newspeak of 21st century bailouts, they'll tell you "it all depends on what the definition of solvency is."
The truth: Without their accounting smoke and mirrors, Fannie and Freddie have no capital. The government is seizing control of their operations. Their chief executives are getting fired. Common shareholders will be virtually wiped out. Preferred shareholders will get pennies. If that's not wholesale bankruptcy, what is?
Some Wall Street pundits and pros will also try to twist the facts to their own liking. They'll treat the bailout like long-awaited manna from heaven. They'll declare that the "credit crisis is now behind us." They may even jump in to buy select financial stocks. And then they'll try to persuade you to do the same.
The reality: This was the same pitch we heard in August of last year when the world's central banks made a coordinated attempt to rescue credit markets with massive injections of fresh cash. It was also the same pitch we heard in March when the Fed bailed out Bear Stearns. But each time, the crisis got progressively worse. Each time, investors lost fortunes.
Together, both Washington and Wall Street are trying to persuade you that, "no matter what, the government will save us from financial disaster." But the real lessons already learned from these events are another matter entirely...
Is a new American lumpencitizen revolution in the works?
Inasmuch that it's another tediously slow Emerald City news day and all, we'll provide our readers with an opportunity to leapfrog from a Standard-Examiner lead editorial which appeared in yesterday's edition. The Std-Ex Editorial Board gets off to a danged good start in the lead paragraphs when they try to characterise the mood in America, even as the less economically advantaged are shuffled off to "the Governator's" 21st century version of Steinbeck's great depression-era labor camps, while the fat cat bankers in America rake in billions in bonuses:
"Who do we shoot?" -- "Muley," in the film version of John Steinbeck's "The Grapes of Wrath." Pitchfork politics. It sort of has a catchy ring to it, particularly if you're angry at the political and financial elite in our country. And a lot of us are angry right now. That anger seems to be very bipartisan in nature. After all, not all of those AIG execs who thought they could grab a bonus on the sly can be Republicans. In fact, the two senators who received the most campaign money from AIG are the currently notorious Sen. Chris Dodd, D-Conn., and, ahem, President Obama, when he was the Democratic senator from Illinois. The recession, or embryonic depression, or whatever you call it, has a lot of scapegoats. Wall Street, Congress, President Bush, Fannie Mae, Freddie Mac, AIG, Bear Stearns, Republicans, Democrats ... the list is endless. We should be outraged that the political and financial classes we trust to lead economic policy allowed blind faith in past financial history to supersede caution against an expanding, defenseless. mortgage-based credit bubble. To put it straight, we've got a lot of fixing to do. Optimism, faith and hope -- all admittedly wavering at the moment -- will be necessary to get that fixing accomplished.
And from that point, the Editorial Board goes completely off-track, we believe, with this stanza, which finishes the above paragraph:
We can't get sidetracked with emotional, pitchfork anger. We're seeing too much of that from precisely those who should have cool heads.
From there, the editorial board goes even more haywire through the rest of the editorial, complaining about incivility, and of course the threats to the personal safety of those bastards who were set to receive the outrageous multi-million dollar bonuses, despite their appallingly bad business judgment. Not that we condone that, BTW.
Nevertheless, we're going to point out what Thomas Jefferson wrote about this, in of all places, the U.S. Declaration of Independence:
When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation. We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness, [Emphasis added}.
Get a grip, Standard-Examiner Editorial Board. Here's a great video we googled up a couple of days ago which we believe better expresses the lumpencitizens' anger and angst, than any of the corporo-fascist crap you can post in your editorials. It's not about ivory tower lefty-righty ideology. It's about the more basic and fundamental ideology of survival. We believe this excellent video may very well capture the sentiment of our times in America.
"We can't make it here anymore":
We don't know that this is the current mood of the lumpen proletariat across the country, but we have a strong sense that it may well be.
