"Bear Stearns"?

  • Posted by a hidden member.
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    Mar 17, 2008 1:06 AM GMT
    What is it, why is it important to Wall Street and why is the Federal Government and JPMorgan Chase Bank looking to "save it" from failing? What are they "failing" at? How could this affect the economy or the individual? Certainly someone can tell me in a few lines...please.
    Thanks.icon_confused.gif
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    Mar 17, 2008 1:16 AM GMT
    Bear Stearns is one of the oldest (1923) investment banking firms on Wall Street. Its' failure would send a real shock through the financial markets.

    People are now getting really worried that this whole sub-prime mortgage mess could be far worse than initially thought due to the re-packaging of these bad mortgages into new types of financial vehicles such as Collateralized Debt Obligations or CDOs.

    Think of unravelling a huge ball of string and as you come near the centre you encounter more and more rancid meat. That is what this mess is like.

    The USA is trying to avoid a serious recession by cutting the prime rate. However, that is starting to cause other problems. For example, the dropping of the US dollar, the increasing price of oil (which is priced in US dollars), and other commodities. The weakness of the US dollar is also causing problems for the USA's trading partners such as Europe, Japan and Canada.

    Finally dropping the prime rate is doing nothing to combat inflation which is starting to raise its' ugly head. Remember the 1970's and "stagflation"? That is a real worry, low or no growth and inflation.

    I feel kind of sorry for the next US president. They could have a real challenge with the economy.
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    Mar 17, 2008 1:20 AM GMT
    Bear Stearns is the littlest financial giant. They are one of the largest backers of bonds, which puts them at particular risk with the housing market shake up. JP Morgan did not save it with any financial risk to themselves. They were the middle man between Bear Stearns and the FED. Because Bear Stearns is not an actual bank they do not qualify for the low interest FED loans. JP Morgan just enabled their loan, if Bear Stearns falls it wont affect JP Morgan, which is dandy.

    I know virtually nothing about the world of finance. The sense I get though is that it is a house of cards. If a little giant like Bear Steanrs falls it will take a lot with it and send the loan market into a faster death spiral.

    Note. I got all this information from a two minute segment on NPR while I was half listening at work.
  • HndsmKansan

    Posts: 16311

    Mar 17, 2008 1:22 AM GMT
    "Bear Stearns" is a financial institution and the
    liquid dollars are guaranteed by the US government.
    What happened last week (from what I could tell in a limited way) is that depositors wanted their liquid money payed to them on demand... and there wasn't enough money available to service the demand so the government had to step in.

    Not since the 1930's has the government had to step in in this manner.

    What it shows is that our credit market is shaky and "depositor" confidence is lacking at this time.
    The federal reserve has lowered interest rates to 3.0%
    (from the 5.25% it had been earlier), but lending institutions are still hesitant to lend because of the mortgage issues.

    There is debate as to whether we are in a recession at this time (per the 2 quarter definition). Most reason we are in a recession and what happened to Bear Stearns shows the lack of confidence overall.
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    Mar 17, 2008 1:25 AM GMT
    Well shit, JP Morgan just bought out Bear Stearns for $2 a share.
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    Mar 17, 2008 1:32 AM GMT
    MunchingZombie saidWell shit, JP Morgan just bought out Bear Stearns for $2 a share.


    Thanks for the update, on NPR? I gotta make sure I watch Bloomberg TV tomorrow morning. I follow the financial religiously (after all that is my background). $2 a share is pretty cheap.

    BTW you are correct Bear Stearns is big, but the smallest of the Wall Street Investment Banks. Goldman Sachs, Lehman Bros., Merril Lynch and JP Morgan are the main ones now.

    I don't scare easily but this whole sub-prime mess could make the dot.com bubble look like a minor blip.
  • GQjock

    Posts: 11649

    Mar 17, 2008 3:31 AM GMT
    This is the LONG and torturous end reult of years and years of that famous trickle-down, voodoo,Reagan-Bushian economics where regulation and control of the business sector is a bad word
    What the Fed neglects to tell you is that as they cut and cut those interest rates...the dollar becomes more and more devalued and THAT raises overseas prices for things like OIL
    Yup...this is gonna be a nasty one
    One more thing to thank George for
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    Mar 17, 2008 1:36 PM GMT
    Bear Stearns lost 90% of its' stock value in one weekicon_eek.gif

    One expert floated a number of 11 Trillion dollars before this whole sub-prime mess is cleared up. That is likely too high, but the US taxpayer is probably going to be on the hook for something.

    J.P. Morgan borrowed $30 billion on Sunday directly from the Federal Reserve in order to complete this transaction. Supposedly it is the first time this sort of loan has happened since the 1930's.

    First the dot-com bubble, then the housing bubble, what bubble is coming next? The Federal Reserve keeping interest rates low for so long in order to pump up the economy is causing serious hangovers when things go bad.

