Let The Bailouts Begin: Bear Stearns
A: Boy oh boy oh boy; I go out on two early appointments and I come back to a fed sponsored bail out of Bear Stearns. I hope people start fully respecting what the credit markets are capable of by now! My gut reaction to today's fed sponsored bailout of Bear after the CEO denied rumors of a cash shortage; a surge of UNCERTAINTY & decline of CONFIDENCE! Tradable markets HATE uncertainty and rely upon confidence for future business decisions.
Here is a 5-DAY timeline of events surrounding Bear Stearns:
MONDAY
Bear Stearns DENIES Rumors on Liquidity After Shares Plummet (Bloomberg)
TUESDAY
Bear Stearns Falls For 2nd Day on Cash Concerns (Bloomberg)
WEDNESDAY
Bear Stearn's CEO Schwartz Says Cash Cushion is Ample (Bloomberg)
THURSDAY
Bear Stearn's Falls To 5-Year Low on Capital Concern (Bloomberg)
FRIDAY
Bear Stearns Gets EMERGENCY FUNDING From JPMorgan & Fed (Bloomberg)
Now, the kicker is that TWICE in the past 4 days that this rumor was floating around executives at Bear told us that rumors were FALSE, and that cash cushion was fine; THERE IS NO LIQUIDITY ISSUES AT BEAR! The response no is that 'all the deterioration occurred in the past day'. Yea right! Of course, the market cleansed the situation in its own way as a fed sponsored bailout of Bear just happened today; hammering BSC stock price!
While I understand that executives need to maintain investor confidence, but at what point will they realize that by cheer leading for their firms and avoiding the music they are doing themselves and the market as a whole a disservice! Why? THIS IS A CRISIS OF CONFIDENCE JUST AS MUCH AS IT IS A CRISIS OF CREDIT MARKETS, HOUSING, BALANCE SHEETS & LIQUIDITY!
What happened today proves one thing: we can't trust anything we hear! Markets HATE uncertainty & lack of confidence and we got a huge dose of both today! Which brings me to wonder who else is having these types of problems and require a fed sponsored bailout? Its rather narrow sighted to think that Bear is the last one! Isn't it? Some institutions that appear to be in for some rough times are Washington Mutual, UBS, and I'm sure a bunch of hedge funds out there who will ultimately be at the mercy of future margin calls.
Buckle up folks, this ride ain't over and you should certainly expect the unexpected as we see the damage left behind from this ongoing credit/housing hurricane! In meantime, the de-leveraging process is in full force and expect more forced liquidations of assets as the unwinding continues and Mr. Margin calls.
Comments (7)
I agree, there's more to come. Makes me wonder how effectively Bear has been managing its liquidity risk.
It'll be interesting to see how hedge funds, with their lack of regulatory oversight and transparency, would fare any better or worse than the banks in this regard.
Posted by Beth | March 14, 2008 12:58 PM
getting back to real estate.. This kind of news is going to start affecting Manhattan RE psychology.. its so close to home and no savvy buyer/seller is ignorant to believe Bear is the only NY firm in trouble.. At the very least, people will start to question job stability
Posted by uwsider | March 14, 2008 1:08 PM
The looming BS downgrade will sink it. Hope you shorted them at 51 this morning. You can hear the vultures circling.
Wells is a bigger bank, and it has deposits and a very different leverage point than Bear. UBS is an enormous Swiss bank. The US doesn't need to concern itself with them, but again huge bank in Switzerland (think Citi or BofA of Switzerland), no true concern over a failure. I would turn my eye onto Merrill, Lehman, Goldman, Morgan Stanley, etc. I think Merrill is the real risk of the group - Lehman and MS are pretty strong risk managers and don't seem to be in major trouble, yet. Goldman will probably somehow turn a record profit this year like they always do. If only i was as smart/lucky as them.
Posted by mike | March 14, 2008 1:15 PM
And now where getting down the the nuts and bolts of this whole mess. Great Post!
Posted by North East Georgia Real Estate | March 14, 2008 2:44 PM
Allen Swartz middle name has to be Pennochio.
He was just too firm with all those billions behind him. Huh! He should have advised Faber to buy long. It's a can't miss opportunity to turn the market around. What next
Posted by blunderer65 | March 14, 2008 4:49 PM
Noah, you were do spot on.
This week is going to be a wild ride. Does anyone have an opinion on how long the free fall is going to last? How this will impact NYC real estate in the near future?
Posted by finchy | March 16, 2008 9:56 PM
Bailing out Bear Stearn by the FED the way they did doesn't help. Instead, the Fed should have forced on this institution to change its leadership in exchange of a bailout. Right now, nothing has changed in Wall Street. We will continue to see more reckless management in the future because banks and financial institutions in general will say " well, we can take the risk we want because the Fed will always be here to rescue us". Why in hell, the Fed is using taxpayers money to bailout anyone who is making risky bet ?. Let them disapear. It will cleanup this mess.
Posted by karim | March 17, 2008 10:09 AM