Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Sioux Nation -- Ignore unavailable to you. Want to Upgrade?

To: Rock_nj who wrote (130131)	3/17/2008 12:12:01 AM
From: stockman_scott	Respond to of 361205

Behind the Fed’s Bear Loan: Systemic Risk Fear ______________________________________________________________ The Federal Reserve’s decision to invoke a Depression-era law so that it could lend to Bear Stearns shows how seriously it believes the financial system is at risk. Since last August the Fed has used both rate cuts and creative steps to infuse cash into the banking system and thaw markets as a whole, while striving to avoid anything that smelled like a bailout of any particular firm. But officials concluded the collateral damage that could accompany the failure of a major player in the debt markets was a far greater threat than the moral hazard it created by bailing out one firm and possibly encouraging risky behavior in the future. The Fed has two principal tools for lending money to market participants. It lends to its 20 “primary dealers,” including Bear Stearns, every day for up to 28 days in return for top-quality collateral such as Treasurys. But this doesn’t enable it to lend any single firm much money. It can lend unlimited sums through its discount window, but only to banks. It has, since 1932, had the authority to lend to nonbanks, but has been reluctant to use it. To underline the gravity of its use, at least five of the Fed’s seven governors must ordinarily vote in its favor. It was last used to make loans during the Depression. The Fed invoked the clause in 1970 to lend to companies cut off from the commercial paper market by the failure of the Penn Central railroad, but did not end up lending any money. “I would be very cautious about opening that window up” to investment banks, Fed Vice Chairman Donald Kohn told Congress on March 4. Banks get access in part because they are subject to “extensive” supervision, he said. On Thursday, Fed officials, including New York Fed President Timothy Geithner, Mr. Kohn, and Chairman Ben Bernanke were in regular contact with Treasury Secretary Henry Paulson and the Securities and Exchange Commission about Bear’s condition. By day’s end, Bear’s efforts to secure a rescue came up empty. Like most securities dealers, Bear had borrowed heavily with overnight “repo” loans from money-market funds. If it failed to pay them back Friday, Bear’s collateral could be dumped in a fire sale and other dealers could see their repo loans tighten up as well. Around 5 a.m., regulators including Mr. Geithner, Mr. Bernanke, Mr. Paulson and Mr. Steel convened by conference call. At the end of the call, around 7 a.m., Mr. Paulson called President Bush, who was due to speak on the economy in New York. Mr. Geithner contacted Bear Stearns to alert them to the Fed’s decision. With one governor on a flight back from Europe and two seats vacant, the Fed had to invoke another section of the law to allow just four governors to approve the move. J.P. Morgan Chase & Co. is the conduit for the loan because it already has access to the discount window, is supervised by the Fed, clears for Bear and knows the firm well. But if Bear fails and the collateral is insufficient to cover the loan, the Fed, not J.P. Morgan, takes the loss. –Greg Ip, with Michael M. Phillips

To: Rock_nj who wrote (130131)	3/17/2008 12:19:56 AM
From: stockman_scott	Respond to of 361205

JPMorgan Conference Call 8PM ET Sunday, March 16, 2008 calculatedrisk.blogspot.com <<...The transaction will be a stock-for-stock exchange. JPMorgan Chase will exchange 0.05473 shares of JPMorgan Chase common stock per one share of Bear Stearns stock. Based on the closing price of March 15, 2008, the transaction would have a value of approximately $2 per share. Effective immediately, JPMorgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. Other than shareholder approval, the closing is not subject to any material conditions. The transaction is expected to have an expedited close by the end of the calendar second quarter 2008. The Federal Reserve, the Office of the Comptroller of the Currency (OCC) and other federal agencies have given all necessary approvals. In addition to the financing the Federal Reserve ordinarily provides through its Discount Window, the Fed will provide special financing in connection with this transaction. The Fed has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets...>>

To: Rock_nj who wrote (130131)	3/17/2008 12:26:53 AM
From: stockman_scott	Respond to of 361205

