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

dkg999

Also, if you look at our urban planning (or lack thereof!) all of the movement to the suburbs and previously rural areas of our people results in nothing but expanded energy usage. And yes I am a grumpy farmer that wants all of these former city folk the hell out the rural areas.

Let's talk transportation planning (or again lack thereof!). Think about this .... 1 gallon of diesel fuel (or bio-diesel fuel) moves 1 ton of freight 100 miles via modern rail transportation. Maybe converting all those branch lines into bicycle trails wasn't the best idea.

sucks2beme

I remember reading in the early 90's that the old rules for investing
"no longer applied". Stock price to earnings didn't mean anything anymore.
I saw a long documentary with interviews from guys on the stock floor at
the end of the 1920's. Much of the nonsense they described sounded much
like what we had going in the mid 1990's.
Real estate investing and mortgage loans went much the same way.
all dollars and no sense.

I agree with shack on all counts. I fear the leaders of big business in the U.S.
went to sleep at the wheel. Car companies kept making bigger cars(SUV's)
even after it was plain gas prices were going to skyrocket. Even Toyota
left their comfort zone and made the biggest trucks they could. I bet they
wish they had a really great small truck again. Ethonol from corn-bad idea.
The energy it takes to make it almost equals what it produces.
Time for some smart guy to turn in the next great idea to put us back on
track energy wise. When there's a cheap fuel again, the economy will
bounce back big time.

nms

carpenter wrote: »

I'm sure you were joking. in the beginning of the 40s, before the US entered WW2 (thanks again Toyota ) the economy was already well on its way to recovery.

Right, because before we formally entered the war we were pumping arms and supplies into the Brits in the hope that they'd contain the Germans if we supplied enough stuff. Ever hear of "Bases for Destroyers" or "Lend - Lease Act"? This was going on for many years before we formally got involved.

PolkWannabie

Then again you could follow just the "pros" ...

http://www.redlasso.com/ClipPlayer.aspx?id=ae47b67d-2523-4946-a2ad-aadc68176f67

mrbigbluelight

"If the Justice Department hadn't morphed with the Commerce Department ..."

"The commision on structured products is GIGANTIC !"

http://www.redlasso.com/ClipPlayer.aspx?id=ae47b67d-2523-4946-a2ad-aadc68176f67

Interesting interchange, from my limited perspective.
Worth a view, and hopefully comments, IMO.

mrbigbluelight

It would seem that tax increases might be a direct result of the financial situtation such as it exists.

"If the rescue effort fails, taxpayers could indirectly wind up having to assume part of the cost. Tax revenue does not pay for the Federal Reserve's operations, including the rescue effort, because the Fed earns income from its trading operations.

But the Fed does pay the Treasury a regular stream of money every year out of its trading profits, lowering the amount it needs to borrow from outsiders. If the new borrowers on Wall Street are unable to repay, and if the market value of the securities they pledge as collateral continues to drop, the losses will come out of the Fed's payments to the Treasury.

If that quote from the Herald Tribune is correct, then I would suggest that the following statements, if made in the near future, would be based on emotions/dogma/etc and not on what is factual:

1. "You know why the [fill-in-the-blank] political party is raising taxes ? It's because they have to support all the welfare cheats/moms and lazy slobs that don't want to work !"

2. "You know why the [fill-in-the-blank] political party is raising taxes ? It's because they have to pay for the war in Iraq and all the jobs they've shipped overseas !"


Neither (purposely overstated) statement would be true, IMO.

If any political party, then, in the future trots out a position that is based upon either of those statements, I would suggest that their position be looked upon with ...... disgust ? Disdain ?

The true source of this particular financial situation can be boiled down to one simple word:

GREED


Greed by the financial houses, who were feeding the greed by investors.
All wanted MORE MORE MORE and they wanted it NOW NOW NOW.

It would appear that they received more than they wanted, more than they bargained for.

candyliquor35m

Great discussion but if the media wasn't hyping this up to sell more newspapers and boost their tv ratings, this would all be another minor hiccup in the economy. Just my $.02

But just in case, I'm holding on to my 5 oz of gold a little longer

cfrizz

Very nice post BBL!

polksda

Well, I see the handwriting on the wall, and I need to get off my lazy butt and do something about it. I've been part of the problem: living beyond my means through easy credit.

I've never been a saver. Whether it's poor willpower, growing up dirt poor and now overcompensating, rampant stupidity, you choose. I've just never been able to save, outside of putting some money in a 403b (coming out of my check before I can ever see it). I know myself well enough to know that I'm not likely to change in that respect. What I really need to do is kill my debt.

I've got 2 credit cards (out of 9 or so I have) with balances each in 5 figures. That's about to change. I had put extra money away for taxes this year, and it turns out I won't need to send it all to Uncle Sam. Rather than buy toys as I normally do, one of the 2 cards will be wiped clean. In 2 months my car is paid off, and I'm taking the car payment money and shunting it to pay off the other card. Between the money I was sending out for 2 credit card payments + my car payment, and (hopefully) some restraint, I should have the other card wiped clean in 12-15 months.

