Article

2008-03-15 Home Front Economy

Bear Stearns exposed as a bank saddled with toxic sub-prime debt

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Posted by Steve White 2008-03-15 00:00|| || Front Page|| [11133 views ] Top

#1 "US house prices have a lot further to fall, which will simply crush the global economy."

I wonder if it's ever occurred to the rest of the world that if their jealously-fueled fantasies about us come true, that hatred will also destroy them.

Posted by Barbara Skolaut">Barbara Skolaut 2008-03-15 00:13|| http://ariellestjohndesigns.com/]">[http://ariellestjohndesigns.com/] 2008-03-15 00:13|| Front Page Top

#2 The lending against over-valued real estate is a worldwide problem. Although some countries are worse than others.

FWIIW, I think Australia has a bigger problem. Although, we are perhaps a year behind the US in the cycle.

Posted by phil_b 2008-03-15 00:39|| 2008-03-15 00:39|| Front Page Top

#3 Oh, yes please, let's bail out the people whose irresponsibility and criminal culpability cause the situation in the first place.

And Barbara, they won't see it like that - they'll just hate us all the more, because it's our fault. It won't occur to them that the outcome they've been fervently wishing for has happened.

Posted by gromky 2008-03-15 00:56|| 2008-03-15 00:56|| Front Page Top

#4 The way I now understand the sub-prime game these folks can go down now. I don't care. If nasty folks try to collect from these funds ... I will look the other way. Them and the horse they ride on deserve whatever...

Posted by 3dc 2008-03-15 00:57|| 2008-03-15 00:57|| Front Page Top

#5 Oh, and I didn't demand help when my job was outsourced by jerks like these. (Engineer)

Posted by 3dc 2008-03-15 00:58|| 2008-03-15 00:58|| Front Page Top

#6 These financial people should know better! Find the responsible parties that should have said no, and put them in prison.

And, if needed, pass legislation to prevent this crap from happening again. And Europe can get bent, Commie bastards.

Posted by Large Uling4643 2008-03-15 03:09|| 2008-03-15 03:09|| Front Page Top

#7 Warren Buffett once said about the financial world, "You only learn who has been swimming naked when the tide goes out " Bear Stearns should change its name to: "Bare Sterns"
The key risk at the moment is a collapse of credit, which hasn't happened in our lifetimes. Among other things, this would mean 1000's of viable businesses couldn't get loans to carry on, they would vanish, along with 100,000s (or more) of jobs in a tsunami of business contraction. It's not just about rewarding irresponsible and greedy bankers and financiers.

Posted by Anguper Hupomosing9418 2008-03-15 03:29|| 2008-03-15 03:29|| Front Page Top

#8 It's not just about rewarding irresponsible and greedy bankers and financiers.

Odd, it seems to have that effect, no? The old argument of "think of the little people" has worn out its welcome. Don't you think that the bankers and financiers knew this argument would come out when they made their criminally negligent moves? And why did they do this? It wasn't to make a profit - profits were already good. They committed crimes to make extra money on top of their already good business.

Posted by gromky 2008-03-15 04:16|| 2008-03-15 04:16|| Front Page Top

#9 I've been through a mild housing price deflation just after the oil price collapse in in Tulsa, OK, March, 1982, when my rent went from 350 mo. to 220 mo.

There was a lot of whining and warnings, and some banks collapsed, but in the end there was no apocalyptic ending. Banks and businesses adjusted their balance sheets, and life went on.

My problem with this financial crisis is that banks rode the market, not the other way round; they gambled and now Vito the collector is pounding on the door, to use a metaphor.

Bailouts may save a player or two, but ultimately, the only medicine is the shakeout that is coming. Markets are too large and amorphous for government, any government no matter how large or how much they spend to handle, so the best governments can do is to be there with the usual help when the crackup is over.

Posted by badanov 2008-03-15 07:14|| http://www.freefirezone.org]">[http://www.freefirezone.org] 2008-03-15 07:14|| Front Page Top

#10 For months investors have been shifting to energy and mineral stocks. Where one sector declines, another advances. Investors aren't scared.

Posted by McZoid 2008-03-15 07:15|| 2008-03-15 07:15|| Front Page Top

#11 You have to go back to the banking crisis of the Great Depression to find a moment when the financial system as a whole seemed so close to the precipice.

Which is why the government instituted laws that inhibited banks from engaging in speculative market activity. Those laws were repealed in the 80s during the 'clean up' known as the non-FDIC Savings and Loan bailout. Since then we've had the DotCom and Housing Boom and Bust. Anyone paying attention? There will be no confidence by the general public till the effect of those laws is reinstituted. Otherwise we can cynically sit here and write that those who created the mess will in fact be bailed out at the expense of everyone else and things will continue to repeat themselves, because in the end we have to do it for 'the children' or some other tripe about how we're in this boat together. Bah. If we are to assume the liability as a whole, then we should damn well get the assets as a whole too.

