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,
Approaching geezerhood.
That is a ridiculous statement; the Fed is always researching issues pertaining to every possible kind of financial emergency and both Bernanke and Greenspan spent significant parts of their academic careers studying the depression. Question is did they learn anything?
I just stocked up on Fancy Feast gourmet brand.It’s going
to be Road Warrior time.
They aren’t the only one.. trust me.
The sub prime lending mess is bigger than ANYONE is telling you or being honest about... and its unravelling is starting to unravel decades of piss poor long term fed policy.
A year ago I said this mess when all is said and done was going to be well over the Trillion dollar mark (experts were still clinging to rediculous notion that it would only be a few hundred billion)... Today its pretty obvious that it will be MULITIPLE TRILLIONS that will be gone when this is finally over.
And as usual, women and minorities will be hardest hit!!!
Every week, each broker dealer (BD) files a focus report which tallies the value of each security held. Since the ‘market’ for thinly-traded securities - e.g. Sub-prime Morgage Pools - is very difficult to value. If there is no market for down-rated, illiquid security, then the BD would have to hair-cut its capital as reserves. Eventually, the increased capital would eat all the firm’s free capital and the BD would violate the Net Capital rules established by the Exchanges. Poof. The firm closes.
Exactly. This is a mess- and I’m looking for someone with the WILL to be unpopular enough to solve it..
“the dow finishes the day up 200, mark my words.”
I’m marking them. But it won’t be today. Even the plunge protection team can’t keep a pretty face on this pig.
This is really bad. Imagine if you had a big holding in Bear Stearns last year at $100 or more. Now you are left with next to nothing.
Bad day for a lot of people. One billionaire investor is a billion lighter. He bought about 10% of Bear last year.
According to the OCC, U.S. Comptroller of the Currency, at U.S. commercial banks alone, the total national value of the derivatives is $172 trillion.
JP Morgan 91.7 trillion
Citi 34.0 trillion
BoA 32.0 trillion
Biggest Loser is JP Morgan with $4.16 in exposure.
I just checked my seat belt, it is snug.
172 Trillion in derivatives and I’d say a conservative collapse is 2-3%... agressive 5-7% or perhaps more so, take it from there. I don’t know how any reasonably responsible “analyst” could have ever predicted this thing to only be a few hundred billion...
They truly are completely dillusional on how big of a mess they have created, or how exposed they are.
My cat is watching your postings with great intent........
Lehman Brothers is down 25% on no news but a rumor, Dow is hanging out in the low 11800s while I had expected something closer to 11750. Still wanna take the bet? :)
Can the holders of these toxic mortgage pools establish a valuation based on income stream?
Thanks
I believe suspending the mark to market would risk the investor running for the door. May as well just shut the market down as has been done in the past. Bottom line, investors do not like book values that do not reflect reality.
That is the problem, no income stream.
I live in Southern Ohio there is no "countrier" place in the Midwest.
I've been long on precious metals (Lead, Copper, etc.) for over 20 years. Plus several different ga. of Remington's finest greeners and a host of rifles and such.
As far as food goes we have a garden and the Hunting is good less than 500 yards from where I currently sit. (We live in the middle of the Wayne Notational Forest)
No worries here mate.
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