    This is going to be one of those weeks when I do not look at my investments. If I do I will make sure I stay away from the liquor cabinet. Very depressing.
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    Mar 17, 2008 4:28 PM GMT
    Down to $2!!! That's a huge plunge. And Bear Stearns heavily encouraged their employees to invest in the company. It was 30% employee-owned, so that a big loss for their employees.

    http://www.boston.com/business/articles/2008/03/17/bear_execs_lack_golden_parachutes_stock_plan_crunched/
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    Mar 17, 2008 4:35 PM GMT
    I'm certainly going to be buying stocks soon. I kind of feel bad with this recession going, but I remember my grandfather clearly telling how he regreted not investing during the recession after World War II. If they make Stocks, Bonds and Shares book for dummies, I'm buying it! I'm going to learn whatever I can before September, when I go back to school =)
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    Mar 17, 2008 4:40 PM GMT
    boiwunderkind saidI'm certainly going to be buying stocks soon. I kind of feel bad with this recession going, but I remember my grandfather clearly telling how he regreted not investing during the recession after World War II. If they make Stocks, Bonds and Shares book for dummies, I'm buying it! I'm going to learn whatever I can before September, when I go back to school =)


    They do make "Dummies for Stocks" "Dummies for Mutual Funds" etc.. I own copies of them. They are useful.

    I personally am going to wait a few more months before I start investing again. I think the market has another 10% drop at least to go, the recession has not shown up on many companies quarterly results as yet.

    Also the credit crunch and sub-prime mortgage meltdown still probably have a ways to go yet (an "expert" on Bloomberg this morning says we are in the middle innings).

    Big question is how many more writedowns does Citigroup have to go (largest US bank)? There is a feeling that they are still not out of hot water as yet.
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    Mar 17, 2008 4:47 PM GMT
    It's probably worthwhile to stay on the sidelines until the "panic" subsides.

    I expect in the next week or so, foreign central banks will have to take some action to slow the dollar's decline. They really have no choice now. The weak dollar isn't helping anyone except the oil countries right now, and I think even they're afraid that with a US recession, oil consumption will drop and that could even spread to China and India if US consumers cut back on their spending even more, which they will.

    As for the "stimulus" check, i've earmarked that to my credit card debt.
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    Mar 17, 2008 4:49 PM GMT
    [quote][cite]jbedwards said

    I personally am going to wait a few more months before I start investing again. I think the market has another 10% drop at least to go, the recession has not shown up on many companies quarterly results as yet.
    [/quote]

    I don't know jb, from what I hear the market is a buying opportunity. Anything with the S&P under 1300 is a buying opportunity. Of course that always happens when I'm out of disposable cash but I did move a little around to take advantage of the low.
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    Mar 17, 2008 4:53 PM GMT
    I can't wait to invest! I wonder why I'm reposting???
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    Mar 17, 2008 4:54 PM GMT
    eb925guy said[quote][cite]jbedwards said

    I personally am going to wait a few more months before I start investing again. I think the market has another 10% drop at least to go, the recession has not shown up on many companies quarterly results as yet.


    I don't know jb, from what I hear the market is a buying opportunity. Anything with the S&P under 1300 is a buying opportunity. Of course that always happens when I'm out of disposable cash but I did move a little around to take advantage of the low.[/quote]

    It could be, only fools claim to know when to time the market with 100% certitude. I am really feeling uncomfortable though with this sub-prime mess. In June more mortgages have their monthly payments spike. Credit card debt is very high and with housing values still dropping people are no longer accessing the equity in their homes to finance their lifestyles. Some people are simply walking away from their homes because the value is now less than the mortgage.

    I am glad I live in Canada where the banking system is not nearly as exposed.
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    Mar 17, 2008 4:56 PM GMT
    well boiwunderkind, if you can and you're just going into the market, I think now is a good time but do your homework first. you'll want to ensure a stable company or go into a mutual fund that diversifies over a broad range of companies (IE: Russell 500 or other index fund).
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    Mar 17, 2008 5:02 PM GMT
    jbedwards said

    It could be, only fools claim to know when to time the market with 100% certitude. I am really feeling uncomfortable though with this sub-prime mess. In June more mortgages have their monthly payments spike. Credit card debt is very high and with housing values still dropping people are no longer accessing the equity in their homes to finance their lifestyles. Some people are simply walking away from their homes because the value is now less than the mortgage.

    I am glad I live in Canada where the banking system is not nearly as exposed.


    Definitely a time of uncertainty and you're absolutely correct about the mess with the sub prime mess. I think all-in-all however we're not in that bad of shape. If this bail out plan (not sure it's going to work) to stimulate the economy works then factory output will increase and I think that will help consumer confidence. As for credit card debt, I've seen that as a problem for a long time and now perhaps this will be the last straw to that house of cards (pun intended).

    However, all that being said, one should be investing for the long term anyway and I think over the long haul this could prove to be a buying opportunity prior to the market starting more of any uphill climb. Especially with the change in leadership, I think the people will sense a boost....maybe I'll be wrong..hope not my portfolio has taken a big hit recently!
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    Mar 17, 2008 6:35 PM GMT
    I am going to start putting my "big toe" back into the shark-infested waters of investing in June or July. This whole sub-prime debacle should not come as a surprise, there were worries expressed 2 years ago about it. There are some very unethical and greedy people that took advantage of others to make a quick buck. That coupled with the new financial instruments that Standard & Poors and Moody's did not know how to rate properly (and they did not seem to warn people about their uncertainties) has left a very black eye on the whole financial industry. So wonder some people want to hide their savings under the mattress.

    Meanwhile I am setting aside my pennies for renovations. I figure in the long-run real estate is a good place to be in Canada. It has not gone up as much as some parts of the USA.