patrick.net

All the bad things that we talk about on the blogs are happening.

Quick, let's talk about something positive. How about soft landing?

I would applaud their risk taking if they were trying to play contrarian.

Perhaps they just see that a house is a home, not an investment.

Richmond Says:

I am darn sure that I am watching history unfold before my eyes.

Indeed. First the dot com collapse. Then the the housing bubble and now its bust. The Fed moves on Fri and today seem like from a book about the depression.

When I read the news, I though that the $2 in the headline was the premium over Fri closing price, then I thought that they were simply buying some troubled portfolio from BSC. But the whole freaking company for less than $300M ? I had to literally rub my eyes, pinch myself to make sure I understand what I am reading.

This price is an complete and open admission that the company is absolutely worthless. Even in these times, and esp with the Fed loan, the price is pocket change for JPM.

Amazing, amszing stuff.

Perhaps they just see that a house is a home, not an investment.

Will the BSC thing be a wake up call to all the risk takers - that sometimes the risk is not just a theoretical concept and it really materializes.

Well, what are the other assets of BSC? Highly-paid human talents? Brand?

People are liabilities, especially in a crisis.

that sometimes the risk is not just a theoretical concept and it really materializes

Risk is really just a concept. When it materializes, it ceases to be risk. It becomes HARM.

I would think that with JP Morgan in play, Jupiter should be the primary astrological item to consider. ;)

China is losing massive amounts of farm land every year and will soon be looking for ways to feed its people.

And that would be the American Agricultural Miracle: Oil and natural gas fertilizer based agriculture. Add in increased meat consumption using 5-20X the energy, and the prices of these fuels may be in a 'permanent' trend upward.

When I read the news, I though that the $2 in the headline was the premium over Fri closing price, then I thought that they were simply buying some troubled portfolio from BSC. But the whole freaking company for less than $300M ? I had to literally rub my eyes, pinch myself to make sure I understand what I am reading.

I wasn't surprized at all. I was a bit surprized that people thought a 50% hair cut would be drastic. It's like people just don't grok the concept of leverage on a fundamental level. When you're leveraged as much as company like Bear Stearns in aggressive investments, a strong economic wind can blow your entire equity to hell pretty quick. I suspect the 'real' book value was substantially negative, and the fed had to sweeten the deal and take on some risk to push the deal through.

Maybe the guys running BS were reading www.youwalkaway.com over the weekend....

Honestly, I'm not sure why people are so freaked out right now. You should save all the freaking for the end of this year, when a 1/3 of our country becomes insolvent.

I was going to make a comment (before the BSC buyout) about a 21st century bank run, but I see Reuters beat me to it.
Much like to depositors lining up to pull money from bailed-out British bank Northern Rock, many traders stopped doing business with Bear because they feared the firm might go bust. That drained Bear's cash and made a collapse all the more likely.

SP said: If things were not heading over the edge of the abyss, I would have thought JPM was a screaming buy - but given how fucked up this is getting, I don’t know anymore…
From my vary limited understanding, both JPMorgan and Wells Fargo will end up owning a lot of the marbles when all is said and done. Both still have to run the gauntlet of holding $80+billion in seconds/HELOCs, though, so buyer (and Buffet) beware for the short term...

Peter P. said-
Risk is really just a concept. When it materializes, it ceases to be risk. It becomes HARM.

LOL

BTW--errr---I bought a house--am moving next week. It was 33% off the peak--I know I caught a falling knife but I am happy.

BSC is at $3.5x, falling somthing like 89% from Friday's close. Amazing how JPM is up 2%.

Make that JPM is up around 9.6%. :)

I have 2 "technical" questions:

1. How could the BSC board agree to sell the company for $2/share without shareholder approval?

2. Why is BSC currently trading at $4.16, more than 2x the price that JPM offered?

BTW–errr—I bought a house–am moving next week. It was 33% off the peak–I know I caught a falling knife but I am happy.

LiLLL,
Congrats!

I guess this is one example of what John Bogle meant by managers capitalism vs. owners capitalism. The managers got theirs along the way and the owners got........,well, we know what they got.

