Bear Sterns

March 16th, 2008 at 3:57 pm by David Farrar

The Fed’s bailing out of Bear Sterns is a sign of how bad things could get. Bear Sterms is America’s 5th largest bank, and if they had gone under the consequences would have been massive. They still might be.

For now it probably just means higher mortgage rates in NZ.

The real problems will be if the US and Europe go into recession. NZ could be hit with the worse of both worlds – part of a global recession – but still having high interest rates due to inflationary pressures.

Tags: Bear Sterns, Interest Rates, recession

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81 Responses to “Bear Sterns”

Adam Smith (803) Says:
March 16th, 2008 at 4:16 pm
Being in a pedantic mood, I would note that Bear Stearns is not America’s 5th largest bank it is America’s 5th largest investment bank. There is a considerable difference. It is also Bear Stearns not Bear Sterms. My past life as an accountant and auditor has come out today, I am afraid.
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Adam Smith (803) Says:
March 16th, 2008 at 4:19 pm
Regarding consequences, I think they could be horrendous. America may well be heading for a severe recession with consequential knock on effects throughout the global economy. this will render reaching a Doha Round all the more important, but less likely I suspect, but would be loved to be proved wrong. In addition, now is the time for this country to be putting itself into shape to weather the storms, not spending up large. This is not a good year for an election.
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Andrew W (1,629) Says:
March 16th, 2008 at 4:29 pm
Cross your fingers that agricultural commodity prices remain strong, that’s about the only thing that’ll stop us sliding down the same economic slope as America.
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grumpyoldhori (2,350) Says:
March 16th, 2008 at 4:34 pm
Corporate welfare for an investment house,
I thought you would
be making a comment on the evils of socialism David.

Reminds one of the National party when a few farms
get damp or dry.
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iiq374 (262) Says:
March 16th, 2008 at 4:36 pm
America’s 5th largest investment bank.
Which really makes it even worse that the Government there took it upon themselves to bail it out…
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iiq374 (262) Says:
March 16th, 2008 at 4:38 pm
Reminds one of the National party when a few farms get damp or dry.

Although the Labour party has been doing a pretty good job of emulating that recently…

Still, given the choice – I’d prefer to act as defacto insurance provider for the productive export sector than the unproductive services consumption sector…
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philu (13,393) Says:
March 16th, 2008 at 4:51 pm
damn..!..i missed out on the ‘when will he do story number three? sweepstake..!

yeah..!…it’s called a ‘perfect storm’…

phil(whoar.co.nz)
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francis (712) Says:
March 16th, 2008 at 4:59 pm
Intervention is well within the Fed’s mandate and is so for good reason. It’s hardly socialism at work.
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barry (1,317) Says:
March 16th, 2008 at 5:25 pm
Well – If the great Roger Douglas was in charge the bank would have been allowed to go under using the great tool of market forces.

Im not sure that they should go unpunished for risking depositors money in shonky investments – unless the depositors were aware then its definately their loss.
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kiki (425) Says:
March 16th, 2008 at 6:07 pm
Zero income tax would have prevented this. The privileged running to their buddies in power with their hands out for tax money again
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Alces (310) Says:
March 16th, 2008 at 6:15 pm
Poor bazza.
Sadly, you do not appreciate the irony that with more Douglas and less Plunge Protection Team in the US the present crisis of increasing moral hazard with every bail out and compounding artificial support may not have occurred.

A Douglas would have never let the toxic bomb of the multi trillion OTC unregulated derivative market go on until it got too big to fail.

See LTCM.

This isn’t a retail depositer’s bank matey, it’s a merchant/investment bank that creates all sorts of complex securities.

“unpunished for risking depositors money in shonky investments’…where to start with this know-nothing Kiwi bs.

Investors wanting higher returns than say T bonds seek out more risk, for it is only with risk that return increases. Some high return strategies are sewage. Buyer beware.

When high risk, high return strategies fail they “need” to go belly, up not be subsidised by Res banks.

Otherwise the next lot will build in the Res rescue to their risk assessment, then you have the famous Greenspan Put.

You haven’t seen anything yet, meltdown is a possibility IMHO.
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Adam Smith (803) Says:
March 16th, 2008 at 6:26 pm
Alces you are right. Bear Stearns is an intermediary. The fed took this route, because the regulations under which Bear Stearns operates as a non-depositary institution mean that J P Morgan has to stand between the Fed and Bear Stearns.

