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Game Over, Man
Bear Stearns is about to get Raptured.
Bear Stearns Cos. was closing in on a deal Sunday afternoon to sell itself to J.P. Morgan Chase & Co., as worries deepened that the financial crisis of confidence could spread if Bear failed to find a buyer by Monday morning.
People familiar with the discussions said all sides were pushing hard to complete an agreement before financial markets in Asia open for Monday trading. "None of these things is done until they're done," Treasury Department spokeswoman Michele Davis said Sunday afternoon. "But I think everyone's expectation is sometime in the early evening hopefully" the deal will be done.
Terms of the deal were still being hammered out Sunday afternoon. Reflecting the dire situation at Bear, the company is likely to fetch considerably less on a per-share basis than its stock price of $30 in New York Stock Exchange composite trading Friday at 4 p.m. Last year, the shares hit $170.
Our cultural doomsayers have been predicting something like this for years. The surprise, for many of them, is that it wasn't China that pulled out the rug. To debate: What should the Fed do? (Now that Ron Paul won't be president we're more or less stuck with it.)
Some thoughts from occasional reason contributor Megan McArdle.
|3.16.08 @ 6:18PM|#
The sad thing is, the MSM will spin this as another example of
the failure of the small government, free market policies of the
Bush administration. The parallels to the myth of the laissez-faire
Hoover administration are striking.
One thing I'm certain of is that America won't turn to Ron Paul, or
anything resembling sanity. This rabbit hole goes a long way down,
folks.
In Keeping With The Headline|3.16.08 @ 6:36PM|#
We have to nuke Bear from space.
It's the only way to be sure.
|3.16.08 @ 6:40PM|#
What should the Fed do?
It should let BSC collapse. A free market is a a profit and
loss system, where losses serve to remove incompetent
management.
-jcr
|3.16.08 @ 6:44PM|#
Isn't this, like, the least bad option among things that could happen to the Bear?
|3.16.08 @ 6:44PM|#
Is there a post or article anywhere that tries to explain the subprime mess from a libertarian viewpoint? What was making people behave like idiots for so long?
Famous Mortimer|3.16.08 @ 6:47PM|#
Forgive my ignorance, but is this yet another instance of geeky
economists declaring that the sky is falling?
I guess shit like this matters to people who play Monopoly 24 hours
a day, but to those of us who don't have kids, a ridiculous car
payment, or mortgage, waiting for the economy to right itself is
simply a matter of time.
However, it's nice to see yet another series of eco-geek opinions
about who was right, and wrong all along, and how fucked everybody
is.
|3.16.08 @ 6:47PM|#
Wait a minute. There's a significant dollar value attached to this installation.
|3.16.08 @ 6:53PM|#
Well, the question is whether the economy will be allowed to right itself. You may not have kids or a mortgage, but a lot of people do, and as the bumper sticker says, THEY VOTE.
Burke|3.16.08 @ 7:01PM|#
Look, this is an emotional moment for all of us, okay? I know that. Let's not make snap judgments, please. This is clearly-clearly an important species we're dealing with and I don't think that you or I, or anybody, has the right to arbitrarily exterminate them!
Kolohe|3.16.08 @ 7:05PM|#
"What should the Fed do?"
What they did with Bear Sterns was a deviation from their normal
mandate and used dual path to legimize it. They used
1) a middleman to front the op (JP Morgan), and
2) a short-handed vote to authorize (normally 5 out of 7 need to
agree to lend to a non-bank; but two seats are empty, and one dude
(or dudette) was on vacation in Europe and could not be reached, so
they invoked an emergency clause to get the four dudes(ettes) to
bless the transaction.
Now, since they tried to follow the spirit and letter of the law as
much as possible, and were presented with a genuine crisis (of
unknown magnitude until hindsight clears up to 20/20 with the
bifocals of time), I am willing to cut them so slack on this
one.
Unlike many around here, I am not opposed to fiat money, fractional
banking, nor the federal reserve system.
The problem is they can't do much anymore. The fed can normally
only do three things open market operations, adjust the discount
rate, or adjust reserve requirements.
Well, they obviously they ain't going raise reserve requirements in
a credit crunch.
The open market operations don't seem to have the market's
cooperation, as seen by current spreads from the target funds rate
and money is costing these days.
The discount rate is down to 3 and half, and half as much as it was
a year ago. They'll probably drop another 3/4 this week (I doubt
they'll go the full point, but many are betting that way). The flat
CPI in Feb gives them a narrow window to create cheap money with a
lowered inflation risk. They could go to zero (the Japanese did),
but I can't seem them going back to the 1-2 percent in the absence
of a real crisis (like 9/11) before inflation and foreign exchange
obliterates the gains from such a move. So, they have little room
to maneuver after this week's move.
By letting things go as long as they(the fed) did (i.e. until the
early 2006 tightening), and the non-intervention by the Bush
administration on the political front - either with soft power of
the Treasury dept or the hard power of the regulatory agencies,
nobody has any 'leverage' - or rather insufficient leverage against
the way the negative leverage of the unwinding derivatives.
Rosco1776|3.16.08 @ 7:15PM|#
I too have no mortgage, loans or kids but I am worried and I do
not like the way the country is heading. I'm still campaigning for
Ron Paul so if nothing else, his message gets out to as many people
as possible and people will begin to wake up to the crooked
politicans and bankers.