Posted by Procopius2k 2008-03-15 08:59|| 2008-03-15 08:59|| Front Page Top

#12 The non-FDIC S&L collapse was created by the same New Dealers who created the Glass Steagall Act. Returning to the bad old days will help nothing, as the Federal Reserve continues to demonstrate by its handling of this crisis.

Regardless of the stern measures taken, these sorts of events will continue to happen until humans are no longer motivated by greed and fear. And as the financial environment evolves, financial institutions and regulation will have to evolve. The current model of evolution in financial markets would seem to be punctuated equilibrium. We seem to be in one of the punctures. The faster we let all the air out of the bubble, the faster we will reach the new equilibrium.

Posted by Nimble Spemble 2008-03-15 09:20|| 2008-03-15 09:20|| Front Page Top

#13 The non-FDIC Savings and Loans, chartered by states not by the federal government engaged in property speculation and we were towed under when their market went south. The MSM media drummed up the 'doom and gloom' with nightly pictures of 'poor old' Ma and Pa Kettle literally losing the farm, but not looking at the paper which showed that they either grossly mismanaged the farm or had hocked the farm to engage in property speculation which their friendly local banker greatly assisted in the precursor boom period. The FDICs weren't in trouble but you wouldn't have known that from MSM. Instead pressure was placed upon the federal government 'to do something'. What resulted was a windfall for the major banks, who in assuming the assets of the failed banks were able to pass the liability off to the American people to the sum of about a half a trillion dollars in paper debt and release from the Depression era market constraints. Which gets us here today. Why should we get hammered for the actions of a few? That makes this the good new days when the Fed is pumping billions into the market undermining the very value of the dollar to the average citizen. This is a socialist dream, we're all going to be equally poor.

Bad old days? You got me, what bad old days? When there was a throttle on the highs and the lows? When the average citizen wasn't expected to pick up the bill in one form or another of someone's gambling habit?

Posted by Procopius2k 2008-03-15 09:54|| 2008-03-15 09:54|| Front Page Top

#14 There are a few cruel truths that this is exposing.

1) The US building market, not just the home market, is terribly inflated, far beyond its actual value. The US economy *as a whole* reflects inflation beyond value.

2) This happened through broad, international speculation over the course of decades. However, the US has a habit of sticking it to foreigners who try to make fast, huge profits on our soil.

3) There is a good chance the the US, and much of the world, is about to experience "less destructive deflation", in which there is a "global cooling" of the markets, which begins with lower prices, lower wages, and a sloughing off of "flimsy" companies and artificial financial constructs. Starts with something of a recession, but that is just a reduction of the overextension.

That is, everything declines back to more realistic levels. A retrenchment from an overactive growth economy to a more stable one. Less international trade, lower margins and interest.

Before Jimmy Carter, the DOW for years vacillated between 800 and 1000. The FED use those markers to determine their actions: decline to 800 meant to slightly stimulate, advance to 1000 meant to slightly soothe. But Carter's "stagflation" messed up that system.

In truth, the markets had built up a lot of potential for a great leap in growth, and Carter's economic avarice opened the door for Reagan to permit that growth.

So what we should look for in the future is a return to a FED policy that finds the comfortable upper and lower limits to the markets, then guides the economy between the two, like it used to do.

Already some guesses are that it will be between 6000 and 10,000 on the DOW, with other markets and financial systems having rough parallels.