Regarding those who foolishly equate this with a bailout of farmers, or being wet or dry go and read a book on how markets work and just what companies like Bear Stearns do. If Douglas was at the Fed he would probably have done the same thing. There was probably very little alternative. Markets operate on confidence. If confidence goes so does everything else, including commodity prices in the end.

The world cannot afford a major crisis like this to rumble on. One can only hope the action taken will bring calm. By the way whilst many of these bankers may have made money, ultimately the money used in the markets comes from the savings and funds of everyday people, not from the bankers themselves, thus rescuing the banks, until soomeone takes them over and closes them in an orderly fashion does not normally put a lot of money back in the owners pockets, but may save the investors, e. g funds like the Cullen Fund,
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Alces (310) Says:
March 16th, 2008 at 6:39 pm
Adam, the market conditions that created this bail out would in all probability not have been allowed to develop by Douglas.

By that I mean this is at the end of a long line of subsidised failures and those subsidies have automatically been factored in by packagers of sub prime mortgages etc.

Watch your wallet.
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kiwi in america (1,928) Says:
March 16th, 2008 at 7:24 pm
This was not a tax payer funded bailout – sorry to deflate the meme of all the socialists posting here today. It was a swap of the perceived riskier Mortgage Back Securities (MBS) for Treasury notes – completely fiscally neutral. Markets had become super jittery since Credit Suisse sold a large prime MBS portfolio for only 70c in the dollar largely due to lack of liquidity. MBS’s underwritten by prime or A paper housing loans are not experiencing dramatic levels of default or foreclosure (unlike their sub-prime ‘brothers’) nor are the prime loans at nearly as much risk of loss in the event of foreclosure (US version of mortgagee sale) because they were loaned out at lower more conservative Loan to Value ratios. Whilst the market risk of a loss to a prime MBS capital base has increased due to declining property values, the underlying repayments (or revenue stream to the bond holders) are largely intact. The prime MBS’s were becoming excessively undervalued due to over bearish market sentiment that had gotten ahead of the risk fundamentals and the Federal Reserve’s action was done to calm markets and prevent the dramatic knock-on effect had Stearns gone under.

With the value of so many huge prime MBS portfolios held by all the world’s large trading houses artificially written down by the Credit Suisse transaction, the Fed have actually offered the same swap package to all trading houses affected not just Bear Stearns – it was just their liquidity was tighter and their margin call one of the first and largest hence the crisis – that looks to have been averted.

Of course this story is not sexy or easy for journalists to tell and so the left get their rocks off having yet another knee jerk anti-capitalist rant yet again showing their utter disdain for economic reality.

Little side note to Philu – my bong bet with you is looking safe as the media here are all over the Obama preacher’s unbelievable rants. His campaign is in full blown damage control mode with no end in sight. The happiest woman in America right now is HRC and McCain is enjoying watching both camps disembowel each other without having to say a thing or spend a cent!
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side show bob (3,660) Says:
March 16th, 2008 at 7:52 pm
Kiwi in America, I wonder how the thousands now living in tent citys because they could not make the mortage payments view the feds bailing out a bank. Whether it was a swap of MBS’s to treasury notes probably doesn’t matter to the millions of Americans now under the hammer. I doubt if many on the border line are impressed.
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kiwi in america (1,928) Says:
March 16th, 2008 at 8:03 pm
side show bob – point me to any evidence of your “tent cities”. What pathetic inflamatory ill informed rhetoric. The actual numbers of people who have lost their home due to foreclosure is certainly up on previous years but no worse than previous market adjustments. Mortgage holders were very happy to take the no docs 100% loans with super low introductory rates fixed for 1 – 2 years knowing that the rate would revert to the market adjustable (or floating) rate. It’s not like this was hidden from them. Like many on the left who can’t walk down the street without tripping over some grievance, I’m sure you favour all kinds of market distorting interventions to smack those naughty naughty lenders.

