JP MorganChase bought Bear Stearns for practically a penny on the dollar - wow

polkatese

http://apnews.excite.com/article/20080317/D8VETHCG0.html

This is unprecedented and a dire situation. The Fed reacted super quickly in approving transaction. I am no financial expert, but this event gives me a chill down my spine and that I should be worry about where the country, economically, will be in the next few quarters. Definitely a reason to be concern of what the rest of 2008 will turned out to be.

opus

wow. not good.

Hang on Monday. Should be a rough ride.

wingnut4772

It's all a rough ride.

treitz3

Sign of the times.

dorokusai

I'm in for the long haul and not worried.

dkg999

It would of been worse if they hadn't been bought. Maybe now companies will think twice about building new markets by loaning money to people who traditionally don't pay their bills.

schwarcw

Just remember the Russians sold Alaska for $67M The US Secreatry of State was laughed at. The called it "Sewards Folly". Emotions are driving speculartors in the markets. Hold on for sure, it could be a rough ride for a while. Just remember how your mutual funds work, because you are buying stock more times when the stock is low than it is high. In the long run, you've bought more "low" and sold when high.

mrbigbluelight

Well. That's a fine kettle of fish.

" In an extraordinarily rare weekend move, the Federal Reserve took bold action Sunday evening by cutting the discount rate, its lending rate to financial institutions, to 3.25 percent from 3.5 percent, effective immediately. The Fed also created another lending facility for big investment banks to secure short-term loans that would be available to big Wall Street firms on Monday.

The Fed was also widely expected to again cut its headline interest rate by as much as a full percentage point to 2 percent at a regular meeting set for Tuesday.
In currency trading, the dollar plunged to 95.72 yen — its lowest since August 1995 — driven down by a gloomy outlook for the American economy and prospects for lower interest rates. The euro rose to US$1.5839."


Now, I like to believe that I've been able to clearly demonstrate my financial illiteracy during my time here; "As dumb as a bag of creek rocks" may not totally apply, but I'm working on it.

However: While some may view the eventual lowering of the Fed's rate to 2 % as the best thing since sliced bread, this will lower the value of the American dollar on an international level, will it not ?

The "stimulus" money which is coming next month (the $600/person thing) will also lower the value of the American dollar on an international level, will it not ?

The ground on which the American banking system stands is getting weaker, (from whatever source: questionable loans/practices, too many toasters given away) is it not ?
This unsteadiness also lowers the value of the American dollar on an international level, does it not ?


The dollar is no longer backed by gold; we're no longer on the "gold standard".
Whether that for the better or not, I definitely do not know.
So the only thing that gives the American dollar "value" is the confidence by peoples'/nations' belief that the American government is backing its value, is it not ?

Does the effect of the above actions raise that confidence level, or lower it ?

As a gross over-example of what I'm poorly attempting to ask is this:

Let's say the Fed says, "Aw, crap, we're lowering the rate to ZERO %" while the Federal government says, "Aw, crap, the economy is slowing down: let's give every American citizen $50,000 !".

This would, in my opinion, make our money almost absolutely worthless, would it not ? It would have more value as toilet paper, would it not ?

The American dollar is already facing pressure from the Euro as a currency of trade.
Will the above actions reduce, or raise, that pressure ?
And what affect on our country would a world-wide change to viewing the Euro as the international trade of currency have on our country ?

Just a few questions that hopefully might be able to be answered by those with knowledgable of the financial institutions might care to chime in on.


PLEASE NOTE:
This is NOT a politically motivated question; if your answer(s) involve
"Well, Bush sucks", "The Democratic Congress sucks", "The Republicans Suck", etc, than I've done a poor job of asking these questions.

So .... is this merely a rough ride, or are the engines starting to pitch turbine blades ?

dkg999

The economy of easy credit and living beyond your means is now facing a reality check and a squaring up of the balance sheet.

WilliamM2

The "stimulus" money which is coming next month (the $600/person thing) will also lower the value of the American dollar on an international level, will it not ?

Don't know about internationally, but I always figured it would lower the value of the dollar right here in the US. I think we are going to be looking at double digit inflation soon.

Bamadude

Waiting on Shack to chime in with a good summary on this one. Shack, where art thou?

CAvolleyballguy

with interest rates that low, looks like a move to keep dollars in the housing market so people will buy the inflated prices to keep more people from going upside down on property they bought that they now cant afford with their balloon mortgages. Lots of people in danger of losing their big homes they bought 3 years ago (at least in southern cali)... maybe now they can refi and keep them.

polkatese

Woke up early this morning to catch an early bird flight to Charleston, SC and watch CNBC play by play of the Asian market, and realized that it is just downright nasty. Financial institutions share prices just tumbles and akin to all hell broke loose (well, may be it is not that bad - hopefully) but world market is definitely on the brink of readjustting itself..