Posted by Anonymoose 2008-03-15 10:02|| 2008-03-15 10:02|| Front Page Top

#15 Behold the double-edged sword that is capitalism: raw, unadulterated greed has built the economic powerhouse that is this country; raw, unadulterated greed will tear us down. The inevitable pendulum-swing towards 'aggressive regulation' won't do squat to solve the problem. We'll use our scant regulatory resources to put a band-aid on the disaster-du-jour and stick our heads back in the sand, while the captains of industry figure out the next unregulated bonanza to risk our collective futures on. That's what happened here: folks like Bear Sterns figured out they could make/carry housing loans off-balance-sheet (and thus, beyond the reach of banking regulators), backing them up with complex financial instruments called derivatives that obscured their inherent risk. The Fed warned *years ago* that these instruments were very 'opaque' instruments: difficult for investors to understand the risk baked in and difficult for regulators to regulate. No one cared as long as the $$$$ rolled in. The 'unwinding' you're seeing from Bear Sterns, citibank, etc. is a *gradual* owning up to reality: they write-off, on balance sheet, $2B in bad debt, which, unfortunately, means they are now required to have reserves to back them - no reserves = no liquidity, which is the crisis we're in. Fact is, none of the banks - or the Chinese, for that matter, who hold a shitload of this bad debt, too - know just how exposed they are (see: derivatives, referenced earlier). They are giving us 'bones' of $2 billion here, $10 billion there, slowly fessing up to the rotting corpses they've accumulated. The smell is overpowering. Cue: the government, riding in on white horses to bail them all out, on the taxpayer's dime. I'm inclined to say 'screw the bankers, let them all burn.' Bailing them out means they learn nothing. Put a bunch of them in jail (didn't the CEO of Citibank get a $400M golden parachute upon retirement?). Let them go out of business.
Problem is, that could create a systemic collapse of the banking system. Which is what the Fed/government is most afraid of (but not telling anyone). Behold the roller-coaster ride that is capitalism.

Posted by Geoffro 2008-03-15 10:56|| 2008-03-15 10:56|| Front Page Top

#16 "We are now experiencing the first truly major crisis of financial globalisation," said the Swiss central bank governor Philipp Hildebrand this week. "

And what was the Asian currency crisis (1998-ish)? A hiccup? If we hadn't contained that, all hell would have broken loose.

Posted by Free Radical">Free Radical 2008-03-15 11:32|| 2008-03-15 11:32|| Front Page Top

#17 Demand laws that require liquidity of the banks and brokerages.

Outlaw the use of margin borrowing for speculative investment.

Require that all commodity futures traders take delivery and holding the commodity for at least 30 days. This kills off the hedge funds manipulation of the commodities market s with borrowed money - the source of a majority of the huge leaps in prices for oil and grains.

Posted by OldSpook 2008-03-15 11:35|| 2008-03-15 11:35|| Front Page Top

#18 RICO

Posted by Procopius2k 2008-03-15 11:38|| 2008-03-15 11:38|| Front Page Top

#19 RICO is the correct answer...
No new laws need.

Posted by 3dc 2008-03-15 13:33|| 2008-03-15 13:33|| Front Page Top

#20 Comments so far are all well & good, but none of you has experienced a real collapse of credit a la 1837. You have no idea.

Posted by Anguper Hupomosing9418 2008-03-15 14:04|| 2008-03-15 14:04|| Front Page Top

#21 Accountability. -I sincerely hop this is not more 'baby boomer' bullcrap which me and younger will have to clean up. Personally, I'd rather see my taxes go to fix this mess than to paleostan, also instead of paying outragous wages to the board room executives, especially for quitting, it should go to fix their company. My tax dollars should not be spent in this way- I am not a safety net for speculators.

And if it is really going to crush the global economy let the geniouses at the international banking system pay for it (oh you don't do that?), because they jumped off the building trying to land at the bottom of the rainbow.

Basically, I'm tired of other people spending my money, and cleaning up other people's messes.

More laws, spit. How about a law against falling down so no more old gentiles break their hips. I would love a law stating that all my golf shots are 'hole in one's but then it wouldn't be golf now would it?

Posted by swksvolFF 2008-03-15 14:42|| 2008-03-15 14:42|| Front Page Top

#22 All this is well and good, and lots of excellent comments have been made. Unfortunately, two major factors have been left out - the huge increase of debt, both for the Federal Government and for the individual. I'd bet that I'm one of fewer than five regular commenters here who don't own a credit card. I'd also bet that if you went to the average bulletin board (not KKKos or DU), you'd find that half the regular posters had their credit cards maxed out.

The credit crunch that's just over the horizon won't affect me much. I have a fixed-rate mortgage that's more than half paid, and for the last ten years I've been making additional payments on the principal of the loan. My only other debt is an unsecured line of credit with my local bank. I've got enough income to make these payments and still have plenty to live on. My only worry is that the Federal Government will create a situation where there will be spiraling inflation with no concurrent increase in income - making us all paupers. This is the first step toward a totalitarian state, and will be a warning indicator to the rest of us. At that point, it's time to return to the second paragraph of the Declaration of Independence, in its entirety.

Posted by Old Patriot">Old Patriot 2008-03-15 21:20|| http://oldpatriot.blogspot.com/]">[http://oldpatriot.blogspot.com/] 2008-03-15 21:20|| Front Page Top

#23 I just gotta wonder.....

Will the Executives of Bear Stearns still get their big bonuses?

Posted by CrazyFool 2008-03-15 21:50|| 2008-03-15 21:50|| Front Page Top

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