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,
Us.
We're all gonna."
Again?
And I just bought new shoes...
Oh Fudge...
It’s probably time to raise taxes. On the rich of course. Oh wait, the rich are going bankrupt. BWAAAAAAAAAA!!!!
About 25 percent of my mutual fund has been moved into foreign stocks, including China based corporations. Wells Fargo has been paying 7-9 percent.
Obviously you haven't priced a dozen eggs lately...
Glad to hear it. Yes, everyone needs to remain vigilant as to where one’s funds are kept.
the dow finishes the day up 200, mark my words.
Yeah well I just came back from standing in line at the soup kitchen and surprise surprise they were not handing out Eggs!
Which of course is the surest sign we are all gonna die.
Screen doors. The new air conditioning. I’m ready!
which is what affects shareholder equity can makes bondholders call their bonds? or am I way off base? :|
Sorry, not possible. I have been told by the Financial DOOM-n-GLOOM Gurus here on FR that we will all be scrounging in trash cans by days end.
I got my daughter outside right now holding a spot in line at the nearest dumpster (which BTW is outside the local Chinese restaurant.)
Avoid the rush reserve your spot now. I am selling reserved spots in line at a primo dumpster for 30 bucks a pop or 12 shares of Bear Sterns. Hurry before they are all gone!
I just checked my 401-K on line......I'm saving the Alpo for tomorrow, tonight I eat the cat......
You can afford trash cans?
You are rich.
Do you have any good "cooked cat" recipes to share with the class?
Well in truth they were part of the settlement for my 10k shares of Enron
. Also got part of the vertical lift people movers from the ENRON building.It was deal worked out by my lawyer we split 50/50 he got the Elevator and I got the shaft...
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