Bear Sterns: From $1.1 trillion in Nov to $236 million.

[Deny and Shred]

Yes, that's right. On their Nov. 2007 balance sheet, Bear Sterns' stockholder's equity was $1.1 trillion. They sold today to JPMorgan for $236 million.

http://biz.yahoo.com/ap/080316/jpmorgan_bear_stearns.html
http://finance.yahoo.com/q?s=bsc&x=0&y=0

The Fed has agreed already to provide up to $30 billion in financing, on top of whatever portion of Bear Stearns soaked up of the $480 billion in 'liquidity' the Fed has already injected into the financial system since December in order to free up the credit crunch.
The Fed supplies taxpayer dollars, mind you. Wall Street has posted paper profits and fat cash bonuses for a couple years based on these credit derivative swaps, backed in theory by mortgages.
To me its just another case of 'where do the masses still have faith?' It was S&Ls once upon a time, Reagan convinced Americans it was deregulated markets (which led us inexoribly to Enron), now it's mortgages, and on a par is supporting the troops. (I DO support the troops, but the cost plus KBR contracts, among many other examples, show this was abused for massive taxpayer ripoff as well.)

'Where do the masses have faith?' Oh, do they still think mortgages SOUND safe? Then let's back our new investment vehicle with mortgages, but leverage them, slice them up, so much so that we can't even price them and the ratings agencies can't make heads or tails of them. They do get paid to rate them, so AA through AAA+. You can add S&P and Moody's to the 'Oh they have faith in rating agencies also. Kinda like basic name recognition faith in Arthur Anderson, that led to a similar implosion.

There was roughly $45 trillion in notional value wrapped up in the balance sheets of financial firms due to credit derivatives. One of those trillion just evaporated. I hope to high heaven that this is a stemmable problem, by with Captain TapDance at the helm, I dare say this might get really severe.
I am against the Fed bail out, and believe you deregulated, believe so damn strongly that markets will sort themselves out, then let Bear Sterns go down in flames, but as of Thirsday they were making public statements that all is fine.

Since Carlyle Capital couldn't meet a similar credit crunch (not Carlyle Group, mores the pity), I feel like this isn't those in the know gaming the rest of us, this might have serious financial spillover.
I'm in Shock, shck I tell you!

[DainBramaged]

1. And a very very few still became very very rich

while the rest of us worry about our next meal. Special financing my wrinkled old ass.


A sad day that Bear Sterns wasn't just allowed to fail. WE own it, but will never see a dime of return.

[Zynx]

2. Shareholder Equity is $11 billion. Not $1.1 trillion.

http://finance.yahoo.com/q/bs?s=BSC

[angstlessk]

3. it says all numbers in thousands, so don't you have to add tree zeros

to the end of those numbers? 11,793,000 add three zeros? 11,793,000,000 or am I confused?

[Zynx]

4. Yeah you came to the right number.

11.8 billion. Shareholders lost big, but not that big.

[JDPriestly]

5. And they were worried about the cost of Medicare and Social Security?

This is what happens when people buy into the idea that government regulation of the markets is evil. This is exactly the basic scenario that took place in the 1920s and culminated in the Great Depression. My 91-year-old mother remembers it well. I have read a lot of books about the history of that era. Fascinating characters -- Sell-'em Ben was just one of the many memorable participants.

Here is some of what Wikipedia reports:

At 1 p.m. on Friday, October 25, several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor. The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank. They chose Richard Whitney, vice president of the Exchange, to act on their behalf. With the bankers' financial resources behind him, Whitney placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As amazed traders watched, Whitney then placed similar bids on other "blue chip" stocks. This tactic was similar to a tactic that ended the Panic of 1907, and succeeded in halting the slide that day. In this case, however, the respite was only temporary.

Over the weekend, the events were covered by the newspapers across the United States. On Monday, October 28, more investors decided to get out of the market, and the slide continued with a record loss in the Dow for the day of 13%. The next day, "Black Tuesday", October 29, 1929, 16.4 million shares were traded, a number that broke the record set five days earlier and that was not exceeded until 1969. Author Richard M. Salsman wrote that on October 29—amid rumors that U.S. President Herbert Hoover would not veto the pending Smoot-Hawley Tariff bill—stock prices crashed even further."<5> William C. Durant joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks in order to demonstrate to the public their confidence in the market, but their efforts failed to stop the slide. The DJIA lost another 12% that day. The ticker did not stop running until about 7:45 that evening. The market lost $14 billion in value that day, bringing the loss for the week to $30 billion, ten times more than the annual budget of the federal government, far more than the U.S. had spent in all of World War I.<6>

