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In for an interesting day today on the financial markets... (18 posts)

1. truthmod
   Administrator

   http://cryptogon.com/?p=2226

   In an unprecedented Sunday night announcement that underscores the depth of the market fears, the Fed said it has authorized a new lending tool to help its network of primary dealers — including firms that interact with the Fed daily but don’t fall under its direct supervision — to provide financing in securitization markets. Growing worries about securities backed by mortgages has been exacerbating the credit-market upheaval and threatening the overall economy.

   ....

   Bear Stearns Cos. reached an agreement to sell itself to J.P. Morgan Chase & Co., as worries grew that failing to find a buyer for the beleaguered investment bank could cause the crisis of confidence gripping Wall Street to worsen.

   The deal calls for J.P. Morgan to pay $2 a share in a stock-swap transaction, with J.P. Morgan Chase exchanging 0.05473 share of its common stock for each Bear Stearns share. Both companies’ boards have approved the transaction, which values Bear Stearns at just $236 million based on the number of shares outstanding as of Feb. 16. At Friday’s close, Bear Stearns’s stock-market value was about $3.54 billion. It finished at $30 a share in 4 p.m. New York Stock Exchange composite trading Friday.

   ....

   Bear Stearns, pushed to the brink of bankruptcy by what amounted to a run on the bank, agreed late Sunday to sell itself to JPMorgan Chase for a mere $2 a share, narrowly averting a collapse that threatened to cascade through the financial system.

   The price represents a startling 93 percent discount to Bear Stearns’ closing stock price on Friday on the New York Stock Exchange.

   Posted 16 years ago #
2. truthmod
   Administrator

   Gold Advances to Record in Asia as U.S. Dollar Falls
   http://www.bloomberg.com/apps/news?pid=20601081...

   Bullion for immediate delivery climbed to as much as $1,032.70 an ounce, and traded up $19.95, or 2 percent, at $1,022.90 an ounce at 11 a.m. Singapore time.

   Posted 16 years ago #
3. truthmod
   Administrator

   Greenspan warns of worst crisis since 1945
   http://www.france24.com/en/20080317-current-crisis...

   The current crisis rocking the markets and global economy could turn out to be the worst since World War II, former US Federal Reserve chairman Alan Greenspan said in remarks published Monday.

   "The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the Second World War," Greenspan said in a Financial Times commentary.

   "It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities," he said, referring to the meltdown in the US subprime home loan market and subsequent massive losses for the banks holding the debt instruments.

   Posted 16 years ago #
4. JohnA
   Member

   Bear Stearns stock was valued at $180 per share this time last year.

   Last night Bloomberg ASia was speculating Bear Stearns would be bought out at $30 per share.

   Ultimately - a few hours later it was bought out at $2 per share.

   From $180 to $2 in 12 months.

   Bear Stearns was valued at $20 billion this time last year. It was bought out for $245 million. That's a loss of $19.75 Billion. That's a 99% drop in value.

   This was a classic bank failure. There was a run on the bank - with investors pulling their money out. It was different from the 1930s in that it all happened quietly - behind the scenes in a high-tech world - but it was a bank failure in the classic sense of the word.

   The problem is that Bear Stearns is not the only investment bank in this predicament - and early signs point at other investment banks experiencing panic selling as well. The problem for the market is that no one really knows for sure how deep this rabbit hole goes - and investors in these investment banks do not know how exposed their money is - so - they are pulling it all out.

   a US recession has never been preceded by such a head-long slide in the housing market - and such spectacular bank devaluations. never. so - uncertainty is extremely high. no one knows what comes next. it is unprecedented.

   I seldom agree with Steve Forbes - but he is right when he claims the administration is doing the worst thing possible - feeding inflation - by diluting the currency with excess liquidity. certainly printing billions of dollars for bank bailouts is a conundrum in this respect.

   should the dollar continue to devalue - and banks continue to fail - we could see hyper-inflation spiral out of control - akin to Germany in the 1930s.

   these are not small commercial banks that are failing. This is not your fathers Oldsmobile S&L debacle. these are major investment banks - the cornerstones of the US market with major implications - on a global scale.

   but it is the overseas markets that ultimately could put the last nail in the US dollar's coffin. should sell-offs like today in the overseas markets continue - and the crisis deepens - no amount of interest rate manipulation and printing currency for bailouts will save the dollar. like Bear Stearns we could see overseas markets pulling its money out - in a panic - before it is too late - and america itself going down the same tubes Bear Stearns did today.

