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[LosingNow]

 ECONOMIC FORECASTING SURVEY
   
Most Economists Say Recession
Has Arrived as Outlook Darkens
By PHIL IZZO
March 13, 2008

The U.S. has finally slid into recession, according to the majority of economists in the latest Wall Street Journal economic-forecasting survey, a view that was reinforced by new data showing a sharp drop in retail sales last month.

"The evidence is now beyond a reasonable doubt," said Scott Anderson of Wells Fargo & Co., who was among the 71% of 51 respondents to say that the economy is now in a recession.


The Commerce Department said Thursday that retail sales tumbled 0.6% in February; sales excluding volatile auto and parts decreased 0.2%. The decline reflected a sharp slowdown in consumer spending, the primary driver of U.S. economic growth, as Americans grapple with high gasoline prices and the credit crunch, as well as drops in home values and other asset prices.

The survey, conducted March 7 through March 11, marked a precipitous shift to the negative from the previous survey conducted five weeks earlier. For example, the economists now expect nonfarm payrolls to grow by an average of only 9,000 jobs a month for the next 12 months -- down from an expected 48,500 in the previous survey. Twenty economists now expect payrolls to shrink outright. And the average forecast for the unemployment rate was raised to 5.5% by December from 4.8% in the previous survey.

Much of the gloom stemmed from last Friday's employment report, which showed a loss of 63,000 jobs in February, the second consecutive monthly decline. "My recession call comes from the employment data," said Stephen Stanley of RBS Greenwich Capital. "It struck me as a recessionary number."

Twenty-nine of 55 respondents said they expect the economy to contract in the current quarter and 25 expect it to do so in the second. The average of all the forecasts is for meager growth -- just 0.1% at an annual rate in the current quarter and 0.4% in the second.
--
ABOUT THE SURVEY
 
The Wall Street Journal surveys a group of 55 economists throughout the year. Broad surveys on more than 10 major economic indicators are conducted every month. Once a year, economists are ranked on how well their forecasts have fared. For prior installments of the surveys, see: WSJ.com/Economists5.

--
Although the classic definition of recession is two consecutive quarters of declines in the gross domestic product, Mr. Stanley pointed out that the National Bureau of Economic Research, the nonpartisan organization that is the official arbiter of when recessions begin and end, doesn't necessarily follow that definition. "If you go back to the 2001 recession, there was only one negative GDP quarter, and there might not even be one negative quarter in this recession," he said.

A WSJ survey of economists reveals that 71% of those surveyed believe Americans are currently in a recession.

The economists also expressed growing concerns that a 2008 recession could be worse than both the 2001 and 1990-91 downturns. They put the odds of a deeper downturn at an average 48%, up from 39% in the previous survey. Mark Nielson of MacroEcon Global Advisors said that "we recognize the previous two recessions were mild and, if a recession does occur, it is likely to be slightly worse than the previous two."


Amid the concerns about the economy, respondents expect more action from the government and the Federal Reserve. Some 63% said the use of public money to deal with the housing crisis is now likely or certain, while on average they expect the Fed to lower its benchmark federal-funds rate to 2% by June from the current 3%.

Futures markets Thursday priced in certainty of at least a 0.5 percentage point cut in the Fed's rate target and up to 90% probability of a 0.75 point cut. Officials had, prior to this week, appeared unconvinced a 0.75 point cut was needed, given signs that inflation psychology is worsening. But those views may have been affected by continued upheaval in credit markets and the weak retail sales and employment data. Market participants say this would be a risky time to cut less than investors expect. The Fed will have to weigh the urgency of addressing the continued credit crunch against the risk of appearing unconcerned about inflation.

However, the Fed's job may be complicated by inflation concerns. The economists raised their average forecast for consumer-price increases to 3.5% by June, up from 2.7% in the prior survey. The change reflects persistently high oil prices and a 4.3% jump in prices last month from the year before. February's CPI data will be released Friday, and economists surveyed by Dow Jones Newswires expect a 4.5% increase from a year ago.

Even as the Fed has made clear that it is most focused at the moment on threats to economic growth, some central bank policy makers have continued to voice concerns about the possibility of resurgent inflation. The central bank has used unconventional methods to boost liquidity in the market; its goal is to limit the use of its bluntest weapon, interest-rate reductions, which can fuel price pressures.

Meanwhile, most forecasters expect a recovery to begin in the second half of this year, as the government's stimulus package and the Fed's interest-rate cuts begin to spur the economy. By the end of the year, the economists expect inflation still to be hovering at an uncomfortably high 2.7%, raising the question of when the Fed will start raising rates.