The hard thing (for me) is to resist those electronics/collectible impulse purchases.

Luckily at least, I have (1) stable employment, and (2) a low fixed-rate mortgage, but I can't necessarily count on the former forever, so I'd better lower my debt while I can.

Scary times call for change...

bobman1235

polksda wrote: »

I've got 2 credit cards (out of 9 or so I have) with balances each in 5 figures. That's about to change.

Wow, you make me feel a lot better about my situation. I have a single credit card with a low 5-digit balance and it feels insurmountable some days. It's mostly a holdover from college days where I didn't understand the ramifications of spending beyond my means, but if I were more responsible I certainly could have gotten rid of it by now rather than letting it ride and buying fun toys instead.

shack

I have one CC and my wife has a couple which are paid in full every month. I have a car with 3 payments left and my wife has about 12 on hers. I could write a check and pay them both off today. If we absolutely had to...we could live on a half to a 3rd of what we make. My 401ks are down about $70,000 but it just means I'm buying more stock with each dividend check...and they will be back. I'm not too worried.

carpenter

polksda wrote: »

Well, I see the handwriting on the wall, and I need to get off my lazy butt and do something about it. I've been part of the problem: living beyond my means through easy credit....

No you have not. not this problem. the cause of this crisis was greed and half ****'d regulation of the fixed income market.

from what I understand the root of the problem started when CDO structures ( Collateralized Debt Obligations ) became popular.
basically those are structured by many parts of mortgage backed bonds, and one part government bond.
what's the trick? all the greedy rating firms rated the credit risk of the CDOs as AAA, which is what you would rate a government bond (again, its only a small part of the structure).
and what happened? all of a sudden, those high risk high yield structures ( mortgage backed bonds yield better earnings then US treasury bonds) became also very well rated. which led large institutionalized investors, like pension founds to buy then like there is no tomorrow.
now ... here is the juice of the goose... as long as real estate prices went up .. everything worked just fine, everybody was happy. However ... in the last year, housing prices started to drop ... ooooppppssss! suddenly Moody's (a major rating firm) remembers they have some responsibility ... and drops the CDOs rating from AAA to something like C+ (appropriate to mortgage backed ..). as a result: all hell breaks loose! the reason is that the major institutions that invested in those CDOs are not allowed to have high risk items in their portfolio... they have to sell. they have to get rid of it all !
and here you have a sub prime crisis.
what happened is that government regulation was appalling. Shack used the term "fell asleep at the wheel" I say he is a gentlemen.
a bunch of incompetent pencil pushers is a more accurate a description.

.... so you see polksda.... you should start saving some money , but you are not the greedy **** that contributed to it all :cool:

carpenter

and now, inevitably JP Morgan to axe 8 thousands of Bear Stearns employees.
Sad news indeed.

mrbigbluelight

Found this little blurb on the local Craigslist Rant & Rave (the Source of All Knowledge :rolleyes: ); thought I'd post it.

The source is the Washington Post, but it does appear to be laying out facts.


By Neil Irwin
Washington Post Staff Writer
Friday, March 28, 2008; A01



In the past two weeks, the Federal Reserve, long the guardian of the nation's banks, has redefined its role to also become protector and overseer of Wall Street.

With its March 14 decision to make a special loan to Bear Stearns and a decision two days later to become an emergency lender to all of the major investment firms, the central bank abandoned 75 years of precedent under which it offered direct backing only to traditional banks.

Inside the Fed and out, there is a realization that those moves amounted to crossing the Rubicon, setting the stage for deeper involvement in the little-regulated markets for capital that have come to dominate the financial world.

Leaders of the central bank had no master plan when they took those actions, no long-term strategy for taking on a more assertive role regulating Wall Street. They were focused on the immediate crisis in world financial markets. But they now recognize that a broader role may be the result of the unprecedented intervention and are being forced to consider whether it makes sense to expand the scope of their formal powers over the investment industry.

"This will redefine the Fed's role," said Charles Geisst, a Manhattan College finance professor who wrote a history of Wall Street. "We have to realize that central banking now takes into its orbit everything in the financial system in one way or another. Whether we like it or not, they've recreated the financial universe."

The Fed has made a special lending facility -- essentially a bottomless pit of cash -- available to large investment banks for at least the next six months. Even if that program is allowed to expire this fall, the Fed's actions will have lasting impact, economists and Wall Street veterans said.

As they made a series of decisions over St. Patrick's Day weekend, Fed leaders knew that they were setting a precedent that would indelibly affect perceptions of how the central bank would act in a crisis. Now that the central bank has intervened in the workings of Wall Street banks, all sorts of players in the financial markets will assume that it could do so again.

Major investment banks might be willing to take on more risk, assuming that the Fed will be there to bail them out if the bets go wrong. But Fed leaders, during those crucial meetings two weeks ago, concluded that because the rescue caused huge losses for Bear Stearns shareholders, other banks would not want to risk that outcome.

More worrisome, in the view of top Fed officials: The parties that do business with investment banks might be less careful about monitoring whether the bank will be able to honor obscure financial contracts if they assume the Fed will back up those contracts. That would eliminate a key form of self-regulation for investment banks.