What is your prescrition to the situation prey tell? A massive tax payer bailout which would force all prudent tax paying Americans to subsidise the imprudent? How about Hillary’s brainchild – a government forced reduction in interest rates which sends a message to any lender small and large that the US doesn’t honour commercial contracts and so the money available for lending dries up forcing up interest rates due to supply and demand which of course the socialists would again try to regulate and pretty soon we’re heading into the territory occupied by Cuba, Venezuala and Zimbabwe with each successive socialist intervention having the opposite effect than the nanny state regulators desired.
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francis (712) Says:
March 16th, 2008 at 8:04 pm
thousands in tent cities because of failed mortages? jeez. somebody tell Granma, tell Daily Kos, hell, tell CNN, quick! Oh, wait. Ron Paul has already spread the word (what a joke). Nevermind.
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ellgee (6) Says:
March 16th, 2008 at 8:08 pm
I don’t think there’s any if about US heading to a recession: evidence shows they are already in one: http://freakonomics.blogs.nytimes.com/2008/03/07/the-latest-data-yes-its-a-recession/

The real questions to ask are how bad, how long and what kind of impact are we going to see on other markets.
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kiwi in america (1,928) Says:
March 16th, 2008 at 8:25 pm
ellgee-a recession has always been defined as two consecutive quarters of negative GDP growth – 3rd Q growth in 07 was 4.9% (to 30/9) and 4th Q (to 31/12) was 0.6% http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm. 1st Q 08 figures released on 27/3. The NYT saying its a recession doesn’t make it so.
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reid (13,653) Says:
March 16th, 2008 at 9:41 pm
In addition to the inter-bank lending confidence, housing market devaluation issues and the weak US manufacturing and retail sectors, you also need to factor in the dollar’s weakness.

When you get economists like Peter Shiff saying things like:

Peter Schiff, a dollar-bear at Security Pacific Capital, said the greenback faced the danger of outright collapse as countries in Asia and the Middle East mull plans to break their dollar pegs, which are fuelling inflation across the region. “The decline could accelerate rapidly. The world is still holding a lot of dollars it doesn’t need,” he said.

You should be taking note.

Then you factor in comments like:

It’s ironic that President Bush is in New York talking about how he recognizes there are economic problems in the country at the same time that the Fed is moving to try to stem the continuing erosion in the credits market around the world because of a lot of failed policies and lax oversight and neglect of the Bush administration,” Clinton, a New York Democrat, said.

Yeh sure, I know it’s Shillary. That doesn’t automatically make it b.s.

And articles like this one from Spitzer, makes you begin to wonder, if we’d had an Administration that wasn’t the same as it is, whether these issues would have arisen in the way they have.

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html
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reid (13,653) Says:
March 16th, 2008 at 9:49 pm
DPF: any way you can configure WordPress so that it avoids screwing up the third hyperlink in a post, forcing posters to do what I’ve just done above?
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reid (13,653) Says:
March 16th, 2008 at 10:13 pm
And we see the contagion spreading:

In recent years, private equity firms have bought thousands of companies, mostly with borrowed money. Blackstone and others argue that they can run these businesses more efficiently – and therefore more profitably – than they could be run as public companies.

Now, the bankers and investors who financed the boom in corporate takeovers are running for the exits. Loans and junk bonds that deal makers used to pay for the acquisitions – debts that must be repaid by the companies, not the deal makers – are sinking in value.

The speed and ferocity of the industry’s reversal has taken even Wall Street by surprise. On Monday, Carlyle Capital, a highly leveraged fund linked to another buyout firm, Carlyle Group, confronted the prospect of insolvency. Carlyle’s troubles, along with talk that Bear Stearns may be running short of cash, helped drive stocks lower. Bear Stearns denied the speculation.

…

But private equity firms’ problems now extend well beyond themselves. Banks, for example, are saddled with billions of dollars in buyout-related debt they cannot sell, serving as the next possible wave of write-downs after the subprime mortgage debacle. Citigroup, Goldman Sachs and Lehman Brothers are holding what some analysts estimate is $130 billion in leveraged loans, or those supporting private equity deals.

See here for more on the Carlyle Group’s issues.
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Alces (310) Says:
March 16th, 2008 at 10:14 pm
The US is the only country where the Central/Reserve Bank is run by……errrr…..try “is” a collection of private banks.

It’s the ultimate monopoly.

How they have got away with this since around 1913, I think, is beyond understanding.

Look at the Chinese walls and laugh.

Privatised Central Banking is a contradiction for even a capitalist running dog like me…..unless I owned one of the players.
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reid (13,653) Says:
March 16th, 2008 at 10:24 pm
Google “The creature from Jekyll Island” (it’s a free pdf or it used to be) if you want to understand the Fed’s origins Alces. How they have got away with it since 1913 is not to me personally, beyond understanding. You just have to know who the players are and what their agenda is.

