From Yahoo Finance this morning: [Thanks L!]
Bear’s stock has popped to $10, now that the Fed has caved and Bear and JP Morgan have announced a new, higher-priced deal.
What does this mean?
Among other things, it means tha all that jawboning from Treasury Secretary Hank Paulson last week about how the government wasn’t bailing out Bear Stearns was a bunch of hooey. The Fed and the Treasury Department gave Bear and JP Morgan shareholders a $30 billion gift from taxpayers. And the moment Bear Stearns realized that all the crap on its balance sheet had been transformed into a Treasury Bill, it, sensibly, demanded more for itself.
And why shouldn’t it have? When the Fed suddenly guaranteed Bear Stearns with the full faith and credit of the US government, it became worth more. Specifically, it went from being worth zero to at least $10 a share.
And now US homeowners, justifiably, will scream that the government cares more about Wall Street fat cats than it does about the Little Guy. And the Fed and Treasury will have to start scrambling to put together a plan to buy everyone’s house. Welcome to Bailout Nation.
I have a question for Bernanke– just how far do you plan to take this?
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Twist:
Well, this is the same thing that happened to LTCM (Long Term Capital Management)… in 97, near the end, when the Fed called everyone together and told them to buy the firm and unwind its trades… LTCM thought, “Gee, we actually have the upper hand.. if we say ‘no,’ then everybody loses big time..” They used this leverage to bargain a better settlement. Goldman, etc. were the ‘saviors’.. although there was enough ugliness for everyone.
Bear Stearns opted out of the bailout, and were criticized for that.
It’s weird what such conflict teaches you, isn’t it?
Good question, how far to take this national bailout?
But what it will take to bail out a nation? I don’t think we have begun to see the actual cost of such a move.
There is on small street in Las Vegas where homes were selling at $600-685-seven homes were sold at this level. Three remaining homes were finished last year and closed at 480, 422, and the last is listed at 399 and will probably go at 375. I am calling it a $2M+ adjustment NOW on this one small street and I don’t see any sign of a bottom.
I stopped calculating the value adjustment to the neighborhood, and other SIMILAR neighborhoods, in this relatively small city, where these $600-685 homes would have topped out at $280, if that, in 2001.
I wonder what a 50% price drop looks like in negative equity dollars for homes purchased during the hype, or refinanced during the hype, to buy luxury cars and such, that have depreciated far more rapidly than the second mortgage has decreased.
And now US homeowners, justifiably, will scream that the government cares more about Wall Street fat cats than it does about the Little Guy.
It’s Hillary who is already screaming this, check the reports…
Whocuddaknowd? Someone at the fed needs to play chicken with the BS stockholders.
I used to work in collections and I once dealt with a poor woman who got stuck with a tax shelter in her divorce. She begged the judge not to give it to her, as she knew it was really a liability and not the asset her husband claimed it was. It reduced her and her son to bankruptcy.
Maybe they should distribute all of BS’s assets AND liabilities to the shareholders who won’t approve the buyout.
Somebody with time on their hands and a silkscreen needs to put together some “Welcome to Moral Hazzard County” (yes, I know I spelled it wrong) t-shirts with Bernanke as Boss Hogg and Paulson as Roscoe P. Coltrane.
Asset Hunter can be Cooter.
I can’t figure out whether to buy more canned goods or ammo today.
Just as an aside, with regard to the “Civil War” who is going to fighting whom? And what are they going to try to gain? It’s not as though wealth is as fungible as it used to be -what, a bunch of potential evictees are going to quit their jobs and kill homeowners and move into their houses? Killing your fellow man just because your lifestyle isn’t what you want it to be doesn’t mean your lifestyle is going to be better after the killing stops. And, wha, you can’t kill somebody to get a better job…unless you’re the Northern Colorado backup punter.
There are not enough assets to bail everyone out, not by a long shot, and not without pushing the dollar so far as to cause violence in the streets – the question is, who is contributing to the campaigns of the politicians? They will get what bailout money there is to be had. Period. And the politicians will claim it’s all they could do. The rest of us will get $10 gallons of milk.
Igor’s word is “nohope.”
Did my invitation to the civil war get lost in the mail? Is it shirts against skins?
I imagine crime will go up. And I could see the government becoming more authoritian (but 8 years of Bush’s “free speech zones” behind barbed wire haven’t caused too much notice yet). I can’t see the American sheeple doing a civil war.
Well actually, the government CAN bailout everyone! Remember, they have a printing press. If milk hits $10 dollars a gallon, you can just imagine what gas will be. BTW, do you think the immoral politicians are really worried about “moral hazards”?
Strange parallels to LTCM! In 1998, 14 banks put in $3.65 billion to save LTCM, which had about $1.3 Trillion in counterparty exposure. The Fed did not step in with any infusion, but Greenspan DID lower rates aggressively until liguidity was restored.
Now, 1 bank put in (or will put in) $6 billion to cover Bear whose counterparty exposure is also about $1.5 Trillion! Fed is not lowering rates as aggressively as Greenspan, but effectively does the same for Liquidity by accepting MBSs as collateral for $30 billion extention to JP.
So weird, it’s almost like after LTCM there was a doomsday scenario and all they had to do was push a button if any funds or investment houses wandered into the “zone.”
I think what is implicit in the bailouts going on now in the investment bank is that we are headed for a period of regulation on the investment houses. All the regulations revoked during Bush 41 and Clinton will be reinstated. I know Paulson was tqalking that down over the weekend but if they don’t do it the taxpayer will want blood, I know I will.
Metro-
It’s been interesting watching the transformation of my college age son as he has watched this all unfold. He used to be a strictly “laissez faire” guy- opposed to regulation of any kind. He’s since come to the conclusion that while massive regulation is bad for markets, there are those who will manipulate a market to their own ends without regulations to keep the markets free and transparent.
It’s always nice to see your kid getting smarter. : )
It is telling to see the difference between Clinton’s Treasury Secretary Rubin and Paulson. They both are conservative and both like to make money on wall street, the difference is Rubin reckognizes the need for some regulation to keep the little guys from getting burned. The people burned by this will be very skittish when it comes to investing and will sit out for awhile which will polong the trough we are headed toward.