Bear Sterns Sold!

[Embar Angylwrath]

Sure I can read. I read that you are endorsing the system. A free-market, no favoritism, let the chips-fall-where-they-may system. Am I incorrect in that assumption?

[Embar Angylwrath]

Now you mention it, you're probably right. I don't think they can reasonably foreclose - the government would step in and stop them. A lot more voting people own houses than care about Wall Street (whether that's rational is another question, but it's true).

Dd

It has nothing to do with political pressure, Dd. A mortgage is nothing more than a contract to lend money, with the collateral for the loan being the house. A party to that contract would not be able to (legally) step outside the boundaries of the contract, unless there was a material breach of the contract terms. Mortgages don't provide for the unilateral liquidation of the collateralized asset. If the terms of the contract are being conformed to, a mortgage holder has no legal right to sell the asset.

[Partha]

Sure I can read. I read that you are endorsing the system. A free-market, no favoritism, let the chips-fall-where-they-may system. Am I incorrect in that assumption?

You are. I'm saying if you believe in that system, then you should be against this underwriting of Bear Stearns' notes so that JPMorgan can pick them up even cheaper. I even noted when I talked about it that you are against it, and I was using 'you' to describe the Free Invisible Hand morons.

Mostly, I'm tired of being told by our solons in the financial world that we can't possibly provide the money to help the most afflicted Americans while they whine for bailouts.

[Embar Angylwrath]

Sure I can read. I read that you are endorsing the system. A free-market, no favoritism, let the chips-fall-where-they-may system. Am I incorrect in that assumption?

You are. I'm saying if you believe in that system, then you should be against this underwriting of Bear Stearns' notes so that JPMorgan can pick them up even cheaper. I even noted when I talked about it that you are against it, and I was using 'you' to describe the Free Invisible Hand morons.

Mostly, I'm tired of being told by our solons in the financial world that we can't possibly provide the money to help the most afflicted Americans while they whine for bailouts.

Ok. Still trying to understand you here. You are saying I was incorrect in assuming you are endorsing a hands-off free market system (and all that it entails). Yet you rail against the purported support of an entity in that system. Can you define for me how you think Bear Sterns should have been treated by the "system", and contrast that with other involved parties in the "system"? Let me help you out with a few questions....

Bear Sterns was, essentially, a broker between transactions. Sub-Prime mortgages were a part of it, but so were investment 401(k)s, 403(b)s, pensions, prime mortgages, futures, hedge funds, stock holdings, etc. Just about every financial instrument known to man was handled by Bear Sterns. And I understand, and admire, your position that JPMorgan should not have had a guarantee from the Fed to underwrite (and therefore reduce the risk) of the aquisition of Bear Sterns. Because if the shit hits the fan, and JPMorgan can't manage this, and there's a run on JPMorgan, the tax-payer, who funds the Fed, who underwrites the 30B in notes, will pay the bill. That's a shitty position for the American taxpayer, and one I think we both want to avoid.

Of course, if Bear Sterns went bankrupt, all those holdings would be lost. Anything held by the heavily leveraged Bear Sterns would be sold at fire-house prices. Say goodbye to the union pensions, the 401(k)s, the 403(b)s, the individual accounts, the IRAs, the Roths, the SEPs. And I'm happy you advocate for non-support of JPMorgan's purchase of Bear Sterns, Partha, because in your zeal to smash the evil large corporation, you have sold out the working man. Sure, lots of large investment banks and institutional holders would be damaged by the failure of Bear Sterns, and I agree they should be. But so would many of the working Joes, who would lose retirement plans, homes, property, you name it. And I'm in favor of that as well, because the market will self-correct, and consumers will evolve.

Have you really thought through what a bankruptcy of an entity like Bear Sterns means to the proletariat (using a term here you're used to seeing)? I have. I know people's retirement will be wiped out. I know certain pension plans will go bankrupt. I know, some cities, who had too many bonds traded (held) by Bear Sterns. will go upside down. I know it would cause chaos within the economy and set the dollar back 20 years. And I'm ok with that.

Why? Because in chaos, there is opportunity. What economic model that emerges from that chaos will have evolved from the former economic model. Economics is really not much different from biology. The best solution evolves from adversity, as long as some entity doesn't act to artificially insulate the system from reality.

[Ddrak]

Now you mention it, you're probably right. I don't think they can reasonably foreclose - the government would step in and stop them. A lot more voting people own houses than care about Wall Street (whether that's rational is another question, but it's true).