The Money Masters (video) is also good.
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SPC (3,083) Says:
March 16th, 2008 at 10:26 pm
The rational reason for private centralised banking was for this estate to be independent of government (fior the same reason one has a media estate rather than state control of the media) – while we have the RB, it of course operates independently of government on this model. Thus of course, one does not need to have private centralised banking, but in the times when this was first being formed – there was a much smaller government role in the economy (little welfare and income tax was a novelty).
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SPC (3,083) Says:
March 16th, 2008 at 10:28 pm
reid

It is not beyond mere presumption to note that in allowing income tax on the one hand and offering a reassurance to the property classes on the other, some protection from government control of credit, a political balancing act.
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reid (13,653) Says:
March 16th, 2008 at 10:34 pm
Ben Franklin, Thomas Jefferson, Abe Lincoln and Andrew Jackson were all against the idea of a privately owned and operated central bank SPC.

I suggest you watch that video.

(The Fed, which was setup in 1913, wasn’t the first attempt at this, in case you’re wondering.)
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Alces (310) Says:
March 16th, 2008 at 10:36 pm
Alas no, SPC, there is no requirement for an “independent” Fed Reserve in the Constitution.

Every central bank in the world at that time was a govt entity.
Cook Is excepted, perhaps.

The ‘requirement” for gold and silver as money in the Constitution would be the death of fractional banking.

Now we’re getting very close………..
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SPC (3,083) Says:
March 16th, 2008 at 11:11 pm
Does wikipedia need to be re-edited?

In 1946, shortly after the end of Norman’s tenure, the bank was nationalised (and remains to this day government owned).

http://en.wikipedia.org/wiki/Bank_of_England

Federal Reserve System

http://en.wikipedia.org/wiki/Federal_Reserve
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SPC (3,083) Says:
March 16th, 2008 at 11:17 pm
Does wikipedia need to be re-edited?

In 1946, shortly after the end of Norman’s tenure, the bank was nationalised and remains to this day government owned).

http://en.wikipedia.org/wiki/Bank_of_England

The Bank of England was formed in 1694.

Federal Reserve System and the reasons behind its establishment.

http://en.wikipedia.org/wiki/Federal_Reserve)
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reid (13,653) Says:
March 16th, 2008 at 11:42 pm
The Federal Reserve Act was scheduled during the unlikely hours of 1.30 am to 4.30 am – were most members probably sleeping ? – on Monday 22 December 1913, at which 20 to 40 substantial differences in the House and Senate versions were supposedly described, deliberated upon, debated, reconciled and voted upon in a near-miraculous four-and-a-half to nine minutes per item, at that late hour.

At 4.30 am, a prepared report of this Committee was handed to the printers. Senator Bristow of Kansas, the Republican leader, stated on the Congressional Record that the Conference Committee had met without notifying them, and that Republicans were not present and were given no opportunity either to read or sign the Conference Committee report. The Conference report is normally read on the Senate floor. The Republicans did not even see the report. Some senators stated on the floor of the Senate that they had no knowledge of the contents of the Bill.

At 6.02 PM on 23 December, when many members had already left the Capital for the Christmas holiday, the very same day that the Bill was hurried through the House and Senate, President Woodrow Wilson signed the Federal Reserve Act of 1913 into law.

.

Milton Friedman:

“…One unsolved economic problem of the day is how to get rid of the Federal Reserve…”
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Alces (310) Says:
March 17th, 2008 at 12:19 am
There’s not one person in a thousand that understands fractional banking.

Private banks create money out of thin air….. but you don’t believe me.

Sir Josiah Stamp….Governor, Bank of England…

“Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits.”
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reid (13,653) Says:
March 17th, 2008 at 12:32 am
So what’s your recommendation here Alces?
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SPC (3,083) Says:
March 17th, 2008 at 12:35 am
Alces

What I did not believe, was your claim that the Fed was the only central bank not owned by the state in 1913. The Bank of England was only nationalised in 1946.

As for wealth …

Banks are margin players, the more they lend, the more they make. All they need are debtors who can repay their debt. All the borrowers need is the opportunity to profit on their access to this money (or the ability to buy assets or build their own and pay for the loan out of income flows). So they had/have an interest in not being dependent on (limited to) historic savings for their monetary supply level/”not simply re-lending savings/deposits – after all historic assets such as land etc need to be factored into the total economy represented by monetary supply etc.

The same way National want to finance economic growth by borrowing, banks both value the total economy and allow for growth of it.