I wonder what Greenspan would have said and do if he is still in power?

Strong Bad

Looks like the US economy is paying for the sins of the past.

"What, you make $30k a year! Well sure you're approved for that $250k mortgage! Huh...oh heck yeah that cardboard box is worth $250k! Yes, yes indeed it is!"

IMO, as bad as alot of things are looking, play your cards right and you can make out bigtime. My Magic 8-Ball says there are and will be for quite a while, lots of "Blue-Light Specials" EVERYWHERE, including Real Estate.

Now...Secretary of the Treasury Shack, come spread your wisdom!


John

venomclan

Not good.
V

carpenter

Well, it's a little more then a penny on the dollar, as J.P took it upon themselves to back all the huge debt that comes with this "sweat" deal, J.P's risk is substantially lowered though, because the Fed guarantees about 30 Billion of the total debt.
The fed rushed to back JP on this one, because a collapse of one of the major banks, might have started a landslide which would force the Fed to guarantee a huge amount of the total sub-prime losses, and that might increase the USD's downwards spiral even further, and in a doom's day scenario would even lower the US government's credit rating.
so, it's not that J.P took one, for the investment-banking / debt-trading industry, they did it because someone had to, and the Fed knew it.
what I'm saying is: ... blah blah blah blah .... we're all facing a **** storm

B.T.W
Ehhh ... Shack? ... we're waiting ....

Demiurge

Why is it not good? Bad is when a government doesn't let a company fail for mistakes it made, just like people. It's Bear Stearns loss and JP Morgan Chase's gain long term. It's also the fault of the dopes who got in over their head. I might feel bad for you, but in the end it's stupid choices that landed people where they are now. Nobody to blame but yourselves.

Quit overreacting.

shack

We are now facing corrections that should have taken place a long time ago. In the last 20-30 years the equity markets have been trading on speculation and greed rather than looking at the basic underlying factors of the companies being invested in. The stock market never should have been a roulette wheel of investment. The value of stocks should be based on the soundness, income, stability, management, etc of the companies that issued them....not because they are sexy, poised for rapid growth, or because one's barber said it was a sure thing and the kid who bags groceries agreed. The concept of owning stock in a company meant that you owned a piece of that company and did so because you felt it was a good investment. I would venture to say that 90% + of the people could tell you NOTHING about the financial condition of the companies they are invested in.

While some tout the value of mutual funds (and they do have the advantage of diversity when managed properly) they have the disadvantage of the owner having no clue what they are invested in. MFs have been managed for "returns" and in doing so have created much of the problems today. Companies are being managed for the short term (if we don't meet market expectations the stock value will drop) as opposed to doing what is right for the long term soundness and growth of the company. Decisions were made to make sure that a profit was shown rather than put the money back into infrastructure or R&D. It is sad that investors did not learn from the “high tech” investment issues of the late 90’s. We are now paying the price.

This country and its economy will not fail. We may have to go back to basics and quit trying to “get rich quick”. We may have to go back to personal investing in a manner that looks to stability, soundness and sustainable growth rather than “I need 20% rate of return…NOW”.

The other thing is energy…that issue must be solved…and it will be. It is driving too much of our economy right now. Corn based ethanol is the STUPIDEST idea since the pet rock. There will be new technologies that solve the problems and those will create whole new industries and the US will be at the forefront.

Short term things are very tough. Recession is a possibiltiy. Long term…IF we make the right decisions, things should be just fine. Panic is not our friend.

dkg999

+1 on Shack's comments, I think they are pretty much spot on. Of course I take exception to the "corn based ethanol being a stupid idea" comment. As an owner of several thousand acres of Iowa farmland, the price increases the ethanol industry, and bio-diesel industry for soybeans, have produced are a much welcomed payback for some of the bad farm economy periods of the last 20 years. I'll pay off my investment about 8 years early at the current rates.

Taking off my farmer hat, Shack's comments on the energy scenario are pretty much correct. Corn is not the most efficient bio-mass for ethanol production (if ethanol is a sustainable alternate energy source), and we need to get land switched to switch grass, sunflowers, etc. which are more efficient and productive source of bio-mass. We also need to make it easier to get approval for wind energy sources out in the rural areas. The paper work I am doing for approval for wind turbines on my farm is just unreal!

Strong Bad

Well said Shack!

