Bizarre Interpretations of the Bear Stearns Acquisition on the Left
By blackhedd Posted in Liberals — Comments (46) / Email this page » / Leave a comment »
As you know, I've been following the Bear Stearns situation closely and passing along information and my interpretations for you. I've tried to stay neutral, data-driven, and politically circumspect in dealing with a situation that is fluid and dangerous, but highly technical and confined to the financial world.
There was a question from a self-identified left-wing libertarian on another thread that got me wondering: how are they reacting to this on the Left?
A quick, unscientific survey of the Left blogosphere reveals their continuing obsession with politics at the Congressional-district level. The only front-page stories contain snippets from New York Times, Wall Street Journal, and wire stories, with no interpretation.
On dKos, there is nothing at all on the front page. They're obsessing over algae blooms, evil credit card companies, how we're secretly losing the war in Iraq, and how Obama is being sold down the river by evil racists (that would be us, in case you were wondering).
There's one diary on Bear Stearns, and it picked up 1000 comments. All it did was regurgitate quotes from the Wall Street Journal and calmly note that the sky is falling.
What was the commentary like?
Wow. I'd forgotten how people think in the reality-based community.
Read on . . .
There were several major threads to the discussion. Obviously they all want to impeach "Chimp" (that's the President of the United States) and Cheney for conspiring to destroy Bear Stearns while simultaneously saving it with taxpayer dollars. If you can figure it out, let me know.
There was a long digression about how the Moonies are behind all this trouble. Again, don't ask me.
And of course they all know that the Iraq War caused the financial crisis. That and Alan Greenspan. And DON'T FORGET that the Clintons started all the trouble, with NAFTA and deregulation. (dKos evidently has turned into Obama-mania Central while I wasn't looking, and while Kos himself was sucking up to Hillary Clinton.)
Obviously, the main concern of our friends on the Left, at least those who post at dKos, centers on the political aspects of this. They want to make absolutely sure that the Democratic Party doesn't splinter, so they can duly get Barry Obama into the White House, and end the evil Clinton-Bush-Cheney nexus of power that has destroyed the economy.
And they do think the economy has been destroyed. Comment after comment screams about how the Bear Stearns failure means that the financial markets are going to melt down. And what's bad about that? They fear that it will throw "working people" [sic] into abject poverty.
Yes, folks: on the Left, they actually do believe that their material well-being is controlled not by their own ingenuity, energy, education, and willingness to work hard.
Instead, they think their fates are held in the hands of evil plutocrats who, with the click of a keyboard, enrich themselves at the expense of poor people in towns and villages all over the world.
What do they intend to do about it? Well, they expect President Obama to put an end to all this financial innovation that's causing ordinary people to be thrown out of their homes. They say they believe in capitalism, but they want it carefully regulated and heavily taxed.
To their credit, they recognize to some extent how much pain this will cause, although in typical fashion they kneejerk back to politics: one commenter assured them that we evil Republicans engineered the financial crisis and nominated a weak candidate (McCain), in order to ensure that a Democratic President (Clinton or Obama) will have to deal with the mess and the recession. Then we'll be able to swoop confidently back into power in 2012, just as Reagan did after Carter cleaned up Nixon's economic mess. Wish I'd thought of that.
Once more, with feeling: the Bear Stearns crisis was a crisis of confidence, not of solvency. People don't trade with a counterparty that they have questions about. They withdraw their short-term funds, and they trade with other desks. Wall Street is a ruthless place, and what happened tonight is not unprecedented.
The Federal Reserve acted aggressively, and correctly, to ensure that all of Bear's counterparties were protected, and to avoid a crash.
These are financial problems, not economic problems. We are in a recession, but that's a different issue (although related, to be sure). Apart from the people who lost their jobs, the collapse of Bear Stearns should have no lasting impact on the larger economy. If it had taken dozens of other firms with it, that's a totally different story.
And maybe four billion dollars in shareholder equity got wiped out tonight. That's a sustainable hit. It's not the case, as one bizarre dKos commenter said, that the economy is doomed to collapse because it will take 100 to 500 trillion dollars to "bail it out," money that the Fed doesn't have.
Generally speaking, I believe in democracy, ladies and gentlemen. But the failure of Wall Street firms scares me a lot less than the fact that people in the "reality-based community," who don't actually know how to think, will be voting this November.