The bailout shouldn't have happened! I understand that the FDIC
only needs 10% of liquid assests to cover the FDIC insurance! Don't
count on your savings in a bank unless it's in a safety deposit
bank.
Famous Mortimer, the economy will not right itself without major
changes like getting rid of the fiat money system we so now enjoy
and keep spending money overseas like there's no tomorrow.
http://www.minneapolisfed.org/pubs/region/98-09/feldman.cfm
Kolohe|3.16.08 @ 7:28PM|#
I also things are both worse and better than they appear. Or
more precisely they are going to get worse before they get better,
but they will get better.
Worse, in that the real peak of crappy mortgages will only come to
a head later this year. The worse standards and a outsized chunk of
money are in loans written in early 2006 - thus mid 2008 is when a
peak of the Chickens come home to roost. So things are going to be
really bad this summer, and we will be in a definite recession in
qtr 2 and 3 of CY 08.
But better, in that after this wave is past, things will start
looking up
a) By 4th qtr 08, a lot of toxicity will be out of the
system.
b) Plus obviously by Nov we will known who the president (and
Congress) will be over the next 4 years (notwithstanding 2000). And
it doesn't matter who it is, it it the uncertainty that will
dominate the financially markets until then - once resolved, it
will be 'right-sized'. And I don't thing the 'masters of the
Universe' will necessarily be running scared at a "crytpo marxist
Obama' president-elect. I think they will see him a someone they
can do business with (in return for throwing their weaker members
under the bus - e.g. cooperation indictments in cases like Bear
Sterns)
c) And as a side effect, if the Democrats do get the white house,
as is likely, the Iraq debacle will not necessarily be over, but
there will definitely be a pull back, and thus the economic drain
will abate. Although the gains will be more long term (e.g. the
peace dividend took about eight years to get the tech boom), the
'certainty' of the Iraq path will start to be priced into system
and thus strengthen the structural elements that are weak
now.
The coming recession will also pop the bubble of commodity prices
as demand finally abates, and the speculators take their profits
and/or cover.
So if I knew how to do this, I would short gold, oil, and the Euro
for closing prices of
$800, $80, and $1.30 respectively sometime in the first half of Jan
09.
|3.16.08 @ 7:30PM|#
Unlike many around here, I am not opposed to fiat money,
fractional banking, nor the federal reserve system.
Oh, so fraud is just fine and dandy with you? (Not to mention that
this particular Ponzi scheme happens to be unconstitutional.)
If there's a case to be made for the convenience of funny money,
then let's have that debate: propose a constitutional amendment to
repeal the gold and silver clause, and let's see if it gets
ratified. The business-as-usual practice of ignoring the parts of
the constitution that are inconvenient for those in power has to
stop.
-jcr
|3.16.08 @ 7:36PM|#
I'm still campaigning for Ron Paul so if nothing else, his
message gets out to as many people as possible and people will
begin to wake up to the crooked politicans and bankers.
Ron Paul has already achieved far more than I could have hoped for
a year ago. He's put things back on the agenda that nearly everyone
had given up for lost back when Nixon devalued the dollar in
1971.
If the Soviet Union and the Berlin Wall can come down in my
lifetime then damn it, so can the Federal Reserve and the
IRS.
-jcr
|3.16.08 @ 7:38PM|#
if the Democrats do get the white house, as is likely, the
Iraq debacle will not necessarily be over, but there will
definitely be a pull back, and thus the economic drain will
abate.
You're dreaming.
The democrats know better than to shut down the biggest corporate
welfare program the world has ever seen. Try to stop the war, and
the military-industrial complex will yank their chain pretty damn
hard.
-jcr
Kolohe|3.16.08 @ 7:46PM|#
People who decry the Fed as unconstitutional (as opposed to a
bad policy) are just nanometer apart in my book from those who
decry the income tax as unconstitutional (again, as opposed to bad
policy)
To wit, Gold and Silver clause:
No State shall enter into any Treaty, Alliance, or
Confederation; grant Letters of Marque and Reprisal; coin Money;
emit Bills of Credit; make any Thing but gold and silver Coin a
Tender in Payment of Debts
Is *not* about the federal governments ability to create paper
instruments of value, it's a supremacy-type clause that gives the
Fed exclusive ability to do so - and thus not the states.
Unless there is some other gold and silver clause I am not aware
of.
Colin|3.16.08 @ 7:54PM|#
It's sad that one of our nation's great investment banks is
collapsing like this.
It's even sadder that one of our nation's great investment banks
got so involved in what is in essense junk mortgages.
Let 'em rot.
|3.16.08 @ 7:56PM|#
People who decry the Fed as unconstitutional
I've read the constitution too. It does not authorize fiat currency
from the federal government, and explicitly prohibits the states
from issuing fiat currency. It authorizes coinage. Coining money
means striking coins of a valuable metal, not issuing irredeemable
promissory notes.
-jcr
|3.16.08 @ 7:57PM|#
Well, JP Morgan gets the bailout windfall. They're buying BS for
$2/share. Wish I'd shorted BSC on Friday.
-jcr
Kolohe|3.16.08 @ 7:59PM|#
And on the policy side, the main reason we can't go back to the
gold standard (et al.) is the same reason why you can't go back to
the crib you were in as a toddler - we're simply too big.
The number of panics and crises in the 19th c (more precisely
pre-Fed, because 1907 was also a doozy) dwarfs those in the 20th.
