# What The Failure at Bear Stearns Really Means



## hunter9494 (Jan 21, 2007)

the BS's fiasco by itself is nothing really...as you all know, the deritives mkt is 500-700T!!!...the entire worth of real estate of the entire world is only 75T!...net monetary worth of the entire world is 100T!!...yet deritive exposure is 500-700T!!!...our national budget 3-4T...even if 3-5% of derivitive hedges are called in we are in big trouble due to the cascading effect it will cause on the major financial institutions....why do you think the govt got involved bailing out BS's today??...wonder what would happen to the CDO worth that many major institutions are holding if BS had to liquidate at firesale prices?...bet it would take maybe 2 days before Lehmans and WaMu go under too...when youre leveraged on the wrongside 30:1 the impetus for badness can get going awfully fast...ask BS about this one since they were so so healthy 48hrs ago.

But whats even more frightening is this, over the next 30 yrs every household in the US owes 400K to SS and Medicare obligations and yet they dont have a clue...we owe 50T to mostly medicare due to the baby boomers...in 30 yrs the entire budget will pay SS and Medicare and there is no room for anything else....where is Ron Paul when you need him.

I kinda had a feeling when the GAO deputy(grand poobah of accounting for the US govt) resigned a month ago things were getting serious...and FDIC increasing staff by 50%?..the hand writing has been on the wall for awhile now...not sure what its going to take to get Americans to wake and face reality...we as a country are bankrupt!!!...this isnt debatable...national deficit 12T now and future obligations 50T for medicare and SS alone...and most of us dont have savings and SS probably wont be there either...I think nationalized healthcare is almost a given at this point...dont have much of a choice now...pharma co's and healthplans in trouble too...charging 200/month for pills they fetch 20.00 in other countries wont fly anymore...doctors moonlighting at the Burgerking drive through on weekends?......objectively,we are the poorest country in the world are we not???.

whose idea was it to keep printing fictitious money and taking on more and more debt anyway?...why base our entire economy on credit and debt promotion?...spending money we dont have...obviously a recipe for disaster...what if you saw a guy making 100K a yr driving a 50K BMW and living in a 600K house and with 4 kids and CC balance of 50K...wouldnt we call this person a irresponsible imbecile???...the govt doing the same thing except you gotta add some zeros to everything mntioned above.

At this point who cares if we go into a recession for awhile...if it was only a mild to moderate recession that would be a blessing...what we are talking about here is trying to avoid the unwinding of trillions and trillions of dollars of bad debt and hedges on a economy based on borrowing to sustain growth.

Thinking more globally(ie-beyond this yrs recession), I think we need to raise interest rates, get people to stop borrowing to buy things we dont really need and cant afford...esp our govt...we need to prop up the dollar and the only way we do this is to be more responsible from a monetary standpoint and bring down our personal and national debt...then commodities, oil, and gold will come down...ie-inflation will come down...we need to quit financing wars we dont absolutely need to get involved in...we are broke!...reigning in free trade wouldnt hurt either...in times like these we gotta take care of our own first...cant worry about wallstreet suffering for awhile because we are facing some really big probs right now...wont say depression but I would guess wall street and the financial institutions will alter their lending policies from now on and we will prob never see the easy money like we saw for the past 10 yrs ever again...that by itself will slow down growth dramically from here on in.

How uplifting huh?...well...enjoy the rest of the weekend everyone...


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## RandTX (Mar 14, 2008)

Good observations. Didn't know anyone else was paying attention. Regarding Ron Paul, it's shameful that he has not captured the majority of the vote, I think that shows either how decieved Americans are or how apathetic.

Regarding propping up the dollar; I assume you know of the behind the scenes agreements Bush has made to circumvent congress and senate to create a North American Union through the SPPA? Along with it comes the pressure to replace our $ with the 'Amero'. Though one insider says there are powers that do not wish to see the fall of the US$, but at the moment the debt just keeps piling up.

Wars? Washington himself gave a stearn warning that we should strive to stay free of foreign entanglements.

