The Incredibly Shrinking Dollar!

[GG]

No matter what the consequences, I just cannot agree with the Fed stepping in to save an enterprise such as Bears Stearn. Supporting a failing enterprise is juking the free market and capitalist system which works just fine the way it is.

 

Welcome to the exception to every rule. Bear is "too big to fail" and no one inside the Fed or anywhere else wants to test the other side of that theory today.

[meazza]

If it were working just fine the Fed wouldn't need to step in with this "Socialism for the rich" approach. This is only the beginning. The huge bailout will follow, and its going to be huge!

 

And oil just hit another record high.

 

You're right, now all these firms are going to take on even more amounts of risk because they know the Fed will bail them out.

 

Actually what am I talking about? What bail out, Bear Sterns just got ruined.

 

Oh well, being in Canada and all it will only affect me in a couple of months.

[meazza]

Welcome to the exception to every rule. Bear is "too big to fail" and no one inside the Fed or anywhere else wants to test the other side of that theory today.

 

Yes but isn't it already too late? Seems as if the markets already took a big hit as it is as confidence seems to be at an all time low.

 

Even though Bear didn't go bankrupt, they lost almost 50$ a share in the last two weeks.

[Dwight Drane]

Here's a theory....Bear employees own 30%+ and a Mr Lewis just purchased 10% last year. What if they ban together and tell the Fed and JP Morgan "FU, we aren't taking $2......we want $XX and if you don't give it to us, we are voting down the buyout."

 

They hold the whole financial world in their hands. What happens then? If they wait and are no good on the other end of swaps, the whole thing tumbles. Would the Fed force the transaction....would they sieze it? That sounds pretty much what happened already. It isnt so much a bailout as it is a siezure. They are bailing out everyone else by lending par against total junk.

 

Crazy times....

[DC Tom]

You're right, now all these firms are going to take on even more amounts of risk because they know the Fed will bail them out.

 

Actually what am I talking about? What bail out, Bear Sterns just got ruined.

 

Oh well, being in Canada and all it will only affect me in a couple of months.

 

Plus, as I heard, the Fed's terms were "This is a 28-day loan. You have THAT long to get your sh-- together, no longer."

 

Not much of a bailout, if what I heard was accurate.

[meazza]

Plus, as I heard, the Fed's terms were "This is a 28-day loan. You have THAT long to get your sh-- together, no longer."

 

Not much of a bailout, if what I heard was accurate.

 

In your opinion, do you think theses events can be avoided? It always seems to be the same thing, big firms take on massive amounts of leverage, and then when lenders begin to demand more collateral after a crisis, it sparks a fire sale of assets.

 

It happened similarly to Long Term Capital Management about a decade ago.

[DC Tom]

In your opinion, do you think theses events can be avoided? It always seems to be the same thing, big firms take on massive amounts of leverage, and then when lenders begin to demand more collateral after a crisis, it sparks a fire sale of assets.

 

It happened similarly to Long Term Capital Management about a decade ago.

 

ANYTHING can be avoided, save death and taxes. I think the better question is: at what point does this become unavoidable? At some point, B-S (ironically) made a decision, probably implicit (i.e. "it just happened"), to keep a minimum of reserves available with too much tied up in sub-prime debt, and the suddenness with which it was devalued seemed to blindside management. Makes me think that with proper governance and oversight this could have been avoided (hell, this should have been avoided - I can't remember seeing a company collapse this quickly before).

 

But honestly...I've been working 16-18 hour days for the past week; I haven't been able to follow this as closely as I like. I might be completely mischaracterizing what happened.

[GG]

Here's a theory....Bear employees own 30%+ and a Mr Lewis just purchased 10% last year. What if they ban together and tell the Fed and JP Morgan "FU, we aren't taking $2......we want $XX and if you don't give it to us, we are voting down the buyout."

 

They hold the whole financial world in their hands. What happens then? If they wait and are no good on the other end of swaps, the whole thing tumbles. Would the Fed force the transaction....would they sieze it? That sounds pretty much what happened already. It isnt so much a bailout as it is a siezure. They are bailing out everyone else by lending par against total junk.