I would not use the term that banks created “deposits” myself …
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SPC (3,083) Says:
March 17th, 2008 at 12:41 am
reid

Friedman’s problem with the Fed was, it got things wrong. It refused to inflate in 1929-1930′s and then did so in the 1970′s, he claims the deposit insurance scheme worked well till the inflation caused by the Fed in the 70′s (that is deposit insurance works when there is no depression or inflation, and in preventing a depression in the 1970′s the Fed enabled inflation). This speaks to his criticism of its imperfect performance more than its existence. And he has no ideas on what could replace it … .
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reid (13,653) Says:
March 17th, 2008 at 12:41 am
SPC: “All they need are debtors who can repay their debt.”

And of course access to the capital they can loan to the aforesaid.

Hence the current issue, seeing as how they’re being squeezed at both ends.
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SPC (3,083) Says:
March 17th, 2008 at 12:43 am
Quite so.
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Alces (310) Says:
March 17th, 2008 at 12:52 am
You miss the point, SPC…let’s concede there were 3.36 central banks privately controlled in 1913.
Doesn’t matter …it was a very few, not a usual event.

I don’t think you get it.

“The same way National want to finance economic growth by borrowing, banks both value the total economy and allow for growth of it.”

You think banks borrow from people or elsewhere to create their loan books?

No.
That borrowing merely allows them to gear their loan book.

They have a certain cash on hand and a statuatory reseve deposit ratio requirement with their central bank.
It is quite low.

But mostly, when a bank lends money to you for a house it simple writes the amount into an account, the money has never existed before.

Sit down and have a large cognac.
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Josh (54) Says:
March 17th, 2008 at 12:56 am
It’s a pure-play investment bank (by far the smallest of the Big 5 Investment Banks), and not a commercial/trading bank. An important distinction.
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Alces (310) Says:
March 17th, 2008 at 1:04 am
reid…..

The unfortunate Ron Paul understands the problem.

Honest money, incapable of being destroyed by inflation, means a hard asset backed currency system.

The banks and the pollies would never allow it.
Neither would the voters.
Destroying the fiat gives everyone something for nothing for a short time.

Then the pollies couldn’t deficit spend without devaluing their currency, only govts or banks with gold , silver, platinum etc backing could create money to match. The average bank is finished as a creator of money.

Never happen.
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SPC (3,083) Says:
March 17th, 2008 at 1:45 am
Alces

I would put it this way, does monetary supply expand to grow the economy or allow it to adjust to change (fiat allows this) or does growth fund the monetary supply expansion (the so called hard money system) – this is less flexible, which is why the world moved on.
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Bogusnews (390) Says:
March 17th, 2008 at 5:09 am
KIA
Always a pleasure to hear your balanced comments.

The real question to me is how this could affect NZ with the massive internal costs of our bloated state service. The government wants to spend an extra 2.5Bil on the SS this year, Cullen has already warned them (in private of course) that this will push up inflation. We all know what happens next….
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Duxton (384) Says:
March 17th, 2008 at 6:40 am
kiki: “Zero income tax would have prevented this. The privileged running to their buddies in power with their hands out for tax money again”

Does America have Working For Families as well?
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philu (13,393) Says:
March 17th, 2008 at 7:32 am
francis said..

“..thousands in tent cities because of failed mortages? jeez. somebody tell Granma, tell Daily Kos, hell, tell CNN, quick! Oh, wait. Ron Paul has already spread the word (what a joke). Nevermind..”

(um..!..)

http://whoar.co.nz/2008/the-homeless-in-tent-cities-in-america/

phil(whoar.co.nz)
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francis (712) Says:
March 17th, 2008 at 8:01 am
lol, I recommend that you actually read that BBC story.
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philu (13,393) Says:
March 17th, 2008 at 8:42 am
is is all ‘just not happening’ for you..?..francis..?

still at the ‘denial’ stage..?..are you..?

(i think ‘anger’ comes next..eh..?..)

(let us know when you get there..eh..?)

(been to new orleans lately..?..)

idjit..!

phil(whoar.co.nz)
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anonymouse (507) Says:
March 17th, 2008 at 9:04 am
It is actually Bear SterNs, with an N, not Sterms with an M
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philu (13,393) Says:
March 17th, 2008 at 9:26 am
no ..mousy..it’s actually stearns..