Regards.


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## hunter9494 (Jan 21, 2007)

nice to see others here who understand and take interest in monetary issues.

just the beginning of one world money. in the mean time accumulating some hard assets is not a bad strategy either.


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## R y a n (Apr 4, 2005)

hunter9494 said:


> nice to see others here who understand and take interest in monetary issues.
> 
> just the beginning of one world money. in the mean time accumulating some hard assets is not a bad strategy either.


LOL :rollin:


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## hunter9494 (Jan 21, 2007)

another good read. as i pointed out earlier the Fed is engaged in a risky strategy, but we are too far down the road here for them to do anything else. bank runs or bank failures, without being proped up by the Fed could cause widespread panic in the financial community.

ryan, this is too far over your head for you to understand, but it's OK, i wouldn't expect more than a silly reply with an emoticon from you.

don't you have an Obama rally or NORML meeting to attend?? :lol:

http://www.marketwatch.com/news/story/p ... id=yahoomy


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## R y a n (Apr 4, 2005)

hunter9494 said:


> another good read. as i pointed out earlier the Fed is engaged in a risky strategy, but we are too far down the road here for them to do anything else. bank runs or bank failures, without being proped up by the Fed could cause widespread panic in the financial community.
> 
> ryan, this is too far over your head for you to understand, but it's OK, i wouldn't expect more than a silly reply with an emoticon from you.
> 
> ...


H9494 the topic isn't too far over my head. My emoticon was laughing at your reply insinuating you have a deep knowledge of fiscal policy.

Now THAT was some serious entertainment. Thanks.

How did this happen?

I know you like things drawn out for you 9494, so I found this *stick figure cartoon*  that sorts it out for you, and include a bit of an explanation with fun hyperlinks to clear up the big words for you.

The short of it?

"_*Really*_ smart guys" at financial services companies figured out a legal (but ethically dubious) means of recycling crappy mortgages into something resembling actual investments. How did they get it past the audits, the financial controls, the rating agencies? Well, it's easier when they're all the same few companies, each profiting from the bigger lie.

Why is this legal? It didn't use to be. In the aftermath of the Great Depression, regulations were written into law specifically to prevent this sort of *Ponzi scheme* from occurring again, like the *Glass-Steagall Act of 1933* . It worked, until the laws were written out of existence in the late 90's. In a great triumph of conservative economic theory, the laws, protections and regulations were evaporated, leading to an orgy of mergers resulting in the flailing financial service monsters of today.

Not every economist was happy about this turn of events.



> Twenty-five years ago, when most economists were extolling the virtues of financial deregulation and innovation, a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen.
> &#8230;
> You might think that the best solution is to prevent manias from developing at all, but that requires vigilance. Since the nineteen-eighties, Congress and the executive branch have been conspiring to weaken federal supervision of Wall Street. Perhaps the most fateful step came when, during the Clinton Administration, Greenspan and Robert Rubin, then the Treasury Secretary, championed the abolition of the Glass-Steagall Act of 1933, which was meant to prevent a recurrence of the rampant speculation that preceded the Depression.


As pleasant as it would be to lay the current financial crisis entirely at Bush's feet, a significant amount of the blame should go to Rubin and Clinton. Signing the (now clearly disastrous) *Gramm-Leach-Bliley Act in November of 1999* -dismantling most of the Depression-era protections-was a classic bit of Clintonian triangularization, a gigantic sop to Wall street firms at the expense of Bill's base of liberal and working class supporters. What could they do?

I was against the repeal of glass-steagall for the provisions regarding the bank holding companies owning many different financial companies. There is no good reason that a commercial bank that conducts integral operations to the government or market should be allowed to gain the kind of exposure that would endanger the function of those operations.

Even with that dangerous exposure, the most likely cause of this mess is lenders who weren't used to subprime customers getting credit extended to them. *Once high-risk mortgages were permitted into the low-risk mortgage finance system, no one knew how to put a value on any mortgage-backed securities*. When no one can value them, no one wants to buy them, which means that even though they have some intrinsic value (because the great majority of mortgages are being paid on in a timely manner), their effective market value is zero, which really wreaks havoc on a financial institution's balance sheet.

