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Thursday, March 27, 2008

Bear Stearns: Bagholders Start to Agitate

The bagholders, that would be YOU the diligent TAXPAYER, have started to agitate.

Protesters Enter Bear Stearns Lobby, Demand Meeting With Dimon: “Bear Stearns Cos.' New York headquarters was entered by about 200 people protesting the U.S. government's role in the securities firm's sale to JPMorgan Chase & Co.

Demonstrators from the Neighborhood Assistance Corp. of America streamed into the midtown Manhattan building's lobby through a rear entrance after security guards tried to keep them from using revolving doors. The group demanded to meet with JPMorgan Chief Executive Officer Jamie Dimon, chanting “We want Dimon.” They left voluntarily after about a half-hour.

“It's a taxpayer bailout,” Bruce Marks, the Boston-based nonprofit group's CEO, said of the Bear Stearns sale in an interview today. “You've got to take the people who created the mortgage crisis'' and have them fix it.”

My favorite quote comes from a Reuteres article. When a protester argued that the average American homeowner should have been bailed out, not the reckless fat cats at Bear Stearns, a Bear Stearns employee SCREAMED back at the protester:

“Homeowners, that's more than $1 trillion (in mortgage debt), you're crazy.”

Smelling some political points or a MASSIVE POLITICAL LANDMINE, especially in an election year, the Senate Banking and Finance committees have decided they better take a closer look.

Bear Stearns Sale to JPMorgan to Be Probed by Senate (Update4): “The Senate Banking and Finance committees are probing the government-backed sale of Bear Stearns Cos. to JPMorgan Chase & Co., voicing concerns about the risk posed to taxpayers from federal involvement in the deal.”

This is good ASS-COVERING behavior. Politicians can safely say, “We are looking into it.” Then IF the agitations become true RAGE and things get politically dicey, they can say, “We’re on it and we will take corrective measures.” But if the bagholders loose interest and loose focus or simply have to turn their attentions to more pressing matters, such as finding a new job, then the committee will drag on just long enough to fade from memory.

“It's some pushback from Congress to send a warning shot to the Fed to not use taxpayer resources to bail out Wall Street. If there is a significant negative response from Congress, it would deter the Fed from doing this in the future.” -Andy Laperriere, managing director at International Strategy & Investment Group in Washington.

“The question is how much of a risk has the government taken in extending this loan, and that's fully dependent on the value of the collateral” -Gilbert Schwartz, a partner at the law firm of Schwartz & Ballen in Washington and a former Fed lawyer.

At 2:45 PM there was a massive price spike in Bear Stearns (BSC). The price did a moonshot, 20% in 15 minutes on a rumor that a new higher bid was in the works. The deal is done at $10. Bears Stearns is worth exactly ZERO. Take the $10.

A smaller version of that same spike occurred in the S&P as well. Rumors about Bears Stearns somehow translates into a MASSIVE change in the value of exactly 500 of the largest corporate titans. Traders shoot first and hardly ask any questions. Not even later.

Fun AND profitable should you be nimble enough… but downright crazy if you take a step back and look at the bigger picture.

Also, somebody please teach me how to start these UBER rumors. They look like EASY MONEY.

Related Posts:
Thornburg Mortgage: Pyrrhic Rescue
Sarcastic Rant on Fannie and Freddie
Bear Stearns is Dead, Lehman is Probably Next

5 comments:

Partyboy said...

"Rumors about Bears Stearns somehow translates into a MASSIVE change in the value of exactly 500 of the largest corporate titans. Traders shoot first and hardly ask any questions. Not even later." Awesome line!! I always wondered who those individuals are that believe something is worth more than its buyout price? Who believes the risk/reward is more favourable in BSC in the over $10 range than any other possible trade ... there's thousands of stocks, and few have such cemented futures for losses.

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