(so..there you go..eh..?..)

phil(whoar.co.nz)
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francis (712) Says:
March 17th, 2008 at 1:14 pm
rotfl, what does NO have to do with the mortgage crisis, Phil? Banks did it? With their secret levee-busting ray? So they could reclaim the land and sell it off?
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philu (13,393) Says:
March 17th, 2008 at 1:16 pm
are you ‘confused’..?..francis..?

new meds..?

phil(whoar.co.nz)
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Josh (54) Says:
March 17th, 2008 at 1:18 pm
Well Bear was just purchased (subject to shareholder approval) for $2 per share in JPMorgan stock. Incredible – apparently the Fed/other federal regulators have already signed off, over the weekend. They must have feared a complete meltdown come the open tomorrow. From $170 earlier in 2007, to $2 now.
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Gooner (995) Says:
March 17th, 2008 at 1:52 pm
JP Morgan just bought Bear Stearns for $2…was trading @ $57 per share a week or so ago.
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Gooner (995) Says:
March 17th, 2008 at 1:52 pm
Oh, Josh beat me to it.:)
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philu (13,393) Says:
March 17th, 2008 at 2:00 pm
still..’nothing to worry about’..?

eh..?

phil(whoar.co.nz)
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Gooner (995) Says:
March 17th, 2008 at 2:20 pm
It is a Sunday night in the US and the Fed has just cut interest rates!

Whoar!
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philu (13,393) Says:
March 17th, 2008 at 2:22 pm
yes..?

phil(whoar.co.nz)
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Gooner (995) Says:
March 17th, 2008 at 2:23 pm
http://www.bloomberg.com/apps/news?pid=20601087&sid=asg0H5x.VQ4g&refer=home

“Fed Chairman Ben S. Bernanke is stepping up efforts to keep strains in financial markets from spiraling into a full-blown meltdown. Last week the central bank agreed to emergency loans to a non-bank, Bear Stearns, for the first time since the 1960s. Fed officials also announced a program to swap $200 billion in Treasuries for debt including mortgage-backed securities.”

I feel sory for bernanke, he is fighting a lost cause.
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philu (13,393) Says:
March 17th, 2008 at 2:28 pm
and i wonder how ‘meltdown-denialist’ kiwi-in-america is bearing up..?

does anyone know..?

phil(whoar.co.nz)
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Josh (54) Says:
March 17th, 2008 at 3:07 pm
They cut the rate at the discount window (through which the Fed lends to commercial banks, in exchange for “quality” collateral), not the fed-funds rate. Although that is probably coming, which will drive the US dollar even lower. More pain to come before patient can start to recover.
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SPC (3,083) Says:
March 17th, 2008 at 4:23 pm
It’s not so bad, BS up for sale for two dollars – Barings sold for one dollar in the 90′s … (but for the fact that the latter was a meltdown of their internal security regulating trading by their staff, rather than an across the board financial boom and bust), so I suppose they are trying to show how this is not so bad with the investment bank up for sale in a $2 shop. They call it ghetto humour, of the sort that occurs to those at the scene of one too many disasters.

On this occasion, we are witnessing an asset boom and bust in the financial sector itself, this because the Fed wanted to sustain an earlier asset boom in stocks by cheap credit, when they should have taken the hit and commiserated with the tax cuts they were given.
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vto (1,098) Says:
March 17th, 2008 at 4:45 pm
send michael cullen over to the US, he is always right when it comes to economies.
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philu (13,393) Says:
March 17th, 2008 at 5:54 pm
and if you think our banks are ‘safe’..?

think on..!..eh..?

http://whoar.co.nz/2008/the-most-exposed-major-bank-is-asb-which-had-633-per-cent-of-its-assets-in-mortgages-in-the-december-quarter-of-2007/

phil(whoar.co.nz)
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kiwi in america (1,928) Says:
March 17th, 2008 at 7:02 pm
Philu – I’m fine just been busy doing other things. JP Morgan Chase buying Stearns on the cheap was utterly predictable. They’d taken a larger than average hit on the sub prime MBS collapse. Wall St will still be jittery and I don’t imagine we’ve seen the last of the pain but then markets reward the wise and punish the imprudent and this is the result of some imprudent lending policies made worse by some reef fish paranoia. That’s not being a meltdown denialist just a realistic observer of the facts to date.