I think it's also clear that this is about more than the valuation of subprime mortgage backed securities. Investors depositing into commercial paper are starting to think "dear god, perhaps my (far more conflicted bank than Bear Stearns) shoved my deposits into worthless securities. If this crap was called _investment grade_, what is your 'investment grade' deposit worth now?"

The answer, as I've noted, is effectively *zero*.

But I'm sure with your financial acumen 9494, you were already way ahead of me.

Right?

I'm dying to see your reply. How about something other than a one link hyperlink making the case for you?

Regards,

R


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## fishless (Aug 2, 2005)

Great stick figure cartoon Ryan :beer: 
Well worth viewing!!


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## hunter9494 (Jan 21, 2007)

there is no reply necessary, if you followed the narrative....read again.

the point is a lot of crooked bastards in big investment houses and real estate banks made a lot of money while this worked, knowing that a lot of folks would never be able to refinance when the teaser rates expired.

the real point is there are still some 1 million+ refi's coming due in the next 9 months and wall street thinks the damage is done....i doubt that, and in the mean time 30 year conventional mortgages are up and hard to qualify for, based on what has happened with the sub prime debacle. 
no financial lender wants to lend money to anyone with less than 20% down and a credit rating of less than 650.

so, we are stuck in this rut for awhile and most folks have figured out that owning a home again is a remote possibility, with rising food and energy prices, (and the need to have a real substantial down payment for a home) these people are now farther than ever from achieving the American dream of homeownership.

and if you happened to work for BS or owned the stock, well we know the rest of the story.

i would also love to know who else is in line for the "Bernanke Bailout Fund".


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## sdeprie (May 1, 2004)

The real culprit here is greed. You say "Those greedy jerks at the banks." No, I mean everyone who is greedy. How about the poor schmucks who were talked into buying over their heads. Yeah, they were greedy, too. Nobody talked them into anything they didn't want to do. They always had a choice. They could have chosen to buy more economically. They didn't. They chose to buy over their means. True, the mortgage companies should be held responsible for their part, but that should go for everyone. So, what is the other culprit? Public opinion. Call it confidence. Call it perception. We have known for a long time that our economy is not based on equal barter, but confidence. As long as we have confidence in the money market, things go along just fine. When someone shakes that confidence, we soon find ourselves in deep kim-chee. Our money hasn't been based on gold, or even silver, for a long time, but on the governments ability to back it. If you don't have confidence in the government its money is worthless. I can tell you who is most interested in the dollar maintaining value. The Chinese have Billions of dollars and would hate to see them devalued. It makes you wonder who our allies are, or who they should be, doesn't it?


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## hunter9494 (Jan 21, 2007)

steve-

you are right on many counts here. one of the biggest problems has been the artificial stimulation by this government in regards to the economy and the obbsession to avoid any type of downturn, which any economist will tell you is a natural part of the buiness cycle in a captialist economy.

the devaluation of the once strong dollar is simply the by product of so many lost jobs overseas and our need to balance the insatiable appetite for consumer goods (ie. the huge trade imbalance which has continued to grow), cheaply made overseas (stuff we used to make here now made by cheap labor, over there). it is a helluva cycle which is not ever going to be broken now, jobs gone are jobs lost forever, especially manufacturing/textile industry jobs.

the devaluation of our dollar to combat this trade deficit will eventually blow up. already businesses in India want to trade in rupees, not dollars.
same goes for the Arabs, except they prefer euros. i guess you could say the real unraveling that allowed this began when we abandoned the gold standard many years ago. nevertheless, this government sets the valuation of the dollar through our misguided economic policies.

hard times to come.......hang on.


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## sdeprie (May 1, 2004)

I don't know if this is good news or bad, since I work for the government, my job and retirement should be secure, but nothing is sure, anymore.


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