Continued Fun at Bear Stearns & Related News / Opinions

[EconE]

Laughable post on the RE Pro Blog at the Seattle PI by Kary...

"If six months ago I'd posted something critical of some expert at Bear Stearns, the response from the bubble bloogers would have been: "Do you know who they are?""

I would reckon that had he said something critical of BSC the bubble bloggers would instead have said something along the lines of..."Oh...yeah...we know that...that's why so many here have made a nice profit with their shorts and puts."

Not to mention that this thread is more than 6 months old.

[TJ_98370]

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Bailing out Bear Stearns Cos. won't address the falling home prices and tide of foreclosures that will continue to plague the economy, some observers said Monday.

Consumers remain in an environment where nothing substantial has been done to prevent foreclosures, said Jim Carr, chief operating officer of the National Community Reinvestment Coalition. The Bear Stearns deal highlights the need for faster action on legislation to enable the widespread modification of bad loans, consumer advocates say, and the importance of improving related asset quality.

"It's almost stunning to witness the shoring up of a major financial institution, but not addressing the problem that the quality of housing assets is deteriorating with each minute we wait," Carr said.

Kurt Eggert, a law professor at Chapman University's School of Law in Orange, Calif., and a former member of the Fed's consumer advisory council, said the Bear deal shows the "growing disconnect between the Bush administration's willingness to help Wall Street and its willingness to aid the homeowners facing foreclosure."

A plan to reduce foreclosures should be the top priority, he said, as defaults and foreclosures have been at the root of the subprime crisis.

"Of all the investment houses, Bear Stearns was the one most deserving of going under because of the subprime crisis, both for its ownership of a subprime lender and its work packaging those loans," Eggert said. "However, the Feds are doing more to help Bear Stearns than the borrowers facing foreclosure because of Bear Stearns actions." .......

.....Dean Baker, co-director of the Center for Economic and Policy Research, said a number of proposals that are geared toward helping homeowners facing foreclosure will actually benefit banks and other holders of bad mortgage debt -- institutions that could "earn tens of billions of dollars at taxpayer expense." He added that owning can be much more expensive than renting.

"It's really infuriating for me that we pushed low- and moderate-income people to buy overpriced houses with really bad mortgages," he said. "And even now, after it's proven so disastrous, you have politicians that still can't take two minutes and think for a second that maybe it's not a good idea for everyone to be homeowner regardless of what price they're buying at."

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And what will probably become one of my all time favorite quotes ----


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[TJ_98370]

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A bit off topic, but worth noting: Former Fed Chairman Paul Volcker (pictured) is raising questions about the Fed's rescue of Bear Stearns.

Volcker's chief questions: Why is the Fed rescuing a non-bank that it does not regulate? Isn't that a job for Congress? Why is the Fed guaranteeing bad loans? The Fed regulates -- and lends to -- banks, not investment houses......
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We are now in the bailout business.

Like it or not, the Federal Reserve's bailout of Bear Stearns last weekend means that we taxpayers will once again step in to save bankers from themselves.

We may not mind seeing one of Wall Street's prime peddlers of subprime debt get its comeuppance, but the price is simply more than the public can afford.....

......In all likelihood, though, the Fed, and by extension taxpayers, will eat about $30 billion in bad debt......

......To allow Bear to fail would be to bring justice to the mortgage meltdown. It would teach the banks a lesson, and bring the consequences of poor risk assessment to Bear.

Yet the moral satisfaction comes at a steep price. Bear's collapse would have unleashed a flood of toxic debt into the jittery market.

That would have triggered furthering tightening of credit and restrictions on liquidity at a time when the market is already gasping.

It could have exacerbated the economic slowdown already under way by eroding even further the confidence of world markets in our financial system.