LILLL,

Congrats ! Don't worry about the falling knife. You are in a much better position to weather the storm than most people.

Well it didn't take the attorneys long to get this one tee'd up? Just look at the class action taking shape directly below this post!

Yeah, I'm so miffed right now. (BS aside) my new neighbor was so excited about getting moved into her condo and... "getting things just the way she likes them" the Dishnet guys inadvertantly disconnected my business phone line over the weekend. Jeez, just a great way to kick off the week.

It's been on my mind a lot lately. The fact that you don't even need to be a party to a RE transaction to get screwed? Whether it's in-laws pressuring your daughter to take on WAY more house than any young couple can afford or flipper neighbors burning the midnight oil it's pretty easy to become an indirect target.

Usually they only need to hook up the phone line for the dish if you're going to order Pay-Per-View stuff but I guess she figured... "I want the WORKS!" (you know, just in case?) I guess some people just "grieve" differently.

The best perspective I have heard on BS is. . .

JPM bought BS for 40 million less than the Yankies last contract with A-Rod.

Look, at some point home lending can happen without all of this window-dressing that helped us get hitoric low rates.

S&Ls, Banks, whomever, do not actually have to package the stuff. They can originate a loan and keep it. Then, 30 year rates have to reflect their inflation expectations for that period. The Fed needs to stop bailing out the current methodology and let the market get back o basics. 'Cause right now they are creating inflation which means "Bailey Building and Loan" can still not compete. Their inflation premium is just too high. Um, without home price destruction.

Either the Fed should step in and orginate mortgages itself. Which it services and holds. To save the money it is leaking away to these over-leveraged banks. Or it needs to hold the dollar steady and inflation down so the lending banks can do their job WITHOUT SECURITZATION.

For now, that route is just a losing prospect.

1. How could the BSC board agree to sell the company for $2/share without shareholder approval?

2. Why is BSC currently trading at $4.16, more than 2x the price that JPM offered?

1. the deal is "pending shareholder approval"
2. because the deal was for JPM stock - as it went up earlier today so did BSC stock to 'match'

By the way, from my layman's perspective, I think the Fed *seems* to have performed brilliantly on this one. Bare (tm) messed up and the Fed "put them down" a la Kevorkian. I don't know how they could've done any better. By the way, $30B of our tax money for the pleasure of wiping out this pathetic specimen of baniking prowess *and* striking fear in everyone else watching, is a good investment.

Let's see what they do next.

Another thing to think of is this: How solvent is the Fed? I think they have 800 billion.

And I think the Fed emplys *no levereage*.

So, they can take 800 b in loans, and only get wiped if they all gobad.

Clearly, the Fed is placing faith in the American's ability and desire to make payments.

Look for "just walk away" to be put out of business. Look for scoial engineering to ask people to pay their loans. In a rational wolrd, look for legislation to encourage people to pay their debts.

Sadly, we are still hearing from our Congressional leaders how we need to cram-down the laons. Huh? Banks cannot cram down the loans because the do not have the capital to accept the losses. A cram-down would only bilk investors. We would see a wierd transfer of money from investors (mostly pension funds and municipalities) to irresponsible home buyers who took on too much home.

BAI,

Wait a minute, there. JPM is up 8%, not 100%, after announcing the purchase of BSC. The $4.16 price (now $3.73) indicates something else. Maybe "the market" thinks there will be a 2x higher bidder?

I'm wondering what Ben's FED is going to do with the rate cut tomorrow, I think he has handled things admirably until this point. Creative and proactive. He must be under enormous pressures from overseas central bankers to shore the USD now.

He drops a full basis point tomorrow to release the USD and bring outsourced jobs back home?

I think the market likely drops no matter what he does, and might drop more with the larger rate cut.

We are rapidly heading towards a single US banking institution, the spawn of Bear Fannie Freddie Lehman Countrywide Wells etal. The US government will soon be an issuer of mortgages and credit cards. Good times.

Thank the gods this thing is contained.