I wholly agree that alot of people can't see beyond the "Here and Now" and that goes for alot of things. Rome wasn't built in a day!

rskarvan

So, are mutual funds a bad thing? I was in the camp that was thinking... buying stock in a particular company was risky (example: Conseco). No, I won't get the best rate of return... but, long term, I was just hoping to keep up with the Jones'es (S&P 500).

Lastly, the value of our currency is backed by the US Military - in my opinion. The activation of our Military is mostly a response to economics. I may be wrong. And, I am certainly NOT trying to cause controversy. But, if the USA is bankrupt, I doubt our leaders will allow Washington DC to be repossessed.

carpenter

shack wrote: »

...
The other thing is energy…that issue must be solved…and it will be. It is driving too much of our economy right now. Corn based ethanol is the STUPIDEST idea since the pet rock. There will be new technologies that solve the problems and those will create whole new industries and the US will be at the forefront.

dkg999 wrote: »

... "corn based ethanol being a stupid idea" comment....

Don't rip me a new one over this, but I think it's time to consider nuclear power.
Now, I support the green movement as much as the rest of ya (... and add all the other appropriate lip service B.S.), but I really don't think there's much of a choice here.
Electric cars and other machinery, need some source of power to generate the electricity no?
Additionally, modern reactor designs will not melt even after the coolant leaks,(not that I'm a nuclear scientist or anything, I'm pretty dumb actually).
without a solution to the energy situation, y'all can forget about economical growth, or a mere recession. a full blown 1930s like depression is what's expected.

dkg999

I'm not opposed to nuclear power either. In fact I don't understand why we are not expanding that industry? Just like the wind turbines, we seem to have this "not in my neighborhood" mindset. Seems like overall in the US we want our cake and to be able to eat it also. Some hard decisions are in our future when it comes to energy policy and development.

bobman1235

The reason nuclear power is not expanding is because 95% of people in this country (in any country, not knocking America) are retarded. They hear about 3-mile island or Chernobyl and that's it for them, despite the fact that 3-Mile Island had precisely ZERO deaths associated with it, and Chernobyl was 30 years ago. And in Russia.

It's so frustrating to see ignorance determining the future.

shack

Had we continued with the "fast breeder reactor" programs of the 70's the energy landscape would be much different. Imagine an enegry source that actually produces more energy that it consumes...what a concept. The practical application says it could produce 1.2 times consumption with current theoretical limits of 1.8. The Russians currently have one on-line with plans for another. It appears that It could have been done safely and in a cost effective manner. The "fear" of nuclear power derailed it. We are now paying the price.

venomclan

There are plenty of alternative power sources, we need to get past the red tape and oil lobbying and just do it now: Nuclear, Algea-based ethanol, wind, solar, hydrogen, and Methane. Algea-based ethanol seems like the best idea as it is very cheap (grows abudantly in nature) and is the least polluting.
Venom

Sami

rskarvan wrote: »

Lastly, the value of our currency is backed by the US Military - in my opinion.

The value of the US dollar is backed by the economy of the USA, and the US military is backed by the economy. If the economy of this country takes a dive, so will the armed forces as they don't have any more money to spend. This opens the door for China to establish itself as an economic AND military superpower. Granted it won't happen over night, China has its own problems, but as history has taught us, no empire survives forever. It took time for something as powerful as Rome to crumble but it was inevitable to happen. It's all about the money though, has always been, who has it also has the military power.

Bamadude

venomclan wrote: »

Algea-based ethanol seems like the best idea as it is very cheap (grows abudantly in nature) and is the least polluting.
Venom

There was enough algae in my old swimming pool to power several states

I agree that it's stupid that we haven't increased nuclear energy. I mean lets all hide in a box and not take any risks with a great solution. Instead lets just smoke up the air and tank our economy on coal and petro.

dorokusai

Sami wrote: »

The value of the US dollar is backed by the economy of the USA, and the US military is backed by the economy. If the economy of this country takes a dive, so will the armed forces as they don't have any more money to spend. This opens the door for China to establish itself as an economic AND military superpower. Granted it won't happen over night, China has its own problems, but as history has taught us, no empire survives forever. It took time for something as powerful as Rome to crumble but it was inevitable to happen. It's all about the money though, has always been, who has it also has the military power.

How can you compare this to the fall of Rome....ridiculous.

dkg999

dorokusai wrote: »

How can you compare this to the fall of Rome....ridiculous.

Agreed! We don't have any funky armored outfits and cool swords! And where are our Roman women? We need all that before we can fall like Rome :cool:

bobman1235

dorokusai wrote: »

How can you compare this to the fall of Rome....ridiculous.

It's the new thing to do. I can't count how many times I've heard this analogy. People seem to think it makes them seem smart.