Fed leaders concluded that it was worth taking that chance if their action prevented an all-out, run-for-the-doors financial panic.

Those decisions were made in a series of conference calls, some in the middle of the night, against hard deadlines of financial markets' opening bells. Fed insiders are just beginning to collect their thoughts on what might make sense for the longer term.

"It has wrought changes far more significant than they were probably thinking about at the time," said Vincent Reinhart, a resident fellow at the American Enterprise Institute who was until last year a senior Fed staffer.

Whether there is a formal, legal change in the Fed's power over Wall Street or not, the recent measures, which were taken under a 1930s law that can only be exploited in "unusual and exigent circumstances," represent a massive departure from past practice.

The central bank was created in 1913 to prevent the banking crises that were commonplace in the 19th century. The idea was that the Fed would be a backstop, offering a limitless source of cash if people got the bright idea to pull all their money at once out of an otherwise sound bank.

In exchange for putting up with regulation from the Fed and requirements over how much capital they can hold, banks have access to the "discount window," at which they can borrow emergency cash in exchange for sound collateral. A bank might take deposits from individuals and make loans to people buying a house. Hedge funds do something similar: borrow money in the asset-backed commercial paper market and use it to buy mortgage-backed securities. But the bank has lots of regulation and access to the discount window; the hedge fund does not.

In recent decades, more of the borrowing and lending that was the sole province of banks has come to be done in more lightly regulated markets.

A decade ago, the nation's commercial banks had $4 trillion in credit-market assets, and a whole range of other entities -- mutual funds, investment banks, pensions, and insurance companies -- had about twice that much. Now, those other entities have about three times as many assets, based on Fed data.

Still, the Fed has resisted broadening its authority. On March 4, Fed Vice Chairman Donald L. Kohn told the Senate Banking Committee that he "would be very cautious" about lending Fed money to institutions other than banks or, as he put it, "opening that window more generally." The Fed did exactly that 12 days later.

The New York Fed said yesterday that investment firms have borrowed an average of $33 billion through that program in the past week.

The Fed has intervened in the doings of Wall Street in the past, but in limited ways. Most notably, in 1998, the New York Fed brought in heads of the major investment banks to cajole them into a coordinated purchase of the assets of the hedge fund Long-Term Capital Management, to prevent a disorderly sell-off that could have sent ripples through the financial world.

"Long-Term Capital was the dress rehearsal for what happened with Bear Stearns," said David Shulman, a 20-year veteran of Wall Street who is now an economist at the UCLA Anderson Forecast.

Treasury Secretary Henry M. Paulson Jr. said that if investment banks are given permanent access to the Fed's emergency funds, they should have the same kind of supervision that the Fed requires for conventional banks. "This latest episode has highlighted that the world has changed, as has the role of other non-bank financial institutions, and the interconnectedness among all financial institutions," he said in a speech Wednesday.

If Congress and the administration do broaden the formal powers of the Fed, it would be the latest in a long history of financial policy made out of a crisis. The Great Depression fueled an array of stock exchange regulation. The 1987 stock market crash led to curbs on stock trades. The 2002 corporate scandals led to the Sarbanes-Oxley Act.

And after the panic of 1907, a National Monetary Commission was formed to figure out how to prevent such things from happening again. Its crowning achievement: The creation of the Federal Reserve.



It appears that the Federal Reserve is going have a much larger role in the Financial Markets, doesn't it, as far as regulations, etc ?

Good thing, bad thing ?

SKsolutions

Complete joke. Have a laugh, or a cry even, then jump back on the treadmill.

polkatese

WOW...I stumbled on this posting that I posted back in March 18th, 08. The wrecking ball was in motion back then. Obviously, I had no vision on where we are going to be today. And reading some of the responses, it was quite revealing who were the optimists and missed. Not trying to be a pain....

treitz3

Yep, sign of the times. More to come, hang on to your hat folks. It's gonna be a bumpy ride.....

shack

I wouldn't change anything I posted in this thread. One of my main points was that we as a nation and economy should not panic but make wise and reasoned moves to avoid the worst. The market is where it is today because of panic, and we will pay a dear price. I said then that a recession was a real possiblility. It happened...but we have made it worse by a lot of knee jerk reactions by government, individuals, business and investors. There needs to be fundamental changes to the way we view investments, business and growth of the economy. Too many people, taking too many risks, all in the name of "get rich quick" have caused many of the problems. Steady, sustainable, reasonable growth is attainable with time and patience. The "I want it and I want it now"...no matter what the costs philosophy will have to change. As someone said...it will be a long bumpy ride. Let's hope we've learned something and get it fixed the right way.

polkatese

Your points are well taken Shack. When recession was finally acknowledged by the government that it began in December 2007 (in November 2008), we thought recession was a real possibility, back in March 2008. Isn't that ironic? as far as panic, yes, we went paralyzed over the fear, and the government wasn't exactly doing things that calmed the market. Now that the bottom fell off, what can be done in 2009 to start the recovery?