Even though the Big One of the 20th, was course, both wider and
deeper - why it was is complex and was partly but not largely
caused by specific Fed policy at least not in prolonging it, and so
I believe is not as important to this discussion as many would
attribute to it
But IMO the reason why they all seemed not so bad is that only the
'capitalists' literally the people with capital were the only
affected. Up until the closing of the frontier in 1890, and really
for a generation after that, until the Great Depression, many of
the hoi polloi could ride out the boom and busts because they were
subsistence farmers, and could just ride out any cycle by living
off their land. However, since the industrial revolution is now
complete, and only 3% of us grow food, the rest of us cannot afford
the spectacular peaks and troughs that were prevalent in pre-Fed
America.
Kolohe|3.16.08 @ 8:12PM|#
Wow $2. (cue Better of Dead references)
Speaking of dead, I think this deal is DOA. The shareholders have
to approve it, but I don't think their going to go for such a low
ball figure (considering the CW was $15-20 earlier this
weekend)
Obviously $2 is better than the jack and shit they have a good
chance of getting. But I think they'll hold out hope that someone
else (for instance J C flowers, who was also named as a possible
buyer) would possibly bid more than just $2. Esp if they can manage
to offload more bad debt on third parties - including Uncle Sam. I
mean heck isn't their HQ probably worth more than $237 million?
BakedPenguin|3.16.08 @ 8:31PM|#
Kolohe - You can buy put options on all of those things. The NYMEX has trading on gold options. There was no interest for January, but December 900 puts were selling for $33. Since the contracts are for 100 troy oz., I believe a contract would cost $3,300. Unlike with futures, though, the most you can lose is the amount of the contract. Oil put options are also available on the Nymex.
|3.16.08 @ 8:33PM|#
Kolohe,
Barron's had a pretty good story on it. It said their building
alone should be worth about $12/share.
If other bidders don't come in higher before the market opens
tomorrow, traders could be more spooked by the measly $2 offer than
no offer at all.
The good news is that, if $2 holds, at that level, surely most of
the worst should be over.
I know you've heard that one before.
|3.16.08 @ 8:41PM|#
But if Morgan buys BSC, don't they also assume all of BSC's
liabilities? So the fact that the building is worth $12/share
wouldn't matter if the liabilities are worth at least $10/share,
right?
Disclaimer: I am not an economist, nor do I play one on TV. Indeed,
your advanced market technologies confuse and frighten me.
Colin|3.16.08 @ 8:42PM|#
Anyone else smell another Black Tuesday?
Now where can I buy some of those Ron Paul dollars . . .
|3.16.08 @ 8:42PM|#
What should the Fed do?
For the past 10 years, everyone's motto in mortgages was we need to
be like Countrywide.
This is far from over.
|3.16.08 @ 8:47PM|#
John C Randolph,
The first amendment only mentions speech and press as protected
modes of communication. Does that mean TV, radio, telephony, and
the Internet are fair game for Congressional regulation of
content?
I mean, the feds could stay within the letter of the constitution
by issuing dollars as nickel coins instead of paper bills, but that
seems like a silly distinction.
|3.16.08 @ 8:50PM|#
Anyone else smell another Black Tuesday?
What are you, crazy? There's no way that's going to happen.
Tomorrow's a MONDAY.
BakedPenguin|3.16.08 @ 8:57PM|#
According to an article on Yahoo, the Fed has guaranteed to cover up to $30 billion of Morgan's losses from the deal.
TallDave|3.16.08 @ 9:08PM|#
What's really scary is that they've dismantled Glass-Steagal, so it's increasingly possible we could see a cascading collapse culminating into the kind of economic Panic that few people alive today can remember.
|3.16.08 @ 9:11PM|#
Holy shit, I think I just may have answered my qestion with a google search. Asian markets have just opened and are dropping through the floor.
alan|3.16.08 @ 9:18PM|#
| March 16, 2008, 8:50pm | #
Anyone else smell another Black Tuesday?
What are you, crazy? There's no way that's going to happen.
Tomorrow's a MONDAY.
lol! Anyone checking the Asian markets, with a twelve hour lead
time shouldn't they be open now?
|3.16.08 @ 9:19PM|#
lol! Anyone checking the Asian markets, with a twelve hour lead time shouldn't they be open now?
Nikkei is down -387!
|3.16.08 @ 9:22PM|#
Unless Bernake pulls something out of his ass to calm people down, the stock market is fucked tomorrow.
BakedPenguin|3.16.08 @ 9:31PM|#
Nikkei is down -387!
Not good, obviously, but not exactly Black Tuesday-esque. That's
about a 3% drop.
Kolohe|3.16.08 @ 9:32PM|#
Primary sources: (from calculated risk):
JPMorgan Chase To Acquire Bear Stearns Investor
Presentation.
Also, I think the 1/4 point BB just announced is his 'pull out his
ass' response for the short short term.
Our stock market will probably take a hit, but we still have to
finish the Asian day, then get half-way through the Europe day even
before NYSE et al open up.
So it is possible (I give it 50/50, esp depending on how the BSC-JP
Morgan merger percolates) of something that has been common lately
- a big hit at the opening, but then a rally to a neutral or
significantly smaller down level at close.
|3.16.08 @ 9:36PM|#
Holy shiate. JPM got Bear for $2 per share. Bear was at $20 in
freaking 1995.
Bear employees own almost a third of the outstanding stock. This is
Enron type decimation of employee money. A few of those f-ers
deserve it, but mostly they don't.