   Posted 16 years ago #
5. NicholasLevis
   Member

   Why is JPM stepping in, first on the bail-out, now on the $2 purchase? No doubt they're cleaning up some of their exposure.

   Citicorp and other bigs are expected to deliver horrible quarterlies this week.

   I read about the credit insurance derivative market, where they sell and share (and multiply) perceived risks. Don't let me fool you into thinking I know how it works. Anyway, this thing barely existed 10 years ago, now it's at more than $40 trillion valuation and dwarfs the equities markets and the mortgage markets themselves. Why are they playing in that to such an extent? Seems like an enormous no-confidence vote on their own behalf. Sounds like something that's going to go poof in a day.

   Posted 16 years ago #
6. JohnA
   Member

   Re: credit insurance derivatives

   *The market promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever,'' * - according to Bill Gross, who manages the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California.

   "The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear....[They] are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." -- Warren Buffett

   The problem:

   You lent money to Morgan Stanley in 2004 for 4.75% bonds.

   They slump in value and you suspect worse.

   You call a credit-defulat swap broker at Merrill Lynch and get "insurance" on your bonds. If Morgan Stanley slumps in credit-worthyness the value of that "swap" increases - offsetting the losses in those bonds.

   One problem:

   You are now liable for Merrill Lynch's risk as well. Guess what - Merrill Lynch turns out to be even riskier than Morgan Stanley.

   This is a pyramid scheme. Diversifying risk is only a game of musical chairs in which you attempt to shift liability to someone else - but SOMEONE will always end up one chair short.

   and here's the real kicker: it amounts to buying increasing shares of a dwindeling market. and in a scenerio where the industry as a whole takes a hit......... poof!!!

   Posted 16 years ago #
7. NicholasLevis
   Member

   I mean, but the size of the credit insurance thing really tells you they know it's all coming down. Why would they be driving that up so far, if they believed the standard financial business could ever come through?

   When this particular $40 trillion fiction goes poof, is the media going to say that seriously? "The credit derivatives market lost $40 trillion..." As though it ever existed in the first place! I mean, the real credit market, scam though it is, actually involved real money being lended. Is there also going to be a bail-out for this derivatives crap? With what?! Will people stand for this on top of everything else, since most of us don't know what the fuck a credit derivative is, anyway?

   Seems to me like any single player's best bet for a bail-out is to fail today, and not wait until bail-outs become impossible. Like, don't wait 'til Thursday.

   What a scam. I have some gambling I'd like to do - preferably in Vegas, not chintzy little AC. Can I get a line from the overnight window?

   Check this out: http://www.counterpunch.org/martens03172008.html

   Fed's made a special line available to Citi. It goes to the bank, since they're not allowed to bail out brokerages, but the bank has been given a dispensation to lend it to its own brokerage.

   I don't believe there's a chance the timing of the Spitzer disposal wasn't related to this. By next week, everyone might have been looking to him for guidance (good night and good luck!) because of his reputation and position as governor of New York.

   Posted 16 years ago #
8. JohnA
   Member

   <I mean, but the size of the credit insurance thing really tells you they know it's all coming down. Why would they be driving that up so far, if they believed the standard financial business could ever come through?>

   any gambler knows the answer to this. gamblers KNOW they are losing just by putting their money on the table. gambling in Vegas is really just a 'controlled losing' session. the odds are bound to get you.

   the reason it is getting so big ($40 trillion) is like a gambler chasing his past losses by hedging his future bets. They want the upside of hedging their bets - diversifying their risk - losing less by diversifying and betting morein the future - but risking more - putting more and more chips on a variety of different numbers on the craps table - and hoping some combination of rolls makes them whole again. But its a vicious cycle that requires covering more and more bets to protect what becomes accelerating losses.

   Gamblers who chase their losses go down hard.

   in gambling its called a Martingale system. in finance its a Ponzi scheme. it gets bigger and bigger until it collapses when the game itself become too expensive to play.

   this can't happen - you say. this is america. the casino pit boss would SURELY stop me from betting the farm. these things are regulated!!!

   i guess the question in this analogy is - cuo bono? IN vegas the answer is obvious. On Wall Street 2008 it is not yet clear.