The cure for that pain in our economic system will be far worse than the actual disease. We can rest assured that the people who post these ideas on dKos would love to see the gubbermint intervene and stick it to all those evil plutocrats.
Then we can find out how well things worked Merovingian France; back beofre we had any banking system beyond a local poobah who struk his own money.
"I believe we must adjourn this meeting to some other place." - The last recorded words of Adam Smith.
You left out the Elliott Spitzer part - in a world where big banks and insurance companies exist to prey on the innocent, there was one brave man who stood up for the common man. That man, Elliott Spitzer, had to be taken down before the Bear Stearns bailout could happen, and that's exactly what happened. That meme is being flogged by the likes of Greg Palast and Nicole Belle.
and FORCED Eliot Spitler to hook up wit da hos. I understand now. Thanks for clarifying things.
"I believe we must adjourn this meeting to some other place." - The last recorded words of Adam Smith.
"I believe we must adjourn this meeting to some other place." - The last recorded words of Adam Smith.
those orbital mind-reading lasers presumably found out what "very basic things" he was a bit too keen on.
It's very cringe-worthy to see these people who haven't the slightest idea of what it going on spew unequivocal, uninformed non-sequiturs. As someone who is a liberal but of the economist reading variety it is perturbing. Anyway, I really appreciate your analysis, blackhedd, it's brilliant to have the news refracted through the prism of someone so experienced and non-biased.
After reading Megan McArdle's blog on Bear Stearns, I'm thinking Bear Stearns was very carefully dismantled.; the way you'd get rid of a damaged and unsalvagable building in the middle of a crowded block.
"I believe we must adjourn this meeting to some other place." - The last recorded words of Adam Smith.
I have appreciated your insight Blackhedd about the burgeoning economic crisis. Would you mind answering a few questions?
My greatest fear with the whole economic slowdown (esp. if it approaches depression depth) is the 'remedies' that will be offered up to the people by both parties.
*Will recovery be hampered by the fact that unlike in the 30s, the federal government is sooo much larger with massive debt?
*The amount of income that is taken from citizens by the feds/states/municipalities is quite a bit larger than in the 30s as well - will this slow recovery?
*The prescriptions for recovery will probably be similar to those in the 30s because it 'worked' then. How do you propose that we fight this intellectually since most people believe FDR pulled us out of the depression (instead of deepening it like his policies really did)?
*Also, now that the GOP has become nearly as beholden to big government as the democrats (NCLB, Medicare drugs, etc.) who can we count on to defend capitalism?
>>>*Will recovery be hampered by the fact that unlike in the 30s, the federal government is sooo much larger with massive debt?
Yes, if government is stupid enough to try and solve the problem. WWII; not government, ended The Great Depression.
>>>The amount of income that is taken from citizens by the feds/states/municipalities is quite a bit larger than in the 30s as well - will this slow recovery?
It may, or, if we're lucky, it will get a lot of local and state politicians rapidly unelected in the next three to five years.
>>>How do you propose that we fight this intellectually since most people believe FDR pulled us out of the depression (instead of deepening it like his policies really did)?
You can't. You can only let people be stupid, point out the obvious failures that result, and then suggest a more effective course of action. Marxism will never be dead, as long as anyone really believes the gubbermint can relieve them of their individual responsibilities.
>>>>Also, now that the GOP has become nearly as beholden to big government as the democrats (NCLB, Medicare drugs, etc.) who can we count on to defend capitalism?
No one. Socialism has to fail every twenty years or so. That way, each generation relearns the lesson forgotten by the previous one.
"I believe we must adjourn this meeting to some other place." - The last recorded words of Adam Smith.
"Socialism has to fail every twenty years or so. That way, each generation relearns the lesson forgotten by the previous one"
Did we really learn that socialism failed? I mean, didn't we end up getting lots more government from the depression which is partly what we are battling today? Social security and the general belief that government can control the economy not just wreck it (as is usually the case). Those seem to be the 'lessons' people learned - not that socialism failed.
and its causes are solved problems.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Though in the case of worrying about the larger economy being hurt by dislocations in the financial sector they have a small point. If because of the current crisis it becomes more difficult for small borrowers to obtain credit, the economy will feel it.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Some people are never satisfied! Interesting take, though.
http://dailybriefing.blogs.fortune.cnn.com/2008/03/17/did-jpmorgan-overp...