This was the second Fed-arranged marriage, after the
Citi-Countrywide deal. Springtime is here, and there are going to
be a lot more marriages...
|3.16.08 @ 9:36PM|#
To debate: What should the Fed do?
Pass sane banking and financial regulations to keep it from
happening again.
Otherwise, just get through the mess.
Homeownership rates, btw, are back down to where they were in 2001,
and still falling. Meaning that the equivalent of every single
homeowner who was able to get into a house on a dumb, sleazy loan
in the absense of that regulation - and then some more - are out of
those houses. Thanks, feds, for not interfering with the latest
Really Great Idea That Couldn't Possible Go Wrong from the
get-rich-quick financial geniuses.
|3.16.08 @ 9:38PM|#
Cesar -- check S&P futures. Sinking like silly.
http://money.cnn.com/data/premarket/
|3.16.08 @ 9:50PM|#
Look on the bright side.
It's a dynamic plunge.
Full of pro-growth dynamisticity.
No, no, that's ok. You don't have to wonder if anyone else has a
point about economic policy.
|3.16.08 @ 9:52PM|#
But remember, joe. Its not a recession. Just a "tough period" or whatever Bush/Burnake said.
Kolohe|3.16.08 @ 9:58PM|#
But if Morgan buys BSC, don't they also assume all of BSC's
liabilities? So the fact that the building is worth $12/share
wouldn't matter if the liabilities are worth at least $10/share,
right?
I just finished reading what I posted above, and the JP Morgan
people's back of the envelope calculation is they will gain about 1
billion a year in revenue. And they say it will cost them:
a) about 6 billion to complete the merger,
b) About $13 billion (net) in increased exposure to the toxic
instruments- net due to the fact that that $20 billion is covered
as part of the 30 billion fed package.
So, if they are able to get about half the value off the debt, it
pays for itself instantly. And even if its less, it pays for itself
within a decade (probably less, because I think I messing up the PV
calculation)
The two assumptions their using seem to be:
1) That the unaudited figures are in the ballpark - which we have
seen serious discrepancies lately. And trusting the BSC dudes after
this past week seems to be as well advised as believing this
guy.
2) And even the unaudited figures are close enough, that the only
problem are with MBS - and that the remaining liabilities are
appropriately accounted for. Now, they seem to have another $10
billion of slop due to Fed injection, but there is no indication of
non-MBS exposure they may be taking on.
And a similar caveat to the questioner's. I'm a frackin engineer by
education, so really have just the dimmest awareness of what I'm
talking about
GILMORE|3.16.08 @ 10:04PM|#
I picked a fine time to start a career in investment
banking
seriously though, it should make for a fun year. As long as I can
keep my job that long.
|3.16.08 @ 10:04PM|#
The first amendment only mentions speech and press as
protected modes of communication. Does that mean TV, radio,
telephony, and the Internet are fair game for Congressional
regulation of content?
I mean, the feds could stay within the letter of the constitution
by issuing dollars as nickel coins instead of paper bills, but that
seems like a silly distinction.
Your analogy is inapt. TV, radio, etc. are technological advances
not in existence at the time of ratification, but use of paper
currency is not. The founders were familiar with paper currency and
its attendant drawbacks, and it is certainly possible (or likely,
depending on one's view) that use of the word "coin" was not
accidental.
|3.16.08 @ 10:06PM|#
"Homeownership rates, btw, are back down to where they were in
2001,..."
Joe, where did you get that stat? The math is not seeming right to
me, despite the mess. Maybe it is, but I'd like to see. Thanks.
|3.16.08 @ 10:11PM|#
I picked a fine time to start a career in investment
banking
may you live in interesting times...
Kolohe|3.16.08 @ 10:11PM|#
Pass sane banking and financial regulations to keep it from
happening again.
Otherwise, just get through the mess.
My take:
the regs are there. Due mostly due to policy preference, but
somewhat due to deliberate political calculation, they were not
enforced.
But even at that the 'banking' sector - as opposed to the larger
financial sector - is actually not that bad, due mostly following
the regs and having the FDIC net. The retail banking ops seem to be
what everyone is trying get a hold of, for instance in the ETrade
and Countrywide cases.
So even at that, I'm not sure what additional regulation would done
- you could have halted the toxic subprime originations which would
have mitigated where we are now, but how do you require 'smart
people' to do their due diligence with the securitization process,
other than doing what is happening now - getting fucked when the
shit hits the fan? That's what happened with the tech bubble and it
worked itself out within a year.
GILMORE|3.16.08 @ 10:18PM|#
Proverb: No kidding.
I started a job in market analysis at the beginning of the tech
bubble, then lost it when it popped.
Speaking of popped, my old boss had an aneurysm two days after I
submitted my resignation this week. The company (small specialist
consulting firm) is probably going to shut down operations at the
end of this month until he's back on the job.
Point being, I'd likely have been shitcanned for sure and out of
the street looking for a gig just when it's probably the worst
possible conditions for it. so, timing is a funny thing.
I hope other people out there fare well through this year.
Dello|3.16.08 @ 10:18PM|#
Chinese proverb,
"may you live in interesting times..."
is actually a Chinese curse...and you can see why.
GILMORE|3.16.08 @ 10:25PM|#
Anyone out there understand the implications of the "lending
facility" that the fed is authorizing tomorrow? I'm not sure I get
it 100% I do understand it's supposed to help prevent runs on the
banks, but I'm not sure how it will work in practice.
The Federal Reserve on Sunday announced two initiatives
designed to bolster market liquidity and promote orderly market
functioning. Liquid, well-functioning markets are essential for the
promotion of economic growth.
First, the Federal Reserve Board voted unanimously to authorize the
Federal Reserve Bank of New York to create a lending facility to
improve the ability of primary dealers to provide financing to
participants in securitization markets. This facility will be
available for business on Monday, March 17. It will be in place for
at least six months and may be extended as conditions warrant.
Credit extended to primary dealers under this facility may be
collateralized by a broad range of investment-grade debt
securities. The interest rate charged on such credit will be the
same as the primary credit rate, or discount rate, at the Federal
Reserve Bank of New York.
Second, the Federal Reserve Board unanimously approved a request by
the Federal Reserve Bank of New York to decrease the primary credit
rate from 3-1/2 percent to 3-1/4 percent, effective immediately.
This step lowers the spread of the primary credit rate over the
Federal Open Market Committee's target federal funds rate to 1/4
percentage point. The Board also approved an increase in the
maximum maturity of primary credit loans to 90 days from 30
days.
The Board also approved the financing arrangement announced by
JPMorgan Chase & Co. and The Bear Stearns Companies Inc.
Release Date: March 16, 2008
For immediate release
The Federal Reserve on Sunday announced two initiatives designed to
bolster market liquidity and promote orderly market functioning.
Liquid, well-functioning markets are essential for the promotion of
economic growth.
First, the Federal Reserve Board voted unanimously to authorize the
Federal Reserve Bank of New York to create a lending facility to
improve the ability of primary dealers to provide financing to
participants in securitization markets. This facility will be
available for business on Monday, March 17. It will be in place for
at least six months and may be extended as conditions warrant.
Credit extended to primary dealers under this facility may be
collateralized by a broad range of investment-grade debt
securities. The interest rate charged on such credit will be the
same as the primary credit rate, or discount rate, at the Federal
Reserve Bank of New York.
Second, the Federal Reserve Board unanimously approved a request by
the Federal Reserve Bank of New York to decrease the primary credit
rate from 3-1/2 percent to 3-1/4 percent, effective immediately.
This step lowers the spread of the primary credit rate over the
Federal Open Market Committee's target federal funds rate to 1/4
percentage point. The Board also approved an increase in the
maximum maturity of primary credit loans to 90 days from 30
days.
The Board also approved the financing arrangement announced by
JPMorgan Chase & Co. and The Bear Stearns Companies Inc.
Franklin Harris|3.16.08 @ 10:30PM|#
To debate: What should the Fed do?
I think the Fed should adopt the George Costanza Rule: Since all of
the Fed's instincts are wrong, it should just do the opposite.
|3.16.08 @ 10:31PM|#
GILMORE,
I suspect "lending facility" and "injecting liquidity" and the like
are simply euphemisms for "printing more money", whatever the
technical definitions are.
|3.16.08 @ 10:36PM|#
Who do you suppose made it so easy for the $2 per share buyout? What do you suppose they were paid to make it so easy?
Kolohe|3.16.08 @ 10:37PM|#
Baked Penguin-
Thanks. I didn't think there were commodity options (or futures)
that far out.
I know I can do stock options with my td ameritrade account (if I
decided to turn it on) Do you have any idea if I could also do
commodity option trading of the type you described? (I of course
will do some more research before I commit any money)
SIV|3.16.08 @ 10:38PM|#
Bear employees own almost a third of the outstanding stock.
This is Enron type decimation of employee money. A few of those
f-ers deserve it, but mostly they don't.
WTF?
If they choose to be heavily invested in a single stock they
deserve every bit of it.
these people work at Bear Stearns. surely they are aquainted with
the term "risk" and know all the investing basics like
diversification of a portfolio and "past performance is no
guarantee of future results".
SIV|3.16.08 @ 10:48PM|#
What should the Fed do?
Stop lending cheap money on bad collateral.
Obviously they are doing the opposite.
I'd like to think they are trying to temporarily stabilize the
"walking around economy" rather than bailing out
this guy.
Kolohe|3.16.08 @ 10:51PM|#
Anyone out there understand the implications of the "lending
facility" that the fed is authorizing tomorrow?
From what I have been reading today, this seems to be a
semi-permanent org to continue doing what they did with the BSC/JP
Morgan deal on Fri morning.
Until now (or at least not since the thirties) the discount rate
was only available to accredited banking institutions. This seems
to expand this anyone in the financial field - so it seems that
everyone else (i.e. Leahman and the rest that everyone are also
saying in trouble)
The trouble I see is:
1) I don't really have a problem with extending this on a case by
case basis like in the case with BSC - even if we hoodwinked, the
workload required for the fed board to approve every single one is
self-limiting
2) BUT extending this to everyone - without the commesurate
oversight and regs that normally come with playing ball, and
without the bottom line approval at a very high level - will not
only lead to
a) a money supply inflationary spike as every tom dick and harry
queues up, but more importantly
b) crosses the streams between the 'banking' sector and the broader
'financial' sector.
Most of the problem we have now is we can't tell the wheat from the
chaff. I fail to see how throwing everything into the same silo
helps sort things out.
|3.16.08 @ 10:58PM|#
I think what this comes down to is Bernanke realizing if he does
nothing we'll definitely plummet into a recession for at least a
year, which he'll be blamed for and castigated as the worst Fed
Chairman ever.
If he does very iffy things like this, we'll probably be in for a
much longer and deeper fiscal crisis, and he'll go down as the
worst Fed Chairman ever.
So, from his POV, it's a choice between a definite and a probable
evil.
|3.16.08 @ 11:31PM|#
the main reason we can't go back to the gold standard (et
al.) is the same reason why you can't go back to the crib you were
in as a toddler - we're simply too big.
Nonsense. You just revalue the fiat money for a realistic price,
stop inflating it, and then take it out of circulation over time,
just like we did when we retired the civil war greenbacks.
We've transitioned from a fiat currency back to real money twice in
this country. The first time was when the continental dollar
collapsed, the second time was when we did away with the
greenbacks. We've had one orderly transition, and one
hyperinflationary collapse. We're going to move off the federal
reserve notes one way or the other, and I would strongly prefer
that we do it in as orderly a manner as possible.
-jcr
Mike Laursen|3.16.08 @ 11:44PM|#
The sad thing is, the MSM will spin this as another example
of the failure of the small government, free market policies of the
Bush administration.
I'm not so sure. I know a lot of liberals. I'm surrounded by
liberals. As far as I can tell they think of Bush more as a
big-government, corporate crony type of guy. They're very hip to
the Republicans having given up any claim to being the party that
wants to limit spending.
SIV|3.17.08 @ 12:01AM|#
Everything is going to turn around when the $600 checks arrive in our mailboxes.
|3.17.08 @ 12:07AM|#
I thought the FED was created to prevent banks from
failing.
we should assume the central bank was created to help JPMorgan
& friends buy troubled banks for pennies on the dollar.
lets bail everyone out with government money and let the kids of
tomorrow pay for it.
it wouldn't be as hard to swallow if the money was getting spent us
and the usa infrastructure - but we are getting nothing but the
bill. after all these banking ceo's made millions year after year,
they just walk away and wash their hands of this mess.
deja vue? silly americans turn off your tv's and learn from where
the stench of BS is coming from.
pay attention kids in the back of the class - you have lost control
of your government, they do not need your approval anymore - the
government is using the USA credit card to no limits. Iraq is
showing a surplus in their economy but somehow we are paying for
the building of their infrastructure. how can you change this? you
can't, dummy, they're using our credit card and the fed keeps
increasing our limits - there is no way to curtail spending unless
you go to commodity based currency. everyone repeat "bad monetary
policy is our biggest threat to freedom" our monetary policy should
be the biggest issue in politics, but dumba**&^ want to debate
small piddly issues. tackle the big one first the rest can be fixed
later.
Bingo|3.17.08 @ 12:17AM|#
Everything is going to turn around when the $600 checks arrive in our mailboxes.
lol
Jeff Wartman|3.17.08 @ 12:37AM|#
Looks like Harry Browne was right when he wrote "How You Profit from the Coming Devaluation"...he was just a couple decades late.
|3.17.08 @ 12:55AM|#
I was short the financials ETF going into Friday and I'll be
short it at the open tomorrow as well. Also have some money in the
Japanese yen and the Swiss Franc. Moved all of my 401(k) into cash,
bonds, and gold mining shares months ago. (Would love to use it for
short positions and foreign currency investments as well but
Fidelity is teh suxxor.)
People who read Austrian economics and Austrian-inspired analysts
(like Jim Rogers) have been clued into this unfolding crisis for
years. You'll note that they're also *not* the ones saying that the
solution to this crisis is more regulation, but rather abolishment
of the Federal Reserve and a return to free banking.
But hey, I'm sure we should give the 1930s approach one more go, it
worked so well the last time around.
Kolohe|3.17.08 @ 1:04AM|#
We've transitioned from a fiat currency back to real money
twice in this country. The first time was when the continental
dollar collapsed, the second time was when we did away with the
greenbacks. We've had one orderly transition, and one
hyperinflationary collapse.
I'm not really sure which one you characterizing as which. The
post-revolution one, though, was facilitated by the Hamiltonian,
pro-proto-wall street, pro-central bank policy of the federal
assumption and repayment of all continental debt at parity (and
IIRC with the interest owed). I would say I am the one who is more
of a Hamiltonian in my comfort with the Federal reserve system -
the heir of his pet project the Bank of the United States - so that
example is at the very least ironic.
And the post civil war reset was enabled by the practical
elimination of the federal government - all that was left for most
of the late 19th c were customs guys to rake in the tariffs, the
7th cav to kill the Indians, and dudes to dole out veteran's
benefits. I love minimum govt as much as the next dude, but see
that it not politically possible, esp in the present climate.
We've been in what seems at the time like deep doo-doo a couple of
times since the 1910's, but have always managed to muddle through,
and since 1945, always after no more than about a year or so.
Yeah mathematically we dropped to #2 this weekend. It doesn't mean
I need to learn to speak Visigoth. We still big - too big to fail?
-no of course not. But we're still among the best three or four
games in town. Plus, the worst case scenario, at least in our
lifetime, is not Rome 476. It's late 20 c London. Gave up its
overwhelming #1 position in 19th century to New York and Tokyo. But
to this day it's still mostly Visigoth free - and has done pretty
well this decade.
As P.J. Orourke said, the inherent fakery of the dollar is balanced
by the fiction of the Euro, the fantasy of the Yen, etc. Putting
this all on the system, rather than the choices made within that
system, is a mistake
Mike Laursen|3.17.08 @ 1:43AM|#
Pass sane banking and financial regulations to keep it from
happening again.
OK, here's what I don't get, joe. Congress consists of a few
hundred people who get together in a room and vote on lengthy legal
proposals, usually without reading them. None or few of our
representatives got elected on the basis of their knowledge of
economics, finance, or banking. Furthermore, all kinds of lobbyists
are trying to influence their votes. Why do you have an expectation
that such circumstances would be conducive to sanity?
|3.17.08 @ 1:51AM|#
If the credit crisis is used as a justification for stricter banking regulations, could that be called "disaster socialism"?
|3.17.08 @ 2:34AM|#
Everything is going to turn around when the $600 checks
arrive in our mailboxes.
At the rate things are going, by the time those checks arrive,
we'll need that much just to fill our car's gas tanks for a
week.
|3.17.08 @ 3:25AM|#
Unlike many around here, I am not opposed to fiat money, fractional banking, nor the federal reserve system.
I am not picking on you, but I don't think you have thought the
whole thing through very well. You are about to become opposed to
all those things.
|3.17.08 @ 7:39AM|#
"So if I knew how to do this, I would short gold, oil, and the
Euro for closing prices of
$800, $80, and $1.30 respectively sometime in the first half of Jan
09."
Kolohe, you seem to think gold is a commodity. Gold is sound money,
hence as long as the dollar is plunging and the other fiat
currencies are viewed in the same light gold will continue its
advance. Gold is cheap at $1000 per ounce.
Oil is a commodity, but with the unique advantage that it has a
more or less indefinite shelf life, unlike wheat for example. Oil
is a dollar hedge. As long as the dollar is plunging, oil will
advance in price.
|3.17.08 @ 7:42AM|#
Kolohe, you could be right about about the Euro retreating to
$1.30 (although I would not make that bet), but the Euro is still
an essentially worthless piece of paper whose scarcity depends only
on the good sense, and honesty of European politicians.
I will stick with gold.
Mad Max|3.17.08 @ 8:01AM|#
(apologies to James Bond)
Gold Standard
It's the stan- dard that has the Midas touch
Sound money and such.
Fiat money
Beckons you to enter its web of sin
But don't go in
Fiat currency fans say there's nothing to fear
But the folly of their approach has now appeared
For a Gold Standard minimizes these problems
Save our system from death ...
From Mister Fiat Currency
Ameican economy, beware of its rejection of gold
It's getting old
Gold they'll disparage, appeal to your fears
But the follies of fiat currency have now appeared
For a gold standard plus sane spending
Will improve matters ...
Time for the Gold Standard
American needs a solution that's bold
Peg the dollar to gold
Or you're gonna get rolled
Only gold
We love gold, etc.
|3.17.08 @ 9:24AM|#
Mike Laursen,
Over ten years ago, Congress passed a bill directing the Fed to
create mortgage lending rules. Note, it's not Congress creating
those rules themselves, but avoiding exactly the problem you
mention, but directing the "experts" to do do.
Said experts, under laissez-fairie Alan Greenspan and then the Bush
adminstration, sat on their asses, because their ideology told them
it would better if they ignored Congress.
Oops.
|3.17.08 @ 9:25AM|#
If the credit crisis is used as a justification for stricter
banking regulations, could that be called "disaster
socialism"?
No, because banking regulations aren't socialism.
Tell you what: YOU can call it that, and if keep within a
carefully-defined bubble, there might be other people who know what
you're talking about.
|3.17.08 @ 10:16AM|#
"what can the average guy do?"
It may be OK to pick a few specific individual stocks that you
believe will do well ( I have some pharmaceutical favorites) and
buck the trend but for now buying any stock index funds is not
logical. They are gong down a lot more. The interest rate cut is
not likely to do much tomorrow. As Greenspan has said, gold is well
known as a long term protection against inflation and as a safe
haven. Currently with REAL US inflation at nearly 10% it is foolish
to TODAY have money in T-bills, US stock funds (some foreign funds,
as well as currencies, are still doing relatively GREAT), bonds or
CDs. Buy gold. The price of gold has more than tripled since 2000,
Up 30% in 2007 and up more than 15% just this year alone. The nuts
in DC have still not understood that we can not inflate our way out
of the economic problems that are being caused BY the inflation of
currencies world wide.
When Bernanke and the gang get serious about inflation like Reagan
and Volcker did in the early eighties and RAISE interest rates 3
successive times, THEN it will be time to sell your gold. I would
NOT hold my breath. They just do not get it. If you buy gold you
will have some capital left to help rebuild America and the world
when the dust settles on the remaining economic rubble.
|3.17.08 @ 10:27AM|#
The idea that this whole situation could have been averted with some slightly-more strict mortgage lending standards is pure wankery. When the Fed shovels money into the economy the credit boom finds ways to flow around *all* regulations. 50% stock margin requirements did nothing to prevent the tech bubble, and some extra documentation requirements would have done nothing to prevent this bubble. It was in the cards the day they passed the Federal Reserve Act in 1913. And when investors finally perceive that--contrary to the wishes of the Keynesian idiots who dreamt it up--the Federal Reserve is *not* bigger than the markets, the collapse of the bubble is just as inevitable.
|3.17.08 @ 11:12AM|#
If the purpose of the lending facility is to prevent runs on
banks, then I don't see why it should be used to support investment
banks.
A run on a bank is when too many depositors try to withdraw their
funds, and there isn't enough cash on hand to allow it.