 

Crazy times....

 

You would imagine that existing major holders got the first crack at the rescue package. JPM stepping up is a sign that there were few people willing to take the risk. Biggest thing about the deal is JPM's guarantee to keep Bear's business going. he other investors can't provide that.

 

Few things are as fleeting as equity value of financial firms that have liquidity issues. Asset values mean squat when no one wants to do business with you and you don't have the cash to meet short term obligations. That's why Enron collapsed in a matter of days, while MCI & Adelphia could operate for years in Ch. 11. There would be no winners in Bear Stearns' bankruptcy and no one was brave enough to see what would happen.

[meazza]

ANYTHING can be avoided, save death and taxes. I think the better question is: at what point does this become unavoidable? At some point, B-S (ironically) made a decision, probably implicit (i.e. "it just happened"), to keep a minimum of reserves available with too much tied up in sub-prime debt, and the suddenness with which it was devalued seemed to blindside management. Makes me think that with proper governance and oversight this could have been avoided (hell, this should have been avoided - I can't remember seeing a company collapse this quickly before).

 

But honestly...I've been working 16-18 hour days for the past week; I haven't been able to follow this as closely as I like. I might be completely mischaracterizing what happened.

 

It's nothing new. A similar thing happened to one of Carlyle groups funds. Not enough cash to cover short term obligations as counterparties demanded more collateral.

[meazza]

You would imagine that existing major holders got the first crack at the rescue package. JPM stepping up is a sign that there were few people willing to take the risk. Biggest thing about the deal is JPM's guarantee to keep Bear's business going. he other investors can't provide that.

 

Few things are as fleeting as equity value of financial firms that have liquidity issues. Asset values mean squat when no one wants to do business with you and you don't have the cash to meet short term obligations. That's why Enron collapsed in a matter of days, while MCI & Adelphia could operate for years in Ch. 11. There would be no winners in Bear Stearns' bankruptcy and no one was brave enough to see what would happen.

 

JPM states that one big reason they decided to make the move is to take over Bear Sterns prime brokerage services but wouldn't these clients just leave and go on to a more secure investment bank?

[Dwight Drane]

You would imagine that existing major holders got the first crack at the rescue package. JPM stepping up is a sign that there were few people willing to take the risk. Biggest thing about the deal is JPM's guarantee to keep Bear's business going. he other investors can't provide that.

 

Few things are as fleeting as equity value of financial firms that have liquidity issues. Asset values mean squat when no one wants to do business with you and you don't have the cash to meet short term obligations. That's why Enron collapsed in a matter of days, while MCI & Adelphia could operate for years in Ch. 11. There would be no winners in Bear Stearns' bankruptcy and no one was brave enough to see what would happen.

 

I understand, but for $2, the threat has been made to let it go through the bankruptcy courts. The biggest shareholder in Bear just said the buyout won't go through. Hopefully the CIA didn't hear that, or else Mr Lewis better start wearing a vest.

 

The financial sector is like a scene in an action movie where the cops and bad guys all have guns pointed at each other at close range. The problem is, the first to shoot has a good chance to live. Everyone needs to trust each other right now, and human nature leads me to believe that won't happen.

[Gavin in Va Beach]

Wall Street Journal: The Buck Stops Where?

 

In the credit market panic that began in August, we have now reached the point of maximum danger: A global run on the dollar that could become a rout. As the Federal Reserve's Open Market Committee prepares to meet tomorrow, this should be its major concern.

 

Yet the conventional wisdom -- on Wall Street and in Washington -- continues to be precisely the opposite. In this view, the Fed is "behind the curve" and needs to cut interest rates even faster and further than it has. Never mind that this is precisely the path the Fed has followed since August, yet the crisis has grown worse and now bids to tank the larger economy. Does it make sense to do more of what isn't working?

 

* * *

 

The Fed's main achievement so far has been to stir a global lack of confidence in the greenback. By every available indicator, investors are fleeing the dollar for other currencies and such traditional safe havens as gold and commodities. Oil has surged to $110 a barrel, up from under $70 as recently as September. Gold is above $1,000 an ounce, up from $700 in September, and food prices are soaring across the board. The euro has hit record heights against the buck, and for the first time the dollar has fallen below the level of the Swiss franc.