Interesting how the socialists love to gloat about any negative market sentiment or conduct as if somehow it bolsters their hope and dream of a global UN directed socialist paradise that finally brings the evil capitalist Americans to heal and unlocks its vast wealth to be redistributed to Phil’s alternative dream – socialist collectives with composting toilets (and free dak to boot?) Capitalism with all its dramas and periodic adjustments still delivers more wealth to more people globally than the failed socialist experiments where ever they have been tried.
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vto (1,098) Says:
March 17th, 2008 at 7:09 pm
kiwi in america – concise and to the point. well said.

kiwiblog often throws up well posted posts which are well expressed expressionalisms. unfortunately the dross needs to be drossed through to find those.
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Kimble (3,709) Says:
March 17th, 2008 at 7:15 pm
It should be said, if it hasnt been already, that Bear Sterns was not your typical bank. A huge part of their business was based around CDO and CMO trading, as well as hedge funds.

They were the ‘sleazy’ player about town.
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philu (13,393) Says:
March 17th, 2008 at 7:21 pm
“..JP Morgan Chase buying Stearns on the cheap was utterly predictable..”

(wot..?..12 hours ago..?..)

you are really ‘full of it’..eh..?..kia..?

(funny you didn’t mention that before..eh..?..if it was so ‘predictable’..)

i’ve noticed you (sorta) specialise in the wisdom afforded by (recent) hindsight..eh..?

sorta two steps behind/after the unfolding..eh..?

(and of course total numbnuts like vto..some dozen or so steps behind..are impressed by your prescience..(heh-heh..!..)

so..why don’t you tell us the ‘utterly predictable’ results/outcomes of the upcoming credit-card-squeeze..?

..einstein..?

(stand well back..!..incoming hot-air..!..from america..!..)

phil(whoar.co.nz)
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kiwi in america (1,928) Says:
March 17th, 2008 at 7:32 pm
kimble is right – Bear Stearns were the brass knuckle operators who hawked the sub prime securities harder than anyone else – their chickens came home to roost. Sorry phil – that doesn’t equal global banking system meltdown much as you so wish it will happen.

Let’s hear phil’s solution to the current credit crunch vs the Federal Reserve’s – preferrably in paragraphs of intelligable sentences not your usual short ….. and () infested bursts so that we can actually understand you because frankly you frequently ramble in gibberish and no one has a clue what you are trying to say.
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philu (13,393) Says:
March 17th, 2008 at 7:39 pm
i have no ‘solution’ to what is unfolding..

neither does anyone else..(and especially you..eh..?..your pretences to anything different notwithstanding..)

it’s just going to happen..

(and i see nothing ‘utterly predictable’ popped into your mind..?..about the upcoming credit card crunch..?..kia..?

(“you are really full of it..eh?”..q.e.d..eh..?)

phil(whoar.co.nz)
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philu (13,393) Says:
March 17th, 2008 at 8:05 pm
how do you reckon the american stock market will do tomorrow..?..k.i.a..?

(anything ‘utterly predictable’ pop into your head..?..

or should we wait untill it closes..?..for your hindsight-insights..?)

i reckon it’s odds on for a mini-bloodbath..

the (first) ‘panic-flight’ should be just about due..eh..?..

phil(whoar.co.nz)

btw..i am not ‘wishing’ anything to happen..

i am just trying to alert people to what (actually) is happening..
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Fred (176) Says:
March 17th, 2008 at 8:53 pm
Our own banking system used to have a mandatory reserve bank “fractional reserve” but this was dropped some years ago. The reserve ratio was more than just to ensure that banks acted prudentially, it dampens the credit multiplier effect, but I guess the issue was determining what was a bank and therefore who needed to maintain reserve bank deposits. The other brake on credit multiplication is taxation but it depends on what it is spent on. Phil I checked out your blog because you mentioned “a solution”, but there was nothing, not even “repent for the end is nigh”, but thanks for the lert.
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reid (13,653) Says:
March 17th, 2008 at 8:59 pm
SPC:

reid

Friedman’s problem with the Fed was, it got things wrong. It refused to inflate in 1929-1930’s and then did so in the 1970’s, he claims the deposit insurance scheme worked well till the inflation caused by the Fed in the 70’s (that is deposit insurance works when there is no depression or inflation, and in preventing a depression in the 1970’s the Fed enabled inflation). This speaks to his criticism of its imperfect performance more than its existence. And he has no ideas on what could replace it …

Friedman: Created Equal:

“The stock of money, prices and output was decidedly more unstable after the establishment of the Reserve System than before. The most dramatic period of instability in output was, of course, the period between the two wars, which includes the severe (monetary) contractions of 1920-1, 1929-33, and 1937-8. No other 20 year period in American history contains as many as three such severe contractions.

