Posted on 03/17/2008 5:57:12 AM PDT by Lazamataz
Monday, 17 March 2008 Major financial news and emergency Fed meetings on a Sunday? If you had any doubts about how serious the Panic of 2008 is going to be, this should start hinting at how deep we've gotten. Watch Lehman Brothers this week - the brokers are selling it before the market even opens.
Early on Sunday (3-16-08) the details of the JP Morgan acquisition of Bear Stearns were released: $220 million, $2 per share. This is pennies on the dollar - or at least the dollars that Bear was claiming to have just a few days ago. Many were absolutely shocked at this final price, and the Fed rushed in immediately to cut discounts rates by 25 points - many expect an additional emergency meeting early today (Monday 3/17/08) with a target cut of about 100 basis points.
International markets wasted no time in profitting off American weakness, and the dollar crashed to yet another record low. Gold spiked $20-$30, and is now entrenched well over the psychological $1000 / ounce threshold.
Panic of 2008: AAA and Mortgage Miscalculations
What exactly took down Bear Stearns? Well, the subprime credit crisis is part of the story, but we're at the point now where panic itself is driving collapses left and right in the financial sector. In the history books, they'll simply call it a "bank panic."
Obviously, it all began following 9-11 as the Fed cut interest rates to very low levels, fueling an increased boom in home buying and mortgage activity. New demand for real estate drove up prices, and the banks holding mortgage-backed securities were using them as collateral for their own investments or as the reserve for their loans to hedge funds.
This is where Carlyle comes in (you may recognize this name for its association to the Bush family). One week ago, they managed $80 billion in assets - today there is nothing left. They had leveraged some assets 23 times into triple AAA bonds, and the bonds went bust. Within a day, the chain reaction brought them to default on their debts and triggered a "run on the bank" that effectively eliminated the company.
You know the economy is bad when the sitting president can't keep his dad's company from going bankrupt.
Enter Bear Stearns: They were the unfortunate holders of 15% of Carlyle's stock. Again, within the day, margin loans were being called in and Bear Stearns was in a position to liquidate its assets and shut down shop.
As if this wasn't bad enough, the Fed managed to engineer a "rescue" for the economy as a whole that consists of JP Morgan acquiring the Bear Stearns assets for 1 / 100th of their previously reported values.
Stop for a second and think about that. To save the economy, we have to revalue financial assets at 1 / 100th of their previous value.
There is a big problem with that, beyond even the inflationary pressure of all this Federal Reserve activity and asset guarantees. What happens in today's stock market when all the investors and depositors at the banks that had invested in the now worthless Bear Stearns stock?
That's right - margin calls, mass withdrawls - another bank run, another daily panic in the Great Panic of 2008. Dow Futures are indicating an open at the 2008 low - about 11,750 and still a way to go before seeing the important 11,500 level I predicted we would be testing. If another major bank suspends investor access to liquid assets or announces another "bailout" (or fire-sale), then I don't even know how low things would go.
The talk, the rumor, and the panic is pointing at Lehman Brothers as the next victim of the post-bubble crisis. In the Monday morning trading hours, Lehman Brothers Stock is down almost 15% - and that is before any actual bad news. This is the phase we are in: Almost no bank or financial institution could actually cover all of its liabilities in the face of a panic-driven run. At the same moment, almost anything can create the fear and panic necessary to create such a reaction. If the Fed doesn't act, banks will collapse left and right. When the Fed acts,
True dat. They dressed in business suits and hats to stand in soup lines then.
Very interesting. Producers vs. parasites BUMP! Throw in some bad management of business, international conflict, fractional reserves, fed, etc., etc.,...you could have some real problems.
Where’s the “plunge protection team” when you need it? /sarcasm
Thanks for posting, Laz.
No offense to Bush, he was off practicing laissez-faire while the central bank was rigging the game. Bush's economic policy is fine, and Carlyle's failure proves nothing but that Bush isn't bending the rules for personal gain.
I know everyone wants to make it a partisan issue and talk up the election, but this is a lot deeper than the Bush administration IMHO.
So I can write a $1000 check to the bank, and they'll call it done and send me the deed? Sweet! Double bonus, me property taxes will be $35 a year!
“Mark to market” means for example that if you are holding Bear Stearns stock, you have to tell your wife that it’s worth $2 because that’s the latest price.
Forbes would want to change the rules so you could tell your wife that it’s still worth the $100 you bought it for last year.
My 401 K and mutual fund are getting dunked.
And we’re off to the races!
The little guy always takes the fall.
they won’t go under until they pay the CEO a multi-million dollar bonus for a job well(????) done!!
Mine too. Let’s see how many years of investing will be wiped out before this is over.
Look at it this way - with medical advances going the way they are you'll be able to continue working until you're 88 and then just drop dead. Problem solved.
I’m afraid to even look at mine.
Too many people took a gamble on high-risk investments (in this case, mortgage-backed securities). It won’t be the first time, and it won’t be the last.
And there’s the perception among some - which has some degree of truth to it, IMHO - that the people who take the hit for the downside are NOT the same people who would have benefited from any upswing.
Us.
We're all gonna.
How can the president of Bear Stearns CEO go public with a statement that “everything is just fine” and then 4 days later the stock is sold for $2 to avert bankruptcy?
I think that is criminal farud of the stockholders. He may have wanted to avoid a mad sell-off thursday and friday, but to LIE to investers is OK????
How many lost their retirement based on his word?
And where can I get the governemnt to step in an let me buy formerly $150 stock for $2? I would buy a bunch of it at $2, just for speculation.
I’ve been afraid to look at mine. If I live that long I have another 10 to 15 years to recover though...
I propose that all taglines be changed to reflect that reality until this crisis passes.
Buy shoe-goo.
When I was working in the volcanic tuff of northern New Mexico, we used to put shoe-goo on the soles of our hiking boots so the ground would wear through that before it got to the soles.
I used to go through a pair of boots a month, then tried this tactic and was able to get through a summer with only 2 pairs of boots (instead of the usual 4-5).
That volcanic rock is brutal on shoes.
I’m heading out to buy 50lb bags of rice and flour...
Ain’t that the truth.
Horse meat futures at an all time high.
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