 

Speculators are adding to this commodity boom, betting that the Fed has thrown price stability to the wind in order to ease U.S. housing and credit woes. The problem is that dollar weakness is making both of these problems worse. The flight from the dollar has made U.S.-based investments less attractive, at a time when the U.S. financial system urgently needs to raise capital. And the commodity boom is translating into higher food and energy prices that are robbing American consumers of discretionary income. In the name of avoiding a recession, reckless monetary policy has made one more likely.

 

Meanwhile, and disconcertingly, we keep hearing new explanations for the virtues of dollar weakness. One of the most popular is that the increase in commodity prices has nothing to do with the dollar but is merely a change in "relative prices" -- commodities compared to other goods -- caused by surging global demand.

 

No doubt strong world growth explains part of the commodity price rise this decade. But the dollar price of oil has surged by some 60% since September, even as U.S. growth has slowed sharply. If the dollar had merely retained its value against the euro, oil would be in the neighborhood of $70 a barrel. Dollar weakness explains a large part of the oil price surge.

[Fan in Chicago]

I understand, but for $2, the threat has been made to let it go through the bankruptcy courts.

 

Threat ? To who and with what consequences ? I say they should file for chapter 11 now, let the other institutions that did business with BS react or go down as the case may be. This is a prime opportunity for the financial industry to get cleaned out. For once they are on the receiving end and I don't see why any body should alleviate their pain. Aren't these the companies that paid out several millions to their top management in bonuses ? Aren't their employees the onces who flaunt their 100%+ bonuses in their friends' face ? Wear Boss suits and act holier than thou ? If they deserved their payout then, they deserve to take the fall today. Their industry is the one that ruthlessly implements the risk model in lending. I see no reason why they should reap the benefits on the upside and be protected on the downside.

Dwight, my rant is not directed at you. I was incredibly ticked off with the Fed 'bail out' last week and today's developments pushed my anger over the edge. I simply cannot see why any company is too large to fail in a free market economy.

[GG]

Threat ? To who and with what consequences ? I say they should file for chapter 11 now, let the other institutions that did business with BS react or go down as the case may be. This is a prime opportunity for the financial industry to get cleaned out. For once they are on the receiving end and I don't see why any body should alleviate their pain. Aren't these the companies that paid out several millions to their top management in bonuses ? Aren't their employees the onces who flaunt their 100%+ bonuses in their friends' face ? Wear Boss suits and act holier than thou ? If they deserved their payout then, they deserve to take the fall today. Their industry is the one that ruthlessly implements the risk model in lending. I see no reason why they should reap the benefits on the upside and be protected on the downside.

 

On the surface, I agree with you. But you also know that even if Bear files and disintegrates, the worst pain will be felt by people who had nothing to do with the mess. JPM's actions are to calm the markets and cause an orderly liquidation of Bear's positions in the hope to avert a panic. As for the high priced bankers - most will be on the street next month, only to return next year.

[GG]

JPM states that one big reason they decided to make the move is to take over Bear Sterns prime brokerage services but wouldn't these clients just leave and go on to a more secure investment bank?

 

That's what was happening and why Bear unraveled so quickly. JPM could have snapped up the clients on its own, but the risk of a failed Bear was too great.

[Dwight Drane]

Threat ? To who and with what consequences ? I say they should file for chapter 11 now, let the other institutions that did business with BS react or go down as the case may be. This is a prime opportunity for the financial industry to get cleaned out. For once they are on the receiving end and I don't see why any body should alleviate their pain. Aren't these the companies that paid out several millions to their top management in bonuses ? Aren't their employees the onces who flaunt their 100%+ bonuses in their friends' face ? Wear Boss suits and act holier than thou ? If they deserved their payout then, they deserve to take the fall today. Their industry is the one that ruthlessly implements the risk model in lending. I see no reason why they should reap the benefits on the upside and be protected on the downside.

Dwight, my rant is not directed at you. I was incredibly ticked off with the Fed 'bail out' last week and today's developments pushed my anger over the edge. I simply cannot see why any company is too large to fail in a free market economy.