Asia Stocks, U.S. Futures, Dollar Decline After Fed Cuts Rate By Patrick Rial and Emma O'Brien March 17 (Bloomberg) -- Asian stocks, U.S. index futures and the dollar tumbled, while bonds rose, after the Federal Reserve held an emergency meeting to cut interest rates and JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for $2 a share. All Asian stock benchmarks fell, led by National Australia Bank Ltd. in Sydney and Mitsubishi UFJ Financial Group Inc. in Tokyo. Hong Kong's Hang Seng Index dropped 5 percent and the Topix index fell 4 percent. The dollar sank to a record low against the euro and a 12-year low below 96 yen. Gold rose to a record. ``It's dire,'' said Angus Gluskie, who helps manage the equivalent of $500 million at White Funds Management in Sydney. The Fed's actions are ``indicative of the very significant credit issues we've got globally at the moment. And what we've seen with Bear Stearns is just another step in the process.'' The Federal Reserve decision, taken at an emergency gathering before the Asian trading day, aims to prevent further financial market collapse. It coincided with JPMorgan buying Bear Stearns for about $240 million, less than a 10th of its value last week. The Fed will help finance the bailout. The dollar weakened to as low as 95.76 yen, a level not seen since August 1995, after the Fed said it would lower the rate on direct loans to commercial banks by 25 basis points to 3.25 percent to ensure ``orderly market functioning.'' Japan's 10-year government bonds rose, sending yields 5 basis points lower to 1.21 percent. ``It's a snowball and it keeps getting bigger,'' said Peggy Furusaka, credit specialist on the trading desk at BNP Paribas SA in Tokyo. ``The U.S. is really key. That's where the whole magnitude of the shakes started.'' Asian Stocks Drop The MSCI Asia Pacific Index dropped 2.2 percent to 133.01 as of 11:54 a.m. in Tokyo. Japan's Nikkei 225 Stock Average tumbled 4.2 percent. Australia's S&P/ASX 200 Index declined 2.8 percent, while South Korea's Kospi index slumped 3.2 percent. ``Facilitating a purchase of Bear by JPMorgan is, in effect, more Band-Aids when the patient needs surgery,'' said Ed Rogers, chief executive officer of Rogers Investment Advisors Y.K., which operates a fund of hedge funds. ``There is a lot more pain to come.'' Standard & Poor's 500 Index futures expiring in June slumped 2.9 percent. Only one of the 33 industry groups included in Japan's broad Topix index advanced. Financial shares led declines in Asia. National Australia Bank, the country's largest bank, fell 5.5 percent to A$26.13. Mitsubishi UFJ Financial Group, Japan's biggest lender by market value, slumped 4.2 percent to 794 yen. Woori Finance Holdings Co., South Korea's third-largest financial services company by market value, tumbled 4.8 percent to 16,000 won. Default Swaps Surge The $2 dollar price for Bear Stearns indicates how close the company was to collapse and raises concern that other U.S. financial companies may fail, said Takero Inaizumi, a manager at Mizuho Investors Securities Co. in Tokyo. Bear Stearns shares closed at $30 on March 14, down 47 percent on that day alone. Hitachi Ltd., Japan's largest maker of electronics, plunged 8.5 percent to 621 yen after reversing a forecast for a profit for the year ending this month to a 70 billion yen ($714 million) net loss. The cost to protect corporate bonds from default in Australia and Japan surged to records after the announcement of JPMorgan's purchase. A benchmark credit-default swap index in Japan gained 26 basis points to 237 basis points in Tokyo, according to Morgan Stanley, while the Australian index increased 26 basis points to 225 basis points, according to Citigroup Inc. The rising cost of insurance indicates that investors see an increasing risk of companies defaulting on their debt. The so-called TED spread, the difference between what the U.S. government and companies pay for three-month loans, climbed, indicating that banks are less willing to lend to corporations. It was near the highest this year at 1.61 percentage points, up from 1.44 points on March 13. Sony Corp., the world's second-biggest consumer electronics maker, slumped 5.5 percent to 3,970. Nomura Holdings Inc. lowered its rating on the shares on the view that earnings will be curbed with the yen above 100 versus the dollar. To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Emma O'Brien in Wellington on eobrien6@bloomberg.net. Last Updated: March 16, 2008 23:04 EDT

To: Rock_nj who wrote (130131)	3/17/2008 12:43:43 AM
From: stockman_scott	Respond to of 361205

Mohamed El-Erian, co-chief executive officer of Allianz SE's Pacific Investment Management Co., says the hedge-fund community is unwinding its leverage. "This will push more of them into 'survival mode,' further accentuating distressed sales and nervousness among the prime brokers," he wrote to his colleagues Thursday morning. "In such a world, the quality of the assets matters less than whether you can finance them [or] how liquid they are."

