Posted on 04/03/2008 9:22:59 AM PDT by TigerLikesRooster
April 3, 2008
Ben Bernanke admits Bear Stearns was hours from collapse
Dearbail Jordan
US Federal Reserve chairman, Ben Bernanke, today revealed that Bear Stearns was just one day away from going bust when the central bank stepped in to save the Wall Street bank to prevent chaos and a "severe" impact on confidence.
Speaking for a second day in front of US Congress, Mr Bernanke attempted to justify JP Morgan Chase's rescue of Bear Stearns, in a deal that included the US Fed agreeing to back $29 billion of the troubled investment bank's assets.
Mr Bernanke said: "... on March 13, Bear Stearns advised the Federal Reserve and other government agencies that its liquidity position had significantly deteriorated and that it would have to file for bankruptcy the next day unless alternative sources of funds became available."
The Fed chairman said that the central bank was forced to step in because the US financial system is "extremely complex and interconnected", and the collapse of Bear Stearns would have led to a "chaotic unwinding of positions in those markets are could have severely shaken confidence".
Mr Bernanke added: "Given the exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain."
JP Morgan Chase agreed to acquire Bear Stearns for an initial $2 a share, valuing the lender at just $240 million. However, an investor outcry forced JP Morgan to increase the offer to $10 a share, as well as taking on $1 billion of Bear Stearns' assets with the remaining $29 billion backed by the US Fed.
Jamie Dimon, chief executive at JP Morgan, who was also appearing before Congress today, said the bank would not have offered to buy Bear Stearns if the Fed had not agreed to back the assets. His co-speaker, Alan Schwartz, chief executive at Bear Stearns, said today that the bank was not involved in negotiations between JP Morgan and the government regarding the $30 billion asset deal.
Mr Schwartz also maintained, as he said days before Bear Stearns nearly went bust last month, that the run that brought the lender to its knees was due to a lack of confidence and not because of a lack of capital or liquidity.
Mr Bernanke today reiterated his forecast that the US economy would slow in the first half before staging a recovery in the second half. However, like yesterday, Mr Bernanke refused to label the current economic situation as a recession.
It emerged today that US unemployment claims unexpectedly spiked last week by 38,000 to the highest rate since September 2005, alarming investors ahead of monthly jobless figures due out tomorrow.
New data revealed that the number of unemployment claims rose to 407,000 for the week ended March 29, above an expected 370,000 and the previous week's total of 369,000.
The sudden rise in benefit claims sent the Dow Jones industrial average down 48.6 points at 12,556.7 as investor grew nervous that today's figures are an indication of employment numbers that are due out tomorrow that are expected to show non-farm pay rolls for March have fallen by 60,000.
Why not $200 billion?
Now you’re being silly...
Hello - Dimon sits ON THE FRICKIN BOARD of the NY Fed. If he didn’t know the window was open to Bear and the other IBs, then he’s a moron. Hindsight had nothing to do with it.
Tell me - when the negotiations were going on that weekend, which hat did Dimon wear - that of th Fed or that of JPM. Just a little conflict of interest, no ? Secondly, Bear was the counterparty to a lot of the crap JPM owns. Don’t you think JPM tool/were forced to take BSC BECAUSE it allowed JPM to stay solvent, and that’s why the 30B was a necessity ?
I agree with you. The problem is that we are all so weary of all the misuse of taxpayer dollars for foreign aid, AIDS, bailouts, earmarks yada yada yada that at some point we all need to say Enough ! Just stop spending already ! No more to anything ! None of this is good use of taxpayer money.
So then why was it an appropriate action again ?
Those who are causing the problems are being rewarded and will certainly do it again.
Read the second paragraph.
I wasn’t as clear as I would have liked to have been.
Keeping the BS debacle from damaging the rest of the economy was appropriate, as it protects the country.
Not taking it out on the hides of the ones who caused the problem in the first place? Bad.
Letting them walk off with bazillions in golden parachute money? Very, very bad.
Not only will ‘Those who are caused the problems certainly do it again’, their ability to get away with it will inspire others to try.
I have been posting with and against toddster for a long time. He doesn't use strawman arguments. He refutes them with evidence.
Sorry, your post is just too long to read and I wasn’t talking about the incident that you spent so much time rehashing. Either way I know your post is just more flummery and I’m tired of it.
Market Observations
April 2008
As we told you then using GM as an example, the credit default vehicles written against real world outstanding company bonds is probably near three times the volume of actual bonds outstanding. Like many derivatives vehicles, these derivatives products have become an end in and of themselves as opposed to the purity of use of these vehicles to simply insure or hedge against adverse outcomes protecting larger financial asset positions actually held. Simple translation? The credit default swaps world has taken on a life of its own.Alright, fine, so how does the credit default swap market relate to equity market sector volatility of the moment? It is absolutely clear that the "acquisition" of Bear avoided triggering Bear Stearns related credit default swaps and swaps against CDO, SIV, etc. positions they may have held (assuming a potential Bear BK would have forced a mark to market event), which would indeed have happened had Bear formally entered bankruptcy and their bonds/debt became potentially very meaningfully impaired. There is simply no question whatsoever in our minds that this was the key reason a theoretical acquisition of Bear HAD to happen. Remember the details. JPM took out Bear for a couple of hundred million at the headline $2 per share initial offer level, but concurrently announced it was going to need to charge off about $6 billion as a result of the so-called acquisition. Even at the ultimate $10 level (which is basically shut up money offered to help prevent litigation, which might also have led to asset price discovery) JPM was "telling" us Bear was worth far less than zero by the charge-off number alone. Of course the truth simply had to be that if Bear had filed bankruptcy and the credit default swaps written against their bonds/debt/asset positions had been triggered, the credit default swap liabilities in the market would have been well north of a $6 billion hit to whomever had written those Bear specific CDS contracts. Well north. And that simply could not have been allowed to happen. By the way, just as an item of curiosity, JP Morgan has exposure to over 55% of the total banking system credit default swaps outstanding. Are we connecting the dots clearly enough for you?
At least not the US government anyway. After all, they do have some standards!
It's almost as if people WANT the depression. Are you one of those.
Hell no! I don't particularly want to die, either. But some day I will. Knowing that inspires me to have life insurance so my survivors aren't financially devastated.
He doesn't use strawman arguments. He refutes them with evidence.
Wow. Just wow. *nully walks off shaking his head*
I don’t understand your tagline.
The statement “She is emotional” is not inherently sexist, let alone an attack.
Go back and check the context.
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