March 17, 2008. The St. Patty’s Day Massacre on global stocks. Bear Stearns, as predicted, is gone for good, sold to JP Morgan for $2 a share.
It was $30 a share on Friday, $88 a share on Dec 31 and as high as $165 a share back in June. It’s now toast.
Just four days after Bear Stearns Chief Executive Alan Schwartz assured Wall Street his company was not in trouble, he was forced Sunday to sell the investment bank to rival JPMorgan Chase for a bargain-basement price of $2 a share, or $236.2 million.
The stunning last-minute sale was a move to avert a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system sparked by the collapse of the subprime mortgage market.
Bear Stearns was the most exposed to risky bets on the loans. It is now the first major bank to be undone by that market’s fall.
What will happen today on Wall Street? The St. Patty’s Day Massacre.
Keep in mind that sentence: “It is now the first major bank to be undone by that market’s fall.”. Bear Stearns is the first. It will not be the last.
The next one by all accounts will be Lehman Brothers.
Lehman Brothers Holdings Inc. Monday said the bank’s liquidity position remains strong, as the fire sale of Bear Stearns to J.P. Morgan to prevent bankruptcy increased speculation that other big U.S. brokerages would come under pressure.
“Our liquidity position is and continues to be strong,” said Matthew Russell, head of corporate communications for Lehman Brothers Asia Pacific.
His statement came after people familiar with the situation said DBS Group Holdings, Southeast Asia’s biggest bank by market capitalization, has asked several traders not to enter new transactions with Lehman Brothers.
“DBS has sent an internal e-mail saying it would not deal with Lehman Brothers from now on. It said DBS shouldn’t enter into new dealings with Lehman or Bear Stearns,” one person said. Another person said that the email didn’t mention anything about closing existing positions with Lehman, which appear to remain in place for now.
Bear Stearns said the same thing last week a mere 96 hours before it folded and became a casualty. That $2 a share price for Bear Stearns is a major alarm bell ringing that the end of the global game is imminent, especially when coupled with a depression-era discount window offering from the Fed.
The Federal Reserve, struggling to prevent a meltdown in financial markets, cut the rate on direct loans to banks and became lender of last resort to the biggest dealers in U.S. government bonds.
In its first weekend emergency action in almost three decades, the central bank lowered the so-called discount rate by a quarter of a percentage point to 3.25 percent. The Fed also will lend to the 20 firms that buy Treasury securities directly from it. In a further step, the Fed will provide up to $30 billion to JPMorgan Chase & Co. to help it finance the purchase of Bear Stearns Cos. after a run on Wall Street’s fifth-largest securities firm.
“It is a serious extension of putting the Federal Reserve’s balance sheet in harm’s way,” said Vincent Reinhart, former director of the Division of Monetary Affairs at the Fed and now a scholar at the American Enterprise Institute in Washington. “That’s got to tell you the economy is in a pretty precarious state.”
The move is Chairman Ben S. Bernanke’s latest step to alleviate a seven-month credit squeeze that’s probably pushed the U.S. into a recession. The dollar tumbled to a 12-year low against the yen and Treasury notes rallied as traders increased bets that officials will reduce their main rate by 1 percentage point when they meet tomorrow.
This is the big one folks. The Fed is clearly throwing the dice on a last ditch effort to save the financial system. The Derivative Armageddon is just around the corner. Forget recession. The Fed is pulling out the Great Depression playbook at this juncture.
Asian stocks are down anywhere from 3 to 5% today. They know the jig is up. There’s a real possibility, if not a near-certainty, that after this week’s massacre in the markets that the world’s central banks will have to coordinate a dollar buy to prop up what’s left of the greenback after Tuesday’s expected 100 basis-point rate cut.
And of course, that won’t work. By Thursday and Friday it will be painfully clear that the US is on the edge of the abyss. From this point out, all bets are off. The bank runs won’t start immediately, but we’re looking at the beginning of the end of the US economy.
This is no longer just a financial disaster, but a political one as well. The steps the Fed is taking is not that of a central bank trying to save an ecomony, but of a central bank trying to keep people in their seats while the captains of industry get to the exits first. Wall Street players are quietly being told to start making for the doors with their pick of the loot that’s left, and to do it today. That’s all the Fed can do, hold back the dam for another month at the most.
Remember folks, as much as a third of Bear Stearns outstanding stock was held by it’s 14,000 employees. That stock has just lost 97% of its value from just last Monday. Those employees are out an estimated $5 billion dollars. They were fucked over royally for a few pieces of silver.
The Fed doesn’t care. Wall Street is now eating its own. You’re on your own now. My advice to you is to be prepared. Cash, food, water, a plan, and the discipline to keep that emergency stash handy and to keep it there. The emergency in question is coming soon.
Be prepared.