So Bear is spared the ultimate consequence so that the rest of us can be spared the repercussions from it......
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[rose-colored-coolaid]

[TJ_98370]

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And the Bear Stearns saga continues.....
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Congress is looking into the Federal Reserve-backed agreement to sell Bear Stearns to J.P. Morgan Chase, examining the deal to see whether it complied with federal regulations and seeking to determine taxpayer exposure, The Wall Street Journal reported Thursday.

....Many investors have cried foul at that sale price ($2 a share), saying even if Bear was facing bankruptcy, its headquarters in New York City alone were worth far more than the $237 million takeout value.

Lawmakers appear to agree with that assertion......

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Stunned Bear Stearns shareholders who saw investments virtually wiped out overnight when a takeover deal with JPMorgan Chase was unveiled are demanding to know how it was put together in the first place.......

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Bear Stearns Cos., the troubled brokerage whose stock has fallen more than 90 percent this year, was sued by a pension fund asking a judge to halt a planned buyout for $2.32 a share by JPMorgan Chase & Co....

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Bear Stearns insisted that nothing was wrong one day, only for everything to go wrong the next. Now, despite its insistence it was telling the truth throughout, the once-mighty Wall Street firm is readying itself for lawsuits......

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....Bear Stearns didn't die. It was killed. And lack of credible information about its situation contributed to its speedy demise. It was a tragedy, by all accounts. Thousands of victims sacrificed for the greed of a few.....

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[TJ_98370]

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[deejayoh]

Getting even more interesting today:

From the NYTimes:


I thought $2 seemed like a gift to JPM

and from MarketTicker:



This is like a gift that keeps on giving...

[TJ_98370]

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Did JPMorgan Chase get snagged in a legal loophole?

A careful read of its guaranty agreement with Bear Stearns, part of its deal to acquire the troubled investment bank, suggests that the agreement may be much broader than JPMorgan intended. This apparent oversight likely played a role in JPMorgan's decision over the weekend to consider raising its offer for Bear.

Under the merger agreement, if Bear's shareholders vote down the takeover deal for a year, Bear can terminate the agreement. This we already knew. But it also appears that, in such circumstances, JPMorgan's guarantee to backstop Bear's liabilities stays in place — forever......

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JPMorgan Chase & Co. will end up paying about $65 per share for Bear Stearns Companies Inc., too high a price for a "deeply troubled company," a Punk, Ziegel & Co. analyst said Tuesday.......
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.......In case there is any confusion about who was pulling the strings behind the scenes of JPMorgan Chase's acquisition of Bear Stearns, the curtain was lifted Monday. By raising its bid — with the grudging approval of the Fed — to $10 a share, from $2, JPMorgan exposed what had long been whispered about but no one dared to say aloud: the Fed is officially in the deal-making business........
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From unknown source, but funny enough to repeat -

The Senate Finance Committee's Chuck Grassley wants to know how Bear Stearns insiders are being treated under the deal with JPMorgan Chase -- specifically whether they'll come out better than if Bear Stearns had gone into bankruptcy. A Bear Stearns spokesman said, "Duh -- yeah."
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[TJ_98370]

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Wow! With all this type media coverage you could get the impression that the JP Morgan takeover of Bear Stearns may not be a done deal!
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[TJ_98370]

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I feel sorry for the guy. I do not see how he is going to get by with just $61 million.



Bear Stearns Cos shares fell nearly 5 percent on Friday after Chairman James Cayne, who was seen as opposing JPMorgan Chase & Co's acquisition of the investment bank, sold his stock.

"It is symbolic that he's selling," said David Dreman, chief investment officer of Dreman Value Management LLC, a New Jersey based fund manager that has over $18 billion under management. "It lessens the potential enormously for a long drawn out battle.".....

.....The sale of the shares, which were worth about $1 billion last year when the stock peaked at over $170 a share, were sold for $61 million........

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Apparently being short on Bear didn't work for some.



Long-short equity hedge funds are set to post poor performance for March as the bailout of Bear Stearns and commodity price falls hit recently profitable trades, according to HSBC Alternative Investments.