Some 84% of economists in the survey said the Fed was too slow to raise interest rates in 2003, and policy makers don't want to repeat that mistake. But "it's going to take some time even under the best of circumstances before the Fed can be comfortable that the economic situation has stabilized," said Bruce Kasman of J.P. Morgan Chase.

One thing is clear: The darkening economic outlook has made Ben Bernanke's job less secure, especially with a new president about to enter the White House. The economists gave the Fed chairman just a 59% chance of being reappointed in 2010. "If a Democrat is elected he won't be reappointed, and [presumptive Republican presidential nominee John] McCain may opt for another, too," said David Resler of Nomura Securities. "The problems occurred on his watch," added Ram Bhagavatula of Combinatorics Capital.
---------------------------------------


Those looking for relief from the housing downturn shouldn’t get their hopes up for any recovery soon, according to economists in the latest Wall Street Journal forecasting survey.

The majority of respondents say the U.S. is currently in a recession, and one of the major drags has been the housing sector. On average, economists see a 5.3% drop in house prices, as measured by the Office of Federal Housing Enterprise Oversight, in 2008 and a 1.3% decline in 2009. “The bulk of inventory problem hits this year, pulling prices down,” said Diane Swonk of Mesirow Financial, referring to the imbalance between homes on the market and sales.

When economists were asked when home prices will touch bottom, most said it won’t come until 2009. Just 28% think the worst will pass this year, while 10% don’t see a recovery until 2010. Ethan Harris of Lehman Brothers said the bottom won’t come until the third quarter of 2009, and warned that “home prices will bottom later in many bubble regions.”

The situation has deteriorated to the point that economists are looking at unconventional methods to help the market. Last week, Federal Reserve Chairman Ben Bernanke suggested that lenders could aid struggling homeowners by reducing their principal — the sum of money they borrowed — to lessen the likelihood of foreclosure. Some 71% of respondents agreed with the suggestion. Lawrence Yun of the National Association of Realtors says that the idea “provides incentive not to walk away.” But Bruce Kasman of J.P. Morgan Chase warns that the proposal enjoys “little support from lenders.”

The majority of economists also expect that public money will be used in response to the deepening housing crisis. Thirty-three percent said such a move if likely, but not certain, while 29% said it is a near certainty. Twenty-two percent put the chances at 50/50, as 16% said it is not likely, but possible. None said they were almost sure that it won’t happen. “It’s a near certainty, either formally or informally,” said Michael P. Niemira of the International Council of Shopping Centers. “This may be either a good or bad thing, but this interference and encouragement is almost an asking of a favor which will cost U.S. taxpayer.”

Separately, the debate continues to rage over which home-price measure — Ofheo or Case-Shiller – provides the best snapshot of the situation. A slim majority 55%-45% chose the Ofheo index, but problems with both indexes were clear. Ofheo was derided for its limitation to loans backed by government-sponsored entities that leaves out jumbo and nonconforming loans, while Case-Shiller’s more limited coverage of U.S. markets was criticized. Paul Ashworth of Capital Economics offered one solution: “Both are equally valid,” he said. “Take the average.” –Phil Izzo

Write to Phil Izzo at philip.izzo@wsj.com6

[hastalavistababy]

Sir,why you are trying to scare us

[justforkix]

Cool - Bush's reign started with the recession (2001) and ends with the recession (2008) 

[Aloo Kashmiri Ul Haq]

Invest in Silver folks 

[LosingNow]

This is huge news..

Bears Sterns collapsing .. who's next?
---

PAGE ONE 
 

Fed Races to Rescue Bear Stearns In Bid to Steady Financial System
Storied Firm Sees Stock Plunge 47%;
J.P. Morgan Steps In
By KATE KELLY, GREG IP and ROBIN SIDEL
March 15, 2008

Credit turmoil spread to the heart of the U.S. financial system as Bear Stearns Cos., an 85-year-old institution that has survived the Depression and two world wars, sought and received emergency funding backed by the federal government.
 
In an extraordinary move, the Federal Reserve and J.P. Morgan Chase & Co. stepped in to keep Bear afloat following a severe cash crunch.


The maneuver signaled that the Fed was trying to move aggressively to prevent Bear's crisis from spreading to the broader economy. But it seemed to do little to soothe fears. Bear's shares fell 47% to a nine-year low of $30 in New York Stock Exchange composite trading at 4 p.m. The Bear crisis, coming on the heels of this week's implosion of a publicly held affiliate of Carlyle Group, further rattled Wall Street. The Dow Jones Industrial Average fell nearly 195 points.