An interim bottom occurred on November 13, with the Dow closing at 198.6 that day. The market recovered for several months from that point, with the Dow reaching a secondary peak at 294.0 in April 1930. The market embarked on a steady slide in April 1931 that did not end until 1932 when the Dow closed at 41.22 on July 8, concluding a shattering 89% decline from the peak. This was the lowest the stock market had been since the 19th century.<7>

Salsman observed that "As late as April 1942, U.S. stock prices were still 75% below their 1929 peak and would not revisit that level until November 1954—almost a quarter of a century later."<5>

http://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929

If history is a guide, the wealthy and powerful will make every effort to create the impression that it's business as usual and that the problems are just transitory. Don't believe it for a minute. The problems are not superficial. They are structural. They are the result of not tears in the fabric of our economy but huge fissures. You are about to witness an earthquake on the Andreas Fault of our economy. Don't get too close. This one will shake us all. Just relax and hope that you are lucky.

And the worst of it is that we were warned. We already saw the failure of Enron and the aftermath of that. Here on DU we have maintained a diary of the corruption and selfishness and irresponsibility that has taken advantage of voters and taxpayers over the past seven years.

Shame on the so-called journalists who have Kowtowed to the rich and powerful and led voters to believe that all was well, nothing to fear, nothing to see here with regard to the crime at high levels. Wow!!!

If 1929 is any guide, you will now see an unraveling of many a Ponzi scheme, of all kinds of really dirty stuff. Just wait. No wonder Spitzer was so quick to resign. He will not have to make the decisions that the governor of New York (and Wall Street) is going to have to make in the next months. Bush and his ilk are going to give the new governor an extremely rough time.

Buckle down. No matter your financial situation, you are going to feel this. Stay steady and read lots of Eckhart Tolle or pray a lot or whatever you do to brace yourself, whatever you do when you are afraid, whatever you do when you see no light at the end of the tunnel. 2% interest rate. Wow!!! This could be the end of the Federal Reserve. This may be the end of Republican presidents for a long time. The Republicans and the Federal Reserve were in charge of this. They have no one to blame but themselves.

Here are some links on Sell 'Em Ben

http://www.time.com/time/magazine/article/0,9171,759433,00.html

http://books.google.com/books?id=tOtPb3LQDC0C&pg=PA245&lpg=PA245&dq=sell+em+ben&source=web&ots=ckb_F0_0Bz&sig=d7VOxA24X2Ydif6V7A7MLRFshPA&hl=en
(The Art of Short Selling)

[Hannah Bell]

9. There's a repeated history of public-private buyouts/supports

in market downturns/panics. JPMorgan involved in many.

The Panic of 1893

In 1895, at the depths of the Panic of 1893, the Federal Treasury was nearly out of gold. President Grover Cleveland arranged for Morgan to create a private syndicate on Wall Street to supply the U.S. Treasury with $65 million in gold, half of it from Europe, to float a bond issue that restored the treasury surplus of $100 million.
wikipedia


J.P. Morgan - Savior -- The Panic of 1907
http://www.buyandhold.com/bh/en/education/history/2000/122499.html

[Deny and Shred]

6. If my math is off a decimal or two, forgive me. The Stockholder's Eqty

position on Yahoo is listed in thousands. I could have hit up Edgar before posting to find their most recent quarterly, but was retrieving my jaw from my lap, and felt I needed to vent, so I posted quickly.

Its a hell of an evaporation nonetheless, really only rivaled by ENE. There are many firms with these on their balance sheets, and I believe they are valued only at what they paid for them, not even Enron's pathetic mark to market. The lack of a trading value, and the incredible amount out there is what has me worried.

As for those making out, I believe Goldman convinced everyone that these were okay to trade, made their money and got out, so look to them, but that is anecdotal. The notes to the annual reports, and any random gleaning from conference calls may be all we get before some other major financial player announces Oops.

[MannyGoldstein]

7. 96% Of Shareholder Equity Lost In Less Than Two Business Days

That is staggering - it shows how rotted out is the foundation of our banking system.

[funflower]

8. Interesting parallels to the Panic of 1907

http://en.wikipedia.org/wiki/Panic_of_1907

JP Morgan himself stepped in that time.

[dixiegrrrrl]

10. But the Fed bailout is not using REAL money, is it?

How the hell does anyone know how much **real** money is sloshing around.
USA is in unmeasurable debt, so isn't the Fed just paying for Bear Sterns, or whoever the next bailout is, with more debt?

Come to think of it....now that the dollar is worth about 4 cents, does that mean we can pay creditors off real cheaply?

It's not really....well, real, is it?


:shrug: