Bear Stearns

March 16, 2008

The worst financial situation since WWI or the worst since the Great Depression? The pot (Bush) called the kettle (Bill Clinton) a runaway econonmy that culminated in the 2000-2002 economic mess. Now who’s got the mess and how much worse is it? Much worse, Bear Stearns whose stock closed last week at $30 a share was just purchased by JPMorgan for $2 a share. Can you say they were bankrupt?

JPMorgan is taking immediate responsibility for Bear’s trading obligations and assuming “management oversight” of the firm’s operations. The deal is subject to approval by shareholders but has already been approved by the Federal Reserve and other regulators, according to a statement released by JPMorgan. The Fed is providing special emergency financing for up to $30 billion in Bear Stearns assets.

Talk about a coming financial disaster!

Why would JPMorgan buy them? Obviously because the Fed is going to back Morgan and guarantee them all the money they need to keep the markets from roiling further. Good luck on that plan. And the more you think about it, Dow 6,00 keeps showing up in the side view mirror. Doubtful, but.

But, you want to know how fast you can lose money in the stock market today? Brokers were recommending Bear Stearns as much as a week ago (can you say Enron?). Shares of Bear Stearns opened last week at $69.75 and traded as high as $159 last year- and closed the week at $30- and was bought over the weekend for $2! Meanwhile gold keeps plowing higher above $1,000 an ounce.

Does someone need to go to jail like Enron or are bankers excluded from such trials?

Real estate prices are just one of the many problems in our financial structure.

Bear Stearns was on the brink of financial collapse Friday when JPMorgan and the Federal Reserve Bank of New York said they would provide the brokerage a short-term loan. Bear was dealing with a classic run-on-the-bank: The firm’s short-term creditors refused to lend the firm any more money and simultaneously demanded repayment of outstanding debt. The one-two punch overwhelmed Bear’s cash position.

The Fed is so nervous that they cut interest rates 25 basis points even ahead of their meeting next week. And they will cut it again soon. Even the Fed could be facing a one-two punch! Stay tuned. This story has just begun

Written by Ernie · Filed Under Daily Commentary