That concept was purely ludicrous. Too many people that write about Wall Street look at things on a fiscal year basis. Yes, the BS assets may devalue this year. What happens in two, three or four years when everything has shaken out from the mess that we are in? Some of those currently bad assets may become winners. Didn't this guy ever think about that?
Fighting for conservatism one day at a time.
The stock is trading at about $3 amid claims that JPM underpaid and that the shareholders should shop around for a different buyer before approving the deal.
I will believe they can get more when I see it. The would get zero in bankruptcy.
...large parts of the Bear Stearns asset portfolio. But it's hard to imagine that they will have to do that. Morgan is a far larger company than Bear Stearns was. About 15 times as many employees, for one measurement.
If Morgan holds on, which they will probably do, then on the other side of the recession they will be sitting on assets that will explode in value compared to what they bought them for.
If anyone is still paying attention, they'll call it the greatest train robbery in history.
...JPM stock has opened up more than 3%. All the other financials are down 10% or more.
Usually when a company announces that it's acquiring another one, its stock falls. The fact that JPM is up sharply both after announcing an acquisition and in a sharply down market is telling you exactly this:
They STOLE Bear Stearns.
What run on remaining cash and assets will be made by the BS hierarchy before the firm's pants pockets turn rabbit ears? Will this bailout also ensure execs get what they expected in terms of compensation despite the potential loss of over 90% of on paper market value? I agree with a previous comment, this is one hell of a steal for JPM; all that's missing are the masked bandits running away snickering fiendishly with bags of cash. The pieces are certainly worth a lot more separately at this point. If a few more fall, you may actually be able to get a studio apartment for less than $1M in midtown. See? Not everyone loses...
Certainly they'll need to stump up the cash to retain key staff. Not much point buying an investment bank without making sure you keep the people.
...are the public shareholders of JP Morgan Chase. You can be one of them yourself, at $40.90 a share as of this moment.
You just beat me to the punch, Blackie - which is why you get paid the big bucks. :-)
Indeed, it's been flirting with 41 this morning. Since I'm a JPM shareholder, I'm giggling with delight.
I agree, this is a steal (assuming that there's no "successful" uprising" by BSC shareholders) - particularly when they're even financing it with no cash and just a 0.02% dilution of JPM stock. I won't bother doing the math comparing that with the price appreciation this morning.
Let's get all the distressed assets moved to better hands, exile the over-the-top "financial engineers" to Siberia, and get around to real business again....
There are no rumors that Lehman Brothers is being cut off from trading, as there were with Bear last week. Steady as she goes. The stock market is now flat, was up 40 points a few minutes ago.
OK, show us the board room first, we'll deal with you later
http://www.sfusd.k12.ca.us/schwww/sch618/RomanLinks/AlaricsackofRome.gif
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Come to think of it, could this be metaphor for the two wings of the Democratic party? food for thought!
"I believe we must adjourn this meeting to some other place." - The last recorded words of Adam Smith.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
This part is easy. You refer to the error you are making a little further along in your essay:
..."reality-based community," who don't actually know how to think...
Instead of thinking of the left as a rational and thinking, you need to use the model of The Computer from the game Paranoia. It didn't think about the conflicts its programming introduced, because it isn't really an AI. The left does the same thing, they process their dogma without thinking. Which results in awful karma for the rest of us.
That said, there is some admittedly very, very, very small amount of truth in their concerns. The problem is big, and it is going to take a while to work out. And it isn't just the mortgage sector. All of our financial institutions are highly leveraged and once the dominoes start to fall, it is very difficult to stop the rest of them.
I can't see any way for a rational bank to provide someone with access to consumer debt in excess of their yearly salary. Yet they've done this for me, and I will tell you that if I were the rational lender, I would never give myself that much credit. As an opportunistic consumer, I got to the same point they have, the same way: a little bit at a time (especially with teaser or special low interest rates they didn't expect to support for the life of the loan [1.99% indefinite isn't making them any money]). And now they have a problem: If they raise their interest rates, even with the revised bankruptcy laws, they can't get their money out of me because I have no real assets. So we stand here like two soldier in a movie who have just stepped on a landmine and heard the click. We hope that somehow, someone will defuse the thing and we can both breathe a sigh of relief.