The lifeline gives Bear access to cash for an initial period of 28 days. J.P. Morgan will borrow the money from the Fed and relend it to Bear. Exact terms weren't disclosed, but the amount is limited only by how much collateral Bear can provide, Fed officials said.

The Fed, not J.P. Morgan, is bearing the risk of the loan. It is the first time since the Great Depression that the Fed has lent in this fashion to any entity other than a bank.

Some Wall Street executives said they thought Bear was likely to be sold, in whole or piecemeal, in a matter of days, to prevent it from going under. Bear, the fifth-largest investment bank, said it has retained investment bank Lazard to weigh alternatives. Those alternatives "can run the gamut," Bear Chief Executive Alan Schwartz said in a conference call.

Possible buyers, according to a person close to Bear, include J.P. Morgan and hedge fund Citadel Investment Group, which recently bought a big stake in online brokerage firm E*Trade Financial Corp. Private-equity firms also are expected to take a look at Bear, possibly including J.C. Flowers & Co.

Yesterday's developments were the latest in a series of blows to the financial system that began in August. Then, banks became so wary of lending to each other that money markets seized up and the world's central banks had to intervene. The trigger was a surge in delinquencies on U.S. subprime mortgages and the end to a spectacular rise in home prices.

But the turmoil has spread since to almost every corner of the credit markets. "The realization that mortgages might not be paid off led lenders to realize that other loans might not be paid off," said Douglas Elmendorft, a former Fed economist .

The pervasiveness of the financial problems and the risks to the economy became increasingly apparent at the beginning of the year. That led the Fed to cut short-term rates by 1.25 percentage points in 10 days, and the Bush White House and Democratic Congress -- usually unable to agree on anything -- to approve a large fiscal stimulus.

After initial relief, credit markets have taken a turn for the worse in recent weeks, breeding an every-man-for-himself attitude among Wall Street firms. With each firm intricately intertwined with others in a maze of loans, credit lines, derivatives and swaps, the Fed and Treasury agreed that letting Bear Stearns collapse quickly was a risk not worth taking, because the consequences were simply unknowable.

Morale among Bear's 14,000 employees, already flagging from days of speculation the firm was in trouble, sank Friday morning. As they learned of the emergency funding, some called their spouses, warning they could soon be out of a job, one employee said. Employees have been barred from trading the shares because of longstanding "lockups" weeks prior to the company's earnings announcements.

Shortly after 10:30 a.m., a recorded video message from CEO Mr. Schwartz was broadcast to employees. Hundreds gathered in the mortgage-securities trading area on the seventh floor of the firm's Madison Avenue headquarters in New York. Mr. Schwartz, CEO for only two months, said he was disappointed but employees should try not to lose heart.
 
Alan "Ace" Greenberg, the 80-year-old chairman of Bear's executive committee -- and the man credited with building the firm into a power during the 1980s and early 1990s -- tried to keep up appearances. A few minutes after noon, he left his trading-floor office and went upstairs to the 12th floor for his usual lunch in Bear's dining room. Asked early in the afternoon how his spirits were, he said, "I feel fine." He declined to answer further questions.

Bear's situation echoed in some ways that at British mortgage lender Northern Rock PLC, which in September became the target of the U.K.'s first bank run in more than a century, after the Bank of England stepped in with an emergency line of credit.

"At Northern Rock, it was depositors running. At Bear Stearns, it was counterparties" -- the parties a financial firm trades with -- said Tim Bond, a Barclays Capital strategist. In Northern Rock's case, the firm's problems only grew after it got a central-bank bailout, because of the effect on customers' confidence in the firm. Ultimately, the U.K. nationalized the lender.

Bear, although not one of the giants of Wall Street, long had a reputation as one of the most astute risk managers. It has a large mortgage business, but its mix of other businesses is less diverse than those of investment-banking rivals. That profile hurt Bear when the subprime-mortgage problems developed last spring. Two of Bear's mortgage-related hedge funds collapsed in July, costing investors more than $1 billion and worsening the credit crunch then developing.

Longtime CEO James Cayne, who was seen by some investors as too hands-off when the mortgage mess unfolded, stepped down in January, though he remained chairman. His successor, Mr. Schwartz, has been trying to rally Bear. But another downturn in the credit markets in the past couple of weeks fed nagging fears that Bear wasn't financially strong enough.

Word began to spread among fixed-income traders nine days ago that European banks had stopped trading with Bear. Some U.S. fixed-income and stock traders began doing the same on Monday, pulling their cash from Bear for fear it could get locked up if there was a bankruptcy.