This evidence persuades me that at least a third of the price rise during and just after World War I is attributable to the establishment of the Federal Reserve System… and that the severity of each of the major contractions — 1920-1, 1929-33 and 1937-8 is directly attributable to acts of commission and omission by the Reserve authorities…

Any system which gives so much power and so much discretion to a few men, [so] that mistakes — excusable or not — can have such far reaching effects, is a bad system. It is a bad system to believers in freedom just because it gives a few men such power without any effective check by the body politic — this is the key political argument against an independent central bank…

To paraphrase Clemenceau, money is much too serious a matter to be left to the central bankers.”
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philu (13,393) Says:
March 17th, 2008 at 9:04 pm
fred..have you met spc..?

(you are both at about the same degree of ‘numb-nutsery’..that’s all..)

phil(whoar.co.nz)
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Hobb (2) Says:
March 17th, 2008 at 9:05 pm
“upcoming credit card crunch”

Phil – its a credit crunch not a credit card crunch. One is what happens when liquidity in the interbank credit markets dry leading to spiking LIBOR and risk aversion, selling off of the equity markets and unwinding of carry – the other is what happens when you fail to sell enough foils this month to pay for the Spice Channel you have hooked on to your maxed out Visa.
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reid (13,653) Says:
March 17th, 2008 at 9:05 pm
Fred, surely there is still a mandate on minimum overnight reserves? That is what Basle II was all about: it’s a credit-risk management framework, and if a bank implemented a certain level of the framework then the local Reserve Bank allowed them to drop their overnight holdings, which varied depending on the level they implemented.

Wonder how many Aussie-owned banks (i.e. all of ours bar KB), were mandated by their owners to implement the higher levels in order to increase their profits. Fuck the safety margin.

And as a side note, that’s one of the reasons for all of this is it not, the herd mentality of “everyone is doing it” together with the impressed requirement from new owners who’ve just spent lots on buying the asset.
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Fred (176) Says:
March 17th, 2008 at 10:03 pm
The focus is (only??) on maintaining stability rather than managing the money supply. http://www.reservebank.govt.nz/finstab/fsreport/2866361.pdf see last page. I recall the changes being made some years ago. If it was still in place then surely instead of increasing the OCR to fight inflation the required reserve ratio could be increased to achieve the same effect without changing interest rates (well in theory interest rates would still go up because demand would exceed supply).
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SPC (3,083) Says:
March 17th, 2008 at 10:16 pm
philu

Thanks for contributing nothing in response to my posts, but launching a personal slight as an aside in passing. I appreciate that.
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reid (13,653) Says:
March 17th, 2008 at 10:16 pm
Yeh well the first sentence of that 10/11/06 report says:

“The global financial system has performed well and is expected to remain stable.”

but I guess they would say that, wouldn’t they?

I didn’t see the point you were making though in the last or any other page, but no worries, I was just idly wondering.
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vto (1,098) Says:
March 17th, 2008 at 10:18 pm
too true spc.

he seems to have a fetish for numb nuts
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Fred (176) Says:
March 17th, 2008 at 10:28 pm
I started looking for information on the changes that were made to the mandated reserve bank fractional reserves, when and why, and only got as far as those documents. Hopefully tomorrow will get time to have a look at the video you recommend, watched a bit of it last night. My main point being that there is no mention of limiting the creation of credit by banks.
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philu (13,393) Says:
March 18th, 2008 at 7:37 am
“..Phil – its a credit crunch not a credit card crunch..”

um..!..hobb..the ‘credit card crunch is ‘coming up’.

and btw..commodoies are picked as the next component of the financial pie to ‘crumble’..

(do try to ‘keep up’..eh hobb?..)

phil(whoar.co.nz)
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philu (13,393) Says:
March 18th, 2008 at 9:21 am
it looks like lehman bros will be the next to fail/fall…

http://whoar.co.nz/2008/will-lehman-bros-be-the-next-big-wall-st-player-to-fail/

and how about ‘our’/aussie-owned auckland savings bank..eh..?

66% ‘exposed’ to the mortgage-market..(!)

(whoar..!..eh..?..)

a 30-40% residential property drop..here..

would likely see them becoming an antipodean bears stearn..

(“..goldstein..!”..

indeed..!..)

phil(whoar.co.nz)
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Bear Sterns

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Bear Sterns

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