Bear Stearns Bailed Out by Fed (i.e. bailed out by YOU, the dollar holder)

AP ^

[JasonC]

You really don't want to see what a $400 billion bankruptcy does to main street and the overall economy. Sorry, you don't have to like it, but you can't isolate the damage to those you imagine are responsible. Bear Stearn's market value today is $4 billion. Their debts are 100 times that. It isn't its own shareholders on the hook, it is everyone doing business with them.

[JasonC]

They would also do well to learn the difference between wishing ill on neighbors, and seeing what it actually does to themselves if it arrives. A $400 billion bankruptcy during a recession would not leave the carpers crowing about just deserts. It'd leave them in a soup line.

[Travis McGee]

Quark, at the risk of being called a socialist (I'm to the right of Attila) let me ask you:

Do you think it was immoral for Countrywide CEO Mozilo to quietly cash out stock to the tune of 150 million last year, when he knew his company was on life support, while touting it as a great long buy to the sheeple, propping up its price with lies, while he secretly was abandoning ship? All just before it crashed, which he knew it was going to do?

[Travis McGee]

Oh my Jason, reality seems to have struck you! Just days ago, you were laughing at us “gloomers” and our absurd notions. Now you are talking about soup lines. What happened?

[JasonC]

There aren't going to be any soup lines, because the luddites attacking finance capitalism aren't going to get their way.

Simple, really.

[Texas Songwriter]

So I am very pleased that the threatened “run” on Bear Stearns has now been stopped, without the FED having to print a single new dollar ( notwithstanding your ill-informed “comment” to the contrary).

Every commentator on CNBC buisness news channel confirmed that today was a classic "run on the bank". Hell, the stockholder bid the stock down from about 55 to the mid-twenties ( I do not know where it closed, but it lost about half of its value).

[HamiltonJay]

And their collapse, while painful would be better long term for the economy.. you have to let this mess flush itself out... and you don’t do that by bailing out the idiots.

Sorry, but that’s how it works. You short circuit it, you don’t help anyone in the long run.

[Toddsterpatriot]

You're thinking of this CDO all wrong. As if they had the money back in a safe.

Ha!

[Toddsterpatriot]

Do you think it was immoral for Countrywide CEO Mozilo to quietly cash out stock to the tune of 150 million last year, when he knew his company was on life support, while touting it as a great long buy to the sheeple, propping up its price with lies, while he secretly was abandoning ship?

Who was he touting it to? As far as secretly selling his stock, insiders have to file a report with the SEC within 2 business days of selling or buying. The SEC publishes that info on a regular basis.

Mozilo transactions

Mozilo may be a scumbag, but the idea that he was secretly selling is silly. And wrong.

[JasonC]

The best thing to happen is for those who acted without sufficient foresight to pay a serious penalty for it, that avoids moral hazard and maintains incentives - but not to smash entire institutions in the hundreds of billions range in assets. In the case of Bear, I'd call a 45% reduction in their stock in one day a serious penalty. What would you call it, a walk in the park? In the end, Bear may be saved by being merged with a stronger bank, to restore their capital to sufficient levels and eliminate the fear based liquidity issue.

Everyone involved needs to understand, though, that no financial institution can withstand an immediate and sudden "discredit" by all of its customers and trading partners. One can point to various things they could have done differently to avoid that happening, but in the end it is not simply under their control. Panic can break absolutely anything. And the standing means of dealing with that threat, whether in a public or a private banking system, is the lender of last resort.

The Fed is doing its job here. That job is necessary. Deal.

[JasonC]

It went to the high 20s, then back to 35, and closed at 30. Down 45% on the day.

[JasonC]

As for the "run" aspect, what happened is a large number of Bears' hedge fund clients ask for their cash balances all at once, because of fears they were unsafe at Bear.

Those hedge funds are the same sort as the Carlyle unit that failed just before. Notice, in that case, the fund was unable to meet margin calls, all the securities it pledged as collateral were seized by the banks they had borrowed from.

Bear was involved in the onset of the whole present credit crunch last July, when two of its funds of a similar nature failed, and it seized their collateral.

What you are seeing throughout the system is distrust of institutional counterparties. Bears' customers feared they would have assets frozen, if not seized, if they left them at Bear, and so demanded them back. Which is the "turnabout" version of what happened to the Carlyle group unit. Instead of the bank making demands of a customer and taking collateral when those couldn't be met, the customers were making demands of the bank, that it couldn't meet all at once - without help that is.

In all cases, the underlying illiquidity is driven by the same cause - securities that were thought safe and stable in price, carried at high leverage using short term borrowings. When those securities then drop in price, both sides of the transactions (holders and lenders) are under pressure, and trust and confidence evaporate.

[JasonC]

That's utter nonsense. Nobody knows such things beforehand - they may fear them, they may even act on such fears, but they hope for better results and do not know whether they will happen. In the case of CFC, they arranged to sell it to Bank of America to save the company, once credit losses got too large. In case everybody just ignores such things, credit losses being large means *other people* failed to perform *their* legal obligations to Countrywide, and its own failures, such as they were, are a result of the non-performance of legal duties toward it, by others. Moreover, Countrywide hasn't defaulted on its debts - unlike some people - and Bank of America's support will likely keep it that way. *Stock* investors in CFC, like stock investors in *any* public company, are consciously and deliberately exposing themselves to the *risk* that the company may fail, at any time and for any reason, and have not been guaranteed *anything*. The reason stock investors get the whole upside if things go well, is they are the first to take the hit if they do not. If you don't want to be in that position, they you don't buy stock. If you do, though, then *whining* about it if things don't go well, is the act of an unprincipled *welsher*, and is lower than pond scum.

[TopQuark]

Do you think it was immoral for Countrywide CEO Mozilo to quietly cash out stock to the tune of 150 million last year, when he knew his company was on life support, while touting it as a great long buy

I personally think it was highly immoral: it is both a betrayal and a lie.

Now, why would you suspect that you could be called a socialist for raising a purely ethical issue?

There is plenty of scum on Wall Street (as well as in NBA, fashions, politics, and everywhere else where there power and/or money is involved). The behavior you mentioned is pretty scummy in my book.

[HamiltonJay]

NO the fed isn’t doing its job, its bailing out bastards who decided that they could seperate risks from lending.. now when those risks have come home to roost, we’ve made sure the idiots who did it, get a nice payday out of the taxpayers for it.

BEARS needs to fall by the wayside and be a lesson so that others won’t repeat their mistakes.. but oh no, not in this age of gubment owned by corporate interests.

[JasonC]

Nice payday? Bear employees own about a third of the stock, which was cut in half in one day.

It doesn't help anybody to grind entire businesses in the dirt in a misplaced moralism. You won't be a dime richer as a result, the country as a whole will just be poorer. It is completely stupid to wish ruin on your neighbors just out of spite.

[HamiltonJay]

The only thing that ground their business into the dirt was their own greed and ineptitude.. and its not the responsibility of the tax payers to bail them out.

The country as a whole will not be any poorer because some mismanaged greedy lender overextended and went belly up.

They overleveraged and its come home to roost and it should take the bastards who did it with them, not force the rest of us to pay for their incompentence. Let them go by the wayside like every other mismanaged company before them. Just because they are a “bank” doesn’t mean they get some special pass and a bailout when they screw up.