I don't think I'm special, so I suspect I have lots of company. And that's one of the reasons the credit card companies haven't tried to correct the problem. So there's another fuel tanker sitting next to the one that is currently burning, and hopefully it doesn't blow before the fire is put out.
myself among that company for most of the last decade and a half. I'm a peasant Southern farmer at heart and am most comfortable with the one easy payment plan and measure success in terms of net worth. My wife on the other hand spent her whole career as a fairly high-level government financial manager; she lives in the world of cash flow. When everybody and his dog was sending us 1.99% credit cards, she shuffled money from promo card to promo card like a Vegas dealer shuffles cards. In the '90s we were both making pretty good money and had unsecured consumer debt well in excess of our annual salaries on top of the house, cars, boat, and other secured debt. We got our careers capped off and the kids on their way and got ourselves solvent as a peasant such as I would use that word again over the last few years and now only have THIS MONTH'S balance in CC debt and a little left on the house, well less than its value even in a down market. That feels good, though the net of the current down market and tight credit situation is that I'm fixed here; though I'm seriously interested in moving someplace warm, I could only sell the house or boat at fire sale prices and I'm not willing to do that - yet.
In Vino Veritas
on calling before the market that things would be up today. Good job.
Not to call into questions Blackhedd forecasting ability but, while the Dow is up today (presumably on the strength of JP Morgan though I haven't yet had a chance to look at the particulars), the market is down today - the S&P 500 lost close to 1% and the broader Wilshire index lost over 1%.
ranging from 3% to 6%, but the guests on CNBC Asia were basically saying it's becoming a buyers' market now.
I was really busy for one thing, and there was just too much risk for another. It's true that the S&P and the Naz finished down, but I had in mind the Dow when I talked about my hunch that stocks would finish up.
If you were watching, the Dow was up 80 points at 3:56pm EDT, then promptly dumped 60 points just before the close.
But I think most people (including Wall Streeters I talked to this morning) would have been much less surprised to see a bloodbath. One gentleman said he was "amazed" by the stability the market showed early in the day.
The 4% declines in Japan, as I said elsewhere, were all about the strong yen, which reached 96 against the dollar today. While we're sweating over Wall Street firms failing, the Japanese are scared witless over the prospect that their export firms will get decimated by the weak dollar. Keep that on your radar, because the Bank of Japan may soon start intervening, something they more or less promised they'd never do again.
What are the takeaways? First, the Fed did its job.
Second, I'm good.
;-)
Gotta have a half way decent day to get VISA out the door this week!
Ask not what I can do for my country, ask what my country can do for me. Washington Elected Elite
I had previously planned on buying the VISA IPO, but now I'm thinking that I might just watch it for a little while before I run out and buy. I think it would be a good stock to own long-term, but I might also be able to pick it up cheaper :)
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Two thirds of the world is covered by water,
the other third is covered by Champ Bailey.
Isnt' all this fed backstopping, turning trash into collateral, and strong arming deals run counter to the desire to keep government out of business? Wouldn't letting the Bear fail be more consistent with free market values? We set the dominoes up and they may very well fall on our toes but now we've got the gov watching over us all.
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"If we want to take this party back, and I think we can someday, let’s get to work." – Barry Goldwater
I'm assuming you aren't a common dKos reader blackhedd so it's unlikely you would be aware of their counterpart to you :) His name is bonddad. Of course it being a political blog he isn't a front page poster, but everyone interested in financial info subscribes to his diaries, but they usually end up on the recommended list anyway. Taking a political blog to task for not moving economic posts to the front page might be a valid criticism, but it's a pretty small one.
You won't agree with him on interpretation, but his analysis of facts, trends, etc might be interesting to you. Seriously, check him out.
Link to his own blog: http://www.bonddad.blogspot.com/ which usually includes a copy of his dKos posts, although you'll probably need to view more than the first page since it's pretty chart crazy as he's got a bunch up at various points during the day since he thought it might be wild.
Oh man its the tea leaves of finance.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Crooks and Liars has a Bear Sterns thread up now, even the paulbots are getting in on the action. This is painful.
http://www.crooksandliars.com/2008/03/17/fed-cuts-rates-by-a-quarter-poi...
The Left emotes- they rarely think in a rational sense. The modern Left exists in a mental state willfully detached from reality.
If they say it - it is fact - in their collective mind.... sort of like the Borg but they keep forgetting to take their meds.
Free Markets are an anathema to the Left . Individual initiative and responsibility are just evil constructs of the overly moralistic Religious Right . Ditto the concepts of right and wrong or good and evil. Except of course the Religious Right and of course the Left is convinced they are evil incarnate .
Excuse me, I have to wrap my head in duck tape before it explodes .... .