   "We are the creative destructionists." - Michael Ladeen.

   Posted 16 years ago #
9. truthmod
   Administrator

   But Wall Street was up for the day! Everything is fine, I'm so relieved.

   (Just ignore the below):

   http://news.yahoo.com/s/nm/20080317/bs_nm/dollar_d...
   Dollars tough to sell on streets of Amsterdam

   The U.S. dollar's value is dropping so fast against the euro that small currency outlets in Amsterdam are turning away tourists seeking to sell their dollars for local money while on vacation in the Netherlands. ADVERTISEMENT

   "Our dollar is worth maybe zero over here," said Mary Kelly, an American tourist from Indianapolis, Indiana, in front of the Anne Frank house. "It's hard to find a place to exchange. We have to go downtown, to the central station or post office."

   Posted 16 years ago #
10. truthmod
    Administrator

    Fed set for big rate cut amid market turmoil
    http://news.yahoo.com/s/nm/20080318/bs_nm/fed_cred...

    While financial markets expect the Fed to fire off its biggest rate cut since 1982, they might focus more on the quarterly results due hours earlier from Goldman Sachs Group Inc (GS.N), the most profitable U.S. investment bank, and Lehman Brothers Holdings Inc (LEH.N), the fourth-largest.

    The banks are expected to show how badly they were hit by the credit crunch in the three months ended February 29 -- and any major shocks could send markets into another tailspin, especially given the vulnerability of the financial sector exposed by the fire sale of Bear Stearns to JPMorgan Chase.

    The Fed has already taken a series of radical steps in an attempt to stabilize the financial system.

    It narrowed the gap between the discount rate -- the rate at which it lends directly to banks -- and the federal funds rate, the overnight rate banks charge each other for loans and the Fed's main policy tool, from three-quarters of a percentage point to a quarter point.

    The U.S. central bank also unleashed a barrage of other unorthodox steps to provide liquidity, including $30 billion in financing to enable JPMorgan to buy Bear Stearns. In addition, it set up a new program to provide cash to a wider range of big financial firms through loans at the Fed's discount window.

    Posted 16 years ago #
11. NicholasLevis
    Member

    On the Daily Show last night they had a clip from that asshole Cramer on CNBC last Tuesday screaming, "No! No! No!" to the thought that Bear Stearns was anything other than financially solid, urging all shareholders to hold their BS shares and disregard the baseless rumors. As though this was the first time for him or the whole TV stock shill nomenklatura pulling the same act, over and over. The system is predicated on willing victimhood by the soldier investors. The pitchforks never seem to come out for the public liars, including all the "reporters" who played transmission chain on the Iraq invasion lies and remain in place and prosper.

    Posted 16 years ago #
12. JohnA
    Member

    goosing the stock market with an interest rate cut is akin to pinching a woman's ass. you get a response that mimics 'stimulation.' but its temporary.

    unfortunately, too many people look at one-day snapshots of the stockmarket as their only barometer of the economy's health.

    what are the odds that the the US will be able to 'grow' out of this predicament? what are the odds that things will simmer down and stabilize and bring solvency to the investment banks carrying these massively flawed debt instruments?

    Nicholas quoted $40 trillion in credit insurance derivatives?

    these problems are not just going away.

    and it makes me sick that the financial news services are as fickle as one day's worth of sound bites.

    "ah - everythings ok now because of a .25% interest rate cut that goosed the stock market for the day."

    "ignore the fact that one of the largest investment banks in world just crumbled at the speed of gravity."

    (hmmm.... where have i heard that before?)

    Posted 16 years ago #
13. truthmod
    Administrator

    Derivatives the new 'ticking bomb'
    Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen
    http://www.marketwatch.com/news/story/derivatives-...