Dd

It has nothing to do with political pressure, Dd. A mortgage is nothing more than a contract to lend money, with the collateral for the loan being the house. A party to that contract would not be able to (legally) step outside the boundaries of the contract, unless there was a material breach of the contract terms. Mortgages don't provide for the unilateral liquidation of the collateralized asset. If the terms of the contract are being conformed to, a mortgage holder has no legal right to sell the asset.

You misunderstand me - I mean they can't even reasonably foreclose on people who *should* be foreclosed on. Mortgage foreclosures take forever (ie 12+ months) to push through even when there's clear title. If you start using liquidator's ethics of foreclosing on everyone they possibly can, right down to the rather ephermal "not keeping the property in good condition" then the governments will step in and prevent it - which they can by a simple changing of the law. Even without that happening, 12+ months is far too long to deal with the short term borrowing that Bear Sterns was up against.

Dd

[Partha]

Of course, if Bear Sterns went bankrupt, all those holdings would be lost. Anything held by the heavily leveraged Bear Sterns would be sold at fire-house prices. Say goodbye to the union pensions, the 401(k)s, the 403(b)s, the individual accounts, the IRAs, the Roths, the SEPs. And I'm happy you advocate for non-support of JPMorgan's purchase of Bear Sterns, Partha, because in your zeal to smash the evil large corporation, you have sold out the working man. Sure, lots of large investment banks and institutional holders would be damaged by the failure of Bear Sterns, and I agree they should be. But so would many of the working Joes, who would lose retirement plans, homes, property, you name it. And I'm in favor of that as well, because the market will self-correct, and consumers will evolve.

I think you overstate the number of 'average Joes' who have the entirety of their Wall Street investment tied up in Bear Stearns stock. Detroit's pension fund, for example, holds a mere 13,500 shares. The REAL lost money are billionaires like Joseph Lewis, who owned 8% of the stock and the employees of Bear Stearns, who own a third of all stock. You don't need to make false scares to press your claim.

[Embar Angylwrath]

I don't think I am.

NPR did a great segment on it the other day. The discussion revolved around what wold happen if Bear Sterns entered bankruptcy. The answer, was that every trade they held would be subject to liquidation. The problem arose that it could take several years to just identify the actual creditors. Of all the 401(k)s and 403(b)s and pensions and IRAs and ROTHs and SEPS out there... what proportion do you think Bear Sterns had a peice of?

Answer.. almost all of them.

If Bear Sterns hand a peice of YOUR 401(k), and it was being liquidated... how do you sell off that portion? You don't. A Bear Sterns bankruptcy (which you advocate, for the record), would have locked pretty much all the retirement accounts. You can't sell (or rather, no one will buy) an asset that is shifting so radically in value, and further, can't be liquidated without the permission of the court.

In your cackling zeal to see the "plutocrats" get shafted, you've sold out your support of the common man.

I'm proud of you.

[Partha]

Google 'Investment Company Act of 1940'. Thanks.

[Embar Angylwrath]

Interesting devlopment...

http://www.nytimes.com/2008/03/24/busin ... nted=print

Looks like the deal may unravel, but will certainly be modified. As I said in earlier posts on this subject, if I was a shareholder of Bear Sterns, I would prefer liquidation bankrutpcy to the "solution" that was being rammed down their throats. It appears many of them feel the same way.

I think what you'll see is Bear Sterns begin to sell off parts of it self to interested buyers, and I think this is going to be a legal fireworks show. Really.. how do you apply ownership to a trade, where Bear Sterns is the middleman between the buyer and the seller? Does Bear Stern own the trade? Does the seller? The buyer? Personally, I have no idea, can't even guess about that, but its an interesting legal question.

[rodric]

From the lead article in the March 22 issue of "The Economist"

"Rescuing Bear Stearns and its kind from their own folly may strike many people as overly charitable. For years Wall Street minted billions without showing much compassion. Yet the Fed put $30 billion of public money at risk for the best reason of all: the public interest. Bear is a counterparty to some $10 trillion of over-the-counter swaps. With the broker's collapse, the fear that these and other contracts would no longer be honoured would have infected the world's derivatives markets. Imagine those doubts raging in all the securities Bear traded and from there spreading across the financial system; then imagine what would happen to the economy in the financial nuclear winter that would follow. Bear Stearns may not have been too big to fail, but it was too entangled."

Rhodric