And if the politically-jaded Std-Ex Editorial Board chooses invoke a quote from that dastardly neoCON Robert Shapiro to the effect that current American sentiment is "a spasmodic outpouring of ideologically incoherent rage," we'll just add that the Standard and their neoCON friends from Sanduskey obviously have no concept of the "dark side" of American Democracy, in a land where agile and aggressive Americans still believe that their government should be of, by and for"the people."
Remember people, that what the Std-Ex derisively calls "pitchfork anger" is the exact same motivation which propelled American colonialists to throw over King George.
An English bank has been nationalized. Trust funds are being frozen and are going broke.
After bouncing up toward the 1K benchmark for the past week, Gold finally closes on the New York Mercantile Exchange above $1,000/oz for the first time ever:
The economic roller coaster begins its downward descent and picks up speed.
Welcome to the brave new world of right wing socialism, folks
We just watched Treasury Secretary Henry Paulson's morning press conference on financial news channel CNBC. Yesiree, the scuttlebutt we've been hearing the past two days is true. The Treasury Department and FED will be burning the midnight oil over the weekend, working on a scheme to clean up the bankrupt banking industry's balance sheets, by forming a new government entity to buy up all the bad paper held in the so-called private financial sector. Rather than having these bad loans "clogging" up the works (Paulson's own words), the geniuses at Treasury and the FED will form a giant new sucker corporation to take this embarrassing toxic debt off the financial sector's hands once and for all. And who will be the owner of this new sucker entity, and the mountain of debt which will be dumped in its lap? The U.S. taxpayer, that's who.
We found several articles this morning which express the current sentiment of the more sensible elements of the financial and internet press on the topic of the ongoing financial meltown; and we'll reel them off with short text excepts below:
The world's financial markets remain at the eye of a perfect economic storm. The architects of this almighty financial sell-off? The banks themselves. The markets are in complete disorder, yet they remain unable to solve the situation themselves, and so go looking for a public sector bailout. Risk management, the buzz word of the financial markets since the collapse of Barings Bank in 1995, is clearly an oxymoron.
With the government now having spent over $800 billion in less than a year shoring up tottering financial companies that had become little more than casinos (and rigged ones at that), America is looking increasingly like China, a country where the state has been gradually getting out of the business of directly owning companies.
In fact, it really does look as if the foundations of US capitalism have shattered. Since 1864, American banking has been split into commercial banks and investment banks. But now that's changing. Bear Stearns, Lehman Brothers, Merrill Lynch -- overnight, some of the biggest names on Wall Street have disappeared into thin air. Goldman Sachs and Morgan Stanley are the only giants left standing. Despite tolerable quarterly results, even they have been hurt by mysterious slumps in prices and -- at least in Morgan Stanley's case -- have prepared themselves for the end. "Nothing will be like it was before," said James Allroy, a broker who was brooding over his chai latte at a Starbucks on Wall Street. "The world as we know it is going down." The mere rumor of a new RTC sent the stock market soaring. Why not? The US Government is telling the investors that they can keep the profits from any trades, but any further losses will get transferred to the taxpayers. It's like being in Las Vegas at the Blackjack table, and every time you get 21 or beat the dealer, you get to keep the winnings, but if you bust, or the dealer wins, they take the money from the bus boy cleaning the table behind you. Such a deal! What's not to like? Unless you are that bus boy, of course.
We've long suspected that the notion that the U.S. was a free market economy was one bad joke. By Monday, we'll have the proof. Welcome to the brave new world of right wing socialism, folks. The American corporo-fascists are now firmly in control.
Man who helped develop the mortgage backed security mess has been put in charge of same
How sweet it is! Next time you visit the henhouse and notice that their are chicken feathers scattered all over the grounds, and most of the chickens are missing, don't even believe you're lying eyes when you see the fox, lying on his back, with a swollen stomach, while he's gnawing on a chicken bone, don't even believe for one moment that the fox had anything to do with the theft of your chickens.