Beavis, NVR said "bear fannie", huh-huh, huh-huh.

Duke-

I agree, we will see Bush on the airwaves *imploring* the masses to hang tight and get that mortgage paid. It will be interesting to see what messaging he uses. Some flavor of an appeal to values and the American way no doubt.

I'd say within the next 90 days.

I am intersted in watching England.

Remember, they national Northern Rock.

This puts most of theirother banks at an enormous disadvantage.

As we effectively move to nationalize the banks here, how many will cry foul?

As much as I'd like to see it I don't think securitization can end as soon as we might want to see. Without new liquidity coming into that asset class there won't be ANY secondary market for those securities. (Not that there is now?)

Oh and they're getting the phone line straightened out.

NVR,

I think it will be a certain measure of carrot ( and a smidgen of stick). Pay your mortgage because you're a good American... and if you don't, you won't be invited to the table when we're passing around the 'goodies'.

There are already "walkway" stories in the MSM.

DinOR,

I've spend some hours wrangling with the Bells. Often, they have capacity issues when new subs come on line, and they will *kill* existing lines temporarily to light up the new subs only to let some other poor sob deal with the capacity issues. From my experience, something to do with the installation contractors getting paid on completed jobs.

I've no idea if this is your issue, not enough information....

But I get infuriated just hearing about it. Bad memories.

I'd say we are getting uncomfortably close to a real banking crisis. Confidence is evaporating, margin is calling, and fear is propagating.

Banking Holiday! :-) WOOOOHOOOOO!

Commodities are getting killed.

What they're guessing is that my phone service may have been moved to my new office prematurely? Looks like they'll get it straightened out but a rough way to start the week.

Compared to being a Bear Sterns employee, well right now I have no problems. The rank and file people were definitely fed a bunch of cr@p. This will be tough times b/c everyone else is looking to shutter their MBS ops. too.

Risk is really just a concept. When it materializes, it ceases to be risk. It becomes HARM.

Me as the physical embodiment of risk? I like it! :-)

@thenuttyneutron, TOB, etc.: Guys, ease off the 'P' a little, ok? I don't agree with him 100% of the time either, and yes, he's *very* Libertarian. But let's keep a little perspective here --it's not like he's Greenspan or Hitler. I've met him and found him to be a very pleasant and reasonable guy.

justme

your math is correct. either jpm has a lot of 'up' left to go over the next few months until the deal closes (I believe SP called it a screaming buy!), or some major bsc shareholder is playing chicken trying to get a better deal out of them?

NVR
I’d say we are getting uncomfortably close to a real banking crisis. Confidence is evaporating, margin is calling, and fear is propagating.

I am a natural optimist BUT if one of these days I turn into a pessimist, I'm blaming you.

BAI

My apologies sir, please take my nonsense with a grain or two of salt. I'd suggest a nice green beer or few as a start.

Happy St Patricks Day to all :-) May your blessings outnumber the shamrocks that grow, and may trouble avoid you wherever you go. :-)

Read and weep, or read and laugh, or do both or do neither.

http://news.yahoo.com/s/nm/20080317/bs_nm/dollar_dc_1

The U.S. dollar's value is dropping so fast against the euro that small currency outlets in Amsterdam are turning away tourists seeking to sell their dollars for local money while on vacation in the Netherlands.

That's because the smaller currency exchanges -- despite buy/sell spreads that make it easier for them to make money by exchanging small amounts of currency -- don't want to be caught holding dollars that could be worth less by the time they can sell them.

BTW–errr—I bought a house–am moving next week. It was 33% off the peak–I know I caught a falling knife but I am happy.

Happiness is all important. Who cares about falling knives. A house is a house.

We'll need to come up with a new term for what's transpiring here. How many of you were worried this would unfold as early as 2004-5? How do we describe this situation?

Somehow to say "Achilles Heel" just doesn't go far enough? Nor does "sowing the seeds of it's own destruction".

What are the earliest known references to the MBS/CDS meltdown we are now seeing. Seems to me SP and a few others made comment on it during late 2004 if memory serves. I know of no existing term to describe this.