That development put firms that still wanted to do business with Bear in a tough position: If Bear did fail, they would have to explain to their clients why they ignored the rumors. On Tuesday, a major asset-management company stopped trading with Bear.

On Thursday, an article in The Wall Street Journal reported that firms were growing cautious about their dealings with Bear. The exit by counterparties intensified. Bear executives spent most of this week fielding nervous calls and trying to put to rest rumors of banks being unwilling to trade with Bear and about Bear facing requests for more collateral on loans.

On Monday, Bear issued a statement in which Mr. Schwartz wrote that the firm's "balance sheet, liquidity and capital remain strong." On Wednesday, he ducked out of a Bear media conference in Palm Beach, Fla., for a CNBC interview in another effort to deflect speculation about Bear's situation.

But by Thursday afternoon, it was becoming clear within Bear that the firm couldn't withstand an accelerating retreat by worried customers -- in effect, a run on the bank. Securities firms that had been willing to accept collateral from Bear Stearns were insisting on cash instead. And the hedge funds that use Bear to borrow money and clear trades were withdrawing cash from their accounts. Around 4:30 p.m., Mr. Schwartz was convinced that Bear was facing a desperate situation.

He huddled with Chief Financial Officer Samuel Molinaro, Chief Risk Officer Michael Alix and Bear lawyers, debating what to do next, said people familiar with the discussions. The group convened a conference call with the board to discuss options. Mr. Cayne dialed in from Detroit, where he was playing in a bridge tournament, say people familiar with the matter.

Some time after 6 p.m., Mr. Schwartz called James Dimon, CEO of J.P. Morgan, the second-largest U.S. bank in stock-market value. J.P. Morgan's risk officers were familiar with Bear's collateral because J.P. Morgan was the clearing agent for its trades; thus, J.P. Morgan seemed to be in good position to lend Bear money, say people familiar with Mr. Schwartz's thinking. .

Mr. Dimon sprang into action. He got on the phone with Steve Black, co-head of J.P. Morgan's investment bank, on vacation in the Caribbean. The group had a number of conversations with Fed representatives, concluding that something needed to be done for Bear, in part because a failure of the firm could have wide consequences.

By 7:30 p.m. Thursday, when it became clear Bear had not managed to secure necessary financing or a strategic deal, Fed officials began to realize they might have to step in.

The Fed each day lends money to its 20 "primary dealers," including Bear, through its money-market "repo" operations, which provide funding for one to 28 days to influence the level of interest rates. But those operations don't permit the Fed to advance much money to Bear by itself, and the loans must be secured by the highest-quality collateral, which is now in short supply.

The Fed can lend directly through its "discount window," but ordinarily only to commercial banks. A 1932 provision of the Federal Reserve Act allows the Fed to lend to non-banks if at least five of its seven governors approve. That provision was last regularly used during the Great Depression. It is meant to underscore that the central bank should lend to nonbanks only in extreme circumstances.

"I would be very cautious about opening that window up" to investment banks, Fed Vice Chairman Donald Kohn told Congress on March 4. Commercial banks get the access because they are subject to extensive federal supervision.

On a conference call at 7:30 p.m. Thursday, officials from the Securities and Exchange Commission and Bear disclosed to the Fed that Bear had lost far more of its liquidity that day than it had realized. A team of examiners from the Fed spent the night at Bear.

At about 5 a.m. Friday, regulators including New York Fed Chief Timothy Geithner, Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and the Treasury under secretary domestic finance, Robert Steel, convened by conference call. At the end of the call at 7 a.m., the Fed had decided it would offer the loan. Mr. Paulson called and briefed President Bush, who was due to speak on the economy in New York. The Fed, with two governors' seats vacant and one governor overseas and unreachable, invoked a special legal clause to approve the loan with just four governors.

For Fed officials it was a difficult choice. They did not want to single Bear out for help and they realized their actions aggravated "moral hazard" -- the tendency of bailouts to encourage future risky behavior. But the alternative was potentially far worse. Bear risked defaulting on extensive "repo" loans, in which it pledges securities as collateral for overnight loans from money-market funds. If that happened, other securities dealers would see access to repo loans become more restrictive. The pledged securities behind those loans could be dumped in a fire sale, deepening the plunge in securities prices.

By 7 a.m. Friday, the New York Federal Reserve Bank had agreed that it would provide financing to Bear Stearns via J.P. Morgan Chase. J.P. Morgan Chase was used as a conduit because, as a commercial bank, it already has access to the