It's official, the brain trust responsible for creating the toxic mess known as mortgage-backed securities has now been put in charge of the recent implosion at Bear Stearns. Larry Fink, as shown here,was instrumental in developing this ticking time bomb and now that it's exploding in our hands, its time to let the original bunch of financial sharpies who helped push this country off the cliff to be put back in charge. Of course, their will be the usual "investigations' on Capital Hill, by the none too curious Henry Waxman. Waxman was last seen grilling baseball pitcher Roger Clemens. Afterwards, several of the committee members asked Roger for his autograph. Yes, no one's going to put anything past Mr. Waxman and his posse of well trained hound dogs. How sweet it is! Imagine if you had robbed a bank and when the cops got a little too close to your trail, up pops the District Attorney who puts you--the head mobster--in charge of the investigation into the robbery.
Probing question asked by a JPMorgan employee asked of an un-named JPMorgan executive during an October 17 employee-only conference call. From this morning's New York Times story:
“Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?”
Here's the startling answer:
“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”
More from NYTimes reporter Joe Nocera's morning story:
Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy. On the contrary: at another point in the conference call, the same executive... explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot.
Today's remarkable NYTimes story reveals what the reporter refers to as the banking industry's "dirty little secret":
Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse. In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.
In short, Congress and the American people were sold a bill of goods with the passage of the recently passed Emergency Economic Stabilization Act of 2008 ("Treasury Secretary Paulson's bailout bill"). Rather than using these massive infusions of taxpayer cash to unclog the credit markets, and to infuse liquidity into the U'S. credit system, the greedy recipients of the taxpayers' historically unprecedented largesse intend instead to use these monies to feather their own nests, and to facilitate further acquistions, mergers and consolidations.
This latest news is predictably going over like a lead balloon on Capitol Hill. This from Democratic Senator Dodd, when reporter Nocera asked the Senator what he was going to do if the loan situation didn’t improve:
“All I can tell you is that we are going to have the bankers up here, probably in another couple of weeks and we are going to have a very blunt conversation,” he replied. He continued: “If it turns out that they are hoarding, you’ll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay.”
"Revolution," folks. That's the word now being used on Capitol Hill. So far all our federal legislature has done is to "roll over" and "beg."
We ask our gentle readers: Is there anyone here who's surprised by this latest development? Was it reasonable to expect that the same industry which brought on the current world economic crisis would suddenly begin to act in the public interest? Is there anyone here who actually believes that our Congress will have the guts to do anything about this?
Don't let the cat get your tongues, O gentle ones...
This weekend, Lehman’s head is on the block as meetings over its future continue. Will Paulson go to Washington on Tuesday having successfully whipped the banking industry into resolving this crisis? Will he have blinked and put government money in after all? Or will Lehman have simply collapsed, with untold knock-on effects to the banking system? Paulson has been so active on Wall Street recently that “Breakfast at Hank’s” has become bankers’ shorthand for a crisis meeting. In Lehman Brothers, he has a problem that cannot easily be resolved over muffins and coffee.
More choice commentary from one of Weber County Forum's favorite economic commentators, Professor Roubini:
Nouriel Roubini, professor of economics at the Stern School of Business and chairman of RGE Monitor, said Washington’s previously “fanatically laissez faire” attitude had precipitated this crisis and forced regulators to perform a humiliating about face to become “the United Socialist State Republic of America.” But this was “socialism for the rich” where profits were privatised but debts were picked up by the taxpayer. Roubini said lax regulation had led to the current problems and now that the government’s coffers had been opened, officials will have a hard time closing them. “Many of the companies not in financial services are going to say the banks are being bailed out, why shouldn’t we?” he said. The car industry is already looking for $50 billion in subsidies. The troubled airline industry may be next. Paulson has talked of the “moral hazard” of government bailouts – a situation where companies act carelessly because they know the government will pick up the pieces. It’s a debate Roubini said American regulators should have been having years ago during the excesses of the boom years. “In principle Lehman should be allowed to go,” said Roubini. “But if that happens the next day there will be a run on Merrill Lynch, Goldman Sachs. Let’s not pretend that’s not going to happen. The systemic risk is worse now than it was with Bear Stearns. It’s pretty pathetic really. They are running out of ideas.”
Just a little more chirpy economic news for this otherwise dazzling Emerald City Sunday morning.