I don't think investment banks have depositors in the first place,
so I don't think its even possible to have a run on an investment
bank.
Mike Laursen|3.17.08 @ 11:12AM|#
Yes, Congress delegates its authority to regulatory agencies.
Delegation does not absolve responsibility.
But a huge part of the problem is that so many Americans think that
its the government's job to watch out for them, including bailing
them out when they make bad financial deals. It's created a culture
of intellectual laziness and ethical passivity. When a bank makes
bad loans or someone signs up for one, its because the government
didn't do "its job".
|3.17.08 @ 11:13AM|#
Note, it's not Congress creating those rules themselves, but
avoiding exactly the problem you mention, but directing the
"experts" to do do.
Which is, of course, not authorized anywhere in the
Constitution.
|3.17.08 @ 11:19AM|#
Which is, of course, not authorized anywhere in the
Constitution.
INNURSTATE COMMERZ CLAUS!!
|3.17.08 @ 11:20AM|#
I don't think investment banks have depositors in the first
place, so I don't think its even possible to have a run on an
investment bank.
Well, they don't have depositors, but they do have creditors...and
those creditors, or the creditors' creditors, somewhere down the
line have depositors. So if a big enough investment bank fails,
it's going to propagate down the line to deposit banks quite
soon.
|3.17.08 @ 11:21AM|#
Delegation does not absolve responsibility.
No, but addresses the specific question you raised - how
non-experts in Congress can ensure an appropriate level of
expertise goes into the rulemaking process.
Which is, of course, not authorized anywhere in the
Constitution.
Congress doesn't tell the Joint Chiefs of staff which beach to land
on, they simply declare war, and tell them to defeat a particular
enemy.
Same thing. If you can exercise power, you can delegate it.
|3.17.08 @ 11:22AM|#
And, of course, it goes without saying that regulating commercial enterprises in their inter-state business is consistent with the Commerce Clause.
|3.17.08 @ 11:28AM|#
And, of course, it goes without saying that regulating
commercial enterprises in their inter-state business is consistent
with the Commerce Clause.
A function which, apparently, has such broad penumbras and
emanations that it includes setting up the largest price-fixing
body in the history of the United States, with monopoly power over
the currency and the mandate to bail out every bank in sight.
And you thought our government was limited somehow!
|3.17.08 @ 11:52AM|#
Exactly what Graphite said.
I mean, if the commerce clause is that expansive, doesn't it render
most of the other powers given to Congress superfluous? Were the
Founders getting paid by the word or something?
Mike Laursen|3.17.08 @ 11:54AM|#
No, but addresses the specific question you raised - how
non-experts in Congress can ensure an appropriate level of
expertise goes into the rulemaking process.
Sort of. I doesn't address whether Congress is competent to oversee
the experts, or Congress' motivation to bother overseeing them.
|3.17.08 @ 11:57AM|#
Joe, I could swear you said a year or so ago that Al Gore had abolished the credit cycle and made recessions impossible? Somebody needs to put a size 12 up the Gore-hole over this current fiasco.
|3.17.08 @ 12:00PM|#
the last time the gold bugs were really panicking you could pick up an ounce for $850 (1980). If you had put that $850 into an S&P 500 index fund, it would be worth about $20,000 today. If you had the ounce of gold, it would be worth $1050.
|3.17.08 @ 12:04PM|#
I haven't the foggiest idea what wayne is muttering about. Al
Gore? Hey, look over there! It's Al Gore! *Booooooooo!!!!*
A function which, apparently, has such broad penumbras and
emanations that it includes setting up the largest price-fixing
body in the history of the United States, with monopoly power over
the currency and the mandate to bail out every bank in
sight.
Wah wah wah. Go roust some Indians, Andrew Jackson, and let the
rest of us live in the the post-iron plough world.
|3.17.08 @ 1:23PM|#
If you can exercise power, you can delegate it.
Really, joe, where does it say in the Constitution that Congress
can delegate its power to pass laws?
BTW, Congress isn't empowered to command the armed forces, so
you're analogy to declaring war doesn't pass muster.
|3.17.08 @ 1:55PM|#
I thought the FED was created to prevent banks from
failing.
Not exactly. It was created to maximize the transfer of wealth to
the shareholders of the fed.
-jcr
|3.17.08 @ 2:24PM|#
Wah wah wah. Go roust some Indians, Andrew Jackson, and let
the rest of us live in the the post-iron plough world.
If anything it's your precious Fed that may drag us all back to
plowing dusty fields for our subsistence.
|3.17.08 @ 4:52PM|#
Really, joe, where does it say in the Constitution that
Congress can delegate its power to pass laws?
It doesn't. Only Congress passes laws. In some cases, those laws
direct federal agencies to set rules, according to the standards
directed by Congress. Believe it or not (and, as a hardcore
Republican, I know you don't), the executive branch has to follow
those laws.
This is one of those remarkably simple points you have to really
work not to understand, isn't it?
|3.18.08 @ 12:15AM|#
"the last time the gold bugs were really panicking you could
pick up an ounce for $850 (1980). If you had put that $850 into an
S&P 500 index fund, it would be worth about $20,000 today. If
you had the ounce of gold, it would be worth $1050."
And the last time the "don't worry, be happy" crowd were panicking,
you could pick up one share of the NASDAQ for $5,000. If you had
put that $5,000 into gold it would be worth $18,000 today.
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