    " To grasp how significant this five-fold bubble increase is, let's put that $516 trillion in the context of some other domestic and international monetary data:

    *
      U.S. annual gross domestic product is about $15 trillion
    *
      U.S. money supply is also about $15 trillion
    *
      Current proposed U.S. federal budget is $3 trillion
    *
      U.S. government's maximum legal debt is $9 trillion
    *
      U.S. mutual fund companies manage about $12 trillion
    *
      World's GDPs for all nations is approximately $50 trillion
    *
      Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
    *
      Total value of the world's real estate is estimated at about $75 trillion
    *
      Total value of world's stock and bond markets is more than $100 trillion
    *
      BIS valuation of world's derivatives back in 2002 was about $100 trillion
    *
      BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion"
    

    ---

    MAIN SUB-PRIME LOSSES SO FAR
    Citigroup: $18bn
    HSBC: $17bn
    Merrill Lynch: $14.1bn
    UBS: $18.4bn
    Morgan Stanley $9.4bn
    Credit Agricole: $5bn
    Deutsche Bank: $3.2bn
    Bank of America: $3bn
    Barclays: $2.6bn
    Royal Bank of Scotland: $2.6bn
    Freddie Mac: $2bn
    JP Morgan Chase: $3.2bn
    Credit Suisse: $1.8bn
    Wachovia: $1.1bn
    IKB: $2.6bn

    Posted 16 years ago #
14. truthmod
    Administrator

    Check the top story on Yahoo right now:

    Fed delivers 3/4 point cut
    http://news.yahoo.com/s/nm/20080318/bs_nm/fed_cred...

    The Federal Reserve on Tuesday slashed U.S. interest rates by a hefty three-quarters of a percentage point, giving a lift to a Wall Street already jubilant over stronger-than-expected investment bank earnings.

    So, I guess because Goldman and Lehman only reported 50% drops in earnings (better than expected), everything is fine, once again.

    $516 TRILLION in derivatives

    Posted 16 years ago #
15. NicholasLevis
    Member

    Wonder how they come up with this one:

    Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion

    • Over what time frame? Assuming what demographics? Under what future SS tax and payment structure? At what retirement age?

    The list is interesting.

    It occurs to me seeing it how economics goes from real (production) to imperfect attempts to measure the real (money) to virtual (valuations) to fictional (derivatives).

    GDP, money supply, national debt and federal budget are measurements of transactions in actual dollars that were issued and then changed hands at least once. The things we produce may be follies, and the figures measuring them change from year to year and can be gotten wrong or falisified (they often are), but they are not simply theoretical.

    The stated values of whole stock markets, all mutual fund portfolios, and all real estate are theoretical cumulative valuations based on current market price of the assets. If stock prices change, that cumulative "value" of the market changes, but the money in that figure never all existed as actual dollars, and it can't (since not every asset can be sold at once).

    The social security benefits figure is a no doubt skewed theoretical estimate of a commitment to pay in the future.

    Whereas that derivatives thing, far as I understand it, is fiction. A mass self-delusion or collective wishful thinking of the million or so power types who deal in them, a group consensus to pretend value comes out of pure thought. As things stand, everyone else is going to be made to pay for this fiction to the last penny of the real economy until that becomes impossible or until there is a revolt.

    Posted 16 years ago #
16. truthmod
    Administrator

    So this week everything is supposed to be bullish again?? Buy buy buy. Oh, and those silly commodities were obviously overpriced.

    Bulls getting ready to stampede
    Support from the Fed, a stronger dollar and a plunge in commodities all seem to mark a turning point in the credit crisis.

    http://www.marketwatch.com/news/story/stocks-look-...

    Here is the video of Jim Cramer telling us to keep our money in Bear Stearns:

    http://www.youtube.com/watch?v=niVjE5m4v2o&fea...

    Posted 16 years ago #
17. JohnA
    Member

    I'm bumping this thread to the top of the pile.

    i can remember being called 'reactionary' for bringing these facts to friends and family and co-workers nearly a year ago.

    how did they do it? how did they manage to turn financial amnd social vigilance - and stewardship of the environment - and the search for TRUTH - and the demand for transparency - into a social faux pas?

    when did social activism become a dirty word - or worse - become equated with naiveté ?

    oh tsh tsh - lets stop all this silly doomsday talk. stop spreading all those crazy conspiracy theories.

    this ship can't sink.

    go back to your rooms and have a spot of tea

    Posted 15 years ago #
18. truthmover
    Administrator

    Dow closed below 7000 and S&P near 700. Total chaos!!!

    Posted 15 years ago #

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