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,
Per MSNBC——
BREAKING NEWS: Bush says administration is ‘on top of the situation’ in dealing with the economy
Too late, I already plunged everything into more carbon credits. They're about ready to take off big-time.
There’s way too much talk out there, the only way to get a handle on what’s going on is to study statistics. Look at the various kinds of indicators and see how they are behaving vs. in good and bad times in the past. Personally I find the M3, the dollar index, and the original CPI (not the politicized Clintonite version used today) to be very enlightening.
Just heard a gal who works on the Street on the phone with Glenn Beck. She says the Fed is doing research into the Depression, what might have been done to stop or minimze the effects.
This is getting ugly- the panic psychology is nearly impossible to stop.
“grub/worm recipes are gladly accepted”
Uh-Oh! I just put some stuff out to kill the grubworms. What am I gonna do now?
I think you are being unduly pessimistic.
Laz?
Laz?
Where did you go Laz?
SAY SOMETHING LAZ!!!!
The problem is that in fact you CAN take steps to make sure the markets don’t collapse today.
What you can’t do is prevent the sun from rising on a new day tomorrow.
And that is the essential flaw behind the moves the government/Fed is taking now. Ultimately, nothing they do will be enough to budge the immovable object - the enormous proportion of our apparent wealth which was created through inflation, and masked by manipulation of the CPI and currency devaluation.
People who bought into a market with unsustainable borrowing levels priced in are going to get hosed, and the only way of mitigating that is to spread the hurt to people who didn’t.
The dow finishes the day up by 200, no panic-yet.
It very well may indeed. But the better thing overall is if the market is allowed to come down to an equilibrium level slowly rather than fits and starts. Every point gained now will just make the sell-off all the worse; if Bear Stearns was a house, every house on its block just lost the bulk of its value, on comps.
When you talk about chickens coming home to roost, you have to stand up, flap your arms, and dance around in a circle, just like Rev. Wright did in his post-9/11 sermon.
That’s the problem....Hard to establish market value when there are NO bids for the toxic instruments.
Seems like suspending the mark to market rules till the clouds clear and these instruments start trading on some kind of rational basis would save many firms.
Uh somehow I have this sinking feeling.
Isn't that what Bear Stearns Jimmy Cayne was mumbling a month or so ago?
Thanks.
I agree with your humble opinion, although many new this was coming. Especially those nasty bugs...gold bugs that is.
They new it damn it and did not tell anyone about it!
Sarcasm off/.
Are we still all gonna die?
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