 

 

I am just as po'd.

 

The honest, hard working person is being kicked in the groin. For all the talk of free markets, and conservative values, and morals...it is all down the crapper now. Michelle-Caruso-Cabrera lost the CNBC cheerleader voice for a moment today and blustered "We might as well put the hammer and the sickle on the flag today."

 

The Fed was able to prevent a disaster for today, but there were still enough margin calls out there to let traders know this isn't going away anytime soon. The bond traders are just sitting back, drinking JD and talking to themselves. Who knows the number of dollars that have been pumped into circulation the past few weeks. If we don't see double digit interest rates this year, I'll be shocked.

[Dwight Drane]

That's what was happening and why Bear unraveled so quickly. JPM could have snapped up the clients on its own, but the risk of a failed Bear was too great.

 

Is the Fed going to save Lehman Bros, Washington Mutual and Citibank?

 

If the regulators and rating agents were doing the same crack-up job with the big boys that they usually do in busting the little guy's stones, this thing would have blown up months ago. There is still no answer for the credit swaps market, other than moving it from a bye-bye firm's books to a solvent firm's books.

 

While the Fed is at it, they might as well go all the way and inflate us to the point where they make Social Security solvent again. Sure, you'll get $25,000 a year when you are 65, but that will buy you a new bicycle to drive to your grandkids' house.

[GG]

Is the Fed going to save Lehman Bros, Washington Mutual and Citibank?

 

If the regulators and rating agents were doing the same crack-up job with the big boys that they usually do in busting the little guy's stones, this thing would have blown up months ago. There is still no answer for the credit swaps market, other than moving it from a bye-bye firm's books to a solvent firm's books.

 

While the Fed is at it, they might as well go all the way and inflate us to the point where they make Social Security solvent again. Sure, you'll get $25,000 a year when you are 65, but that will buy you a new bicycle to drive to your grandkids' house.

 

A brown paper bag usually helps hyperventilation. The problem with CDS is exactly why Fed did what it did. If you let Bear fall, the unraveling of its obligations will spread far and wide, given their disproportionate role in fixed income. Fed won't help WaMu, maybe Lehman and Citi - but their liquidity is ok for now. Fed stepped in to help with the winddown of LTCM, knowing the potential for disaster. Bear would be worse. An orderly liquidation by JPM is much better than a Ch. 11 liquidation. The end effect on the Bear bankers will be the same - 90% will be jobless in a few months.

[Chef Jim]

A brown paper bag usually helps hyperventilation. The problem with CDS is exactly why Fed did what it did. If you let Bear fall, the unraveling of its obligations will spread far and wide, given their disproportionate role in fixed income. Fed won't help WaMu, maybe Lehman and Citi - but their liquidity is ok for now. Fed stepped in to help with the winddown of LTCM, knowing the potential for disaster. Bear would be worse. An orderly liquidation by JPM is much better than a Ch. 11 liquidation. The end effect on the Bear bankers will be the same - 90% will be jobless in a few months.

 

We're hiring.

[Fan in Chicago]

A brown paper bag usually helps hyperventilation. The problem with CDS is exactly why Fed did what it did. If you let Bear fall, the unraveling of its obligations will spread far and wide, given their disproportionate role in fixed income. Fed won't help WaMu, maybe Lehman and Citi - but their liquidity is ok for now. Fed stepped in to help with the winddown of LTCM, knowing the potential for disaster. Bear would be worse. An orderly liquidation by JPM is much better than a Ch. 11 liquidation. The end effect on the Bear bankers will be the same - 90% will be jobless in a few months.

GG, what I am trying to come to grips with is the who part of it. Who are the ones in such imminent danger ? Who deserve to be saved and why ? What specifically are these ripple effects that are so frequently mentioned ? Sounds like a bogeyman concept thrown around here. If the 'who' are these esteemed financial companies and their respective employees, scre* them and their bloated lifestyles. I do not want my money spent to rescue these high and mighty. I rather save the entrepreneur who opened a cute coffee shop down the street and faces closure cos Starbucks invaded her territory.