To: Rock_nj who wrote (130131)	3/17/2008 4:05:11 AM
From: stockman_scott	Respond to of 361205

Market Panic Forces Governments Into Action _______________________________________________________________ Author: Monty Guild Posted On: Saturday, March 15, 2008, 3:26:00 PM EST Dear CIGAS; We are watching the biggest panic in global financial markets that has occurred in my 65 years of life and 50 years of stock, bond and commodities investing. It’s the Saint Patrick’s Day weekend and old Saint Patrick would probably be fascinated to see all the rich and worldly people running around in a panic. Yesterday, JP Morgan and the U.S. Federal Reserve began a credit lifeline to Bear Stearns. This is a long and complicated story but I will attempt to summarize. Bear Stearns had a run much like the bank runs of the late 19th and early 20th centuries. It had something to do with Bear Stearns itself but not as much as you would think if you were an average, fairly sophisticated citizen with some understanding of how the financial markets work. I believe that most financial professionals may not completely understand what is happening. The lifeline and financing was done not to protect Bear Stearns alone but to protect the entire global banking system. Bear Stearns is a PRIMARY DEALER IN U.S. GOVERNMENT BONDS. This is a very small and very important club. They have also been a leader in the business of prime brokerage and in the field of trade settlement and clearing - two very profitable mostly fee-based businesses that have been the envy of many other financial institutions. These have been their cash cows and very attractive businesses that have long been sought by other buyers. Although Bear Stearns is quite large, it is the smallest of the top U.S. government bond dealers. So if someone wants to attack the system they will attack the smallest of the truly powerful bond houses. Bear Stearns, like all major mostly bond dealers and traders, also trades in mortgage bonds and derivatives and this is where its problems arose. Bear Stearns' CEO said on Wednesday that the company was well capitalized and that its balance sheet is strong. I believe he was telling the truth. However, they are not immune to a run on the bank. IN FACT, NEITHER IS ANY OTHER MAJOR BANK OR INVESTMENT BANK IN THE ENTIRE WORLD. BEAR STEARNS AS A PRIMARY DEALER CANNOT BE ALLOWED TO FAIL WITHOUT UNDERMINING THE CONFIDENCE IN THE U.S. AND THE WORLD FINANCIAL SYSTEM. BEAR STEARNS WAS PROTECTED FROM FAILING TO MEET ITS COMMITMENTS TO COUNTERPARTIES BECAUSE TO LET A PRIMARY DEALER FAIL WOULD MEAN A RUN ON EVERY MAJOR BANKING AND INVESTMENT BANKING INSTITUTION IN THE DEVELOPED WORLD. AND THAT WOULD ALMOST CERTAINLY LEAD TO A MASSIVE GLOBAL DEPRESSION. THIS IS MY CONSIDERED AND FIRM OPINION. CONCLUSION Events seem to be validating the opinion that Jim Sinclair and I have been propounding on these pages for a long time. NO MAJOR U.S. BANKING INSTITUTION WILL BE ALLOWED TO FAIL TO MEET ITS COMMITMENTS TO DEPOSITORS AND COUNTERPARTIES. To do so would be an admission of defeat by the governmental agencies and institutions that exist to prevent events like these from happening including the Great Depression of the 1930’s. CENTRAL BANKS EVERYWHERE HAVE NO OPTION BUT TO REFLATE AND SUPPLY LIQUIDITY TO THE WORLD FINANCIAL SYSTEM. FURTHERMORE, THEY HAVE BEEN DOING THAT SINCE THE CRISIS BECAME OBVIOUS ABOUT 6 MONTHS AGO. All of the themes that I said had to be fulfilled to solve the problem are not yet finalized. But congress is working to create an agency to buy bad loans and the U.S. Federal Reserve has been doing it for months now. Some countries have been slower than others to recognize the problem. But now all do and they will make haste with liquidity, government bail out programs for banks, bank nationalizations if necessary, government aid to mortgage holders and many other programs designed to get the problem behind us as soon as possible and to buy votes in the process. WHAT LIES AHEAD? THE SHORT ANSWER TO WHAT THE FUTURE HOLDS IS MORE INFLATION, HIGHER GOLD PRICES, HIGHER COMMODITY PRICES AND A LOT LOWER PRICES FOR BONDS. If you review the statements by Jim and by myself in the past several years all of the events currently taking place have been predicted and explained. jsmineset.com