Many hedge funds have been short the financials sector since the credit crisis began last summer and some banks started revealing large writedowns related to the subprime mortgage meltdown.

However, that short trade turned sour last week after JPMorgan agreed to buy troubled investment bank Bear Stearns and the U.S. Federal Reserve agreed to take control of a $30 billion (15 billion pound) portfolio of Bear Stearns assets......

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Whoa Marc! You're being so harsh!



It took Netscape founder Marc Andreessen to point out that U.S. taxpayers are footing the bill for Bear Stearns chairman Jimmy Caynes's pot-smoking, bridge-playing lifestyle.

Caynes netted $60.1 million in cash this week by dumping his entire stake in the foundering firm at $10.84 a share.

The Bear Stearns bailout deal includes a $29 billion loan guarantee from the federal government to help cover Bear's crummy subprime mortgage-based investments. Andreessen, who is turning out to be a hardheaded and opinionated market commentator as well as a highly successful tech entrepreneur (Netscape, Opsware, Ning), explains the implications:

Without that $29 billion of taxpayer money, Jimmy Cayne's stock would be worth $0/share, and if you multiply that by 5.66 million shares, the total would be $0. ...

It is virtually certain that taxpayers are going to take some loss on that $29 billion loan.

When we do, we will have the immense satisfaction of knowing that the first $61.3 million of those losses represent a direct cash transfer from US taxpayers to Jimmy Cayne....

[TJ_98370]

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Bear Stearns Cos. has completed its sale of a 39.5 percent stake to JPMorgan Chase & Co. for about $10 per share, the companies said Tuesday....

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Former Federal Reserve Chairman Paul Volcker questioned the central bank's decision to rescue Bear Stearns Cos. with a $29 billion loan, saying it was at ``the very edge'' of its legal authority.......

......Volcker, the Fed chairman from 1979 to 1987, had implicit criticism for U.S. regulators and market participants who allowed ``excesses of subprime mortgages'' to spread into ``the mother of all crises.'' The Fed's Bear Stearns loan was unusual, he said.....

......"The extension of lending directly to non-banking financial institutions -- while under the authority of nominally `temporary' emergency powers -- will surely be interpreted as an implied promise of similar action in times of future turmoil,'' he said.

Volcker said the modern financial system has ``failed the test'' of the marketplace. When asked whether he predicts a ``dollar crisis,'' he said, ``you don't have to predict it, you're in it.''....

....."The implications of these decisions, and the lessons from the unfolding crisis itself, surely deserve full debate and legislative review in the period ahead,'' Volcker said...

.....Volcker, 80, said the problems stemmed in part from trading of increasing complicated securities including derivatives that ``have taking on a trading life of their own,'' and said the turmoil ``adds up to a clarion call for an effective response.''

"There was no pressure for change, not in Washington which was spending money and keeping taxes low, not on Wall Street which was wallowing in money, not on Main Street with individuals enjoying easy credit and rising house prices,'' Volcker said.
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[TJ_98370]

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And the story continues.



June 19 (Bloomberg) -- Bear Stearns Cos. former hedge fund managers Ralph Cioffi and Matthew Tannin were taken into custody at their homes this morning by FBI agents over their roles in the collapse of two funds that ignited the subprime mortgage crisis last year.

The arrests are the first from a federal probe of possible fraud by banks and mortgage firms whose investments in subprime loans and securities plunged in value, causing losses that now total $396.6 billion. The U.S. Securities and Exchange Commission may sue the two men as early as today, claiming they committed fraud by falsely telling investors the funds they managed were sound, people with knowledge of the case said....
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[deejayoh]

[TJ_98370]

DJO -
I agree that Mr. Cioffi and Mr. Tannin are being made scapegoats. It's not like no other hedge fund managers or other investment managers jumped onto the sub-prime CDO market bandwagon on the way to fantastic riches. These two were just the most high profile. If this goes to trial, I do not see how it cannot get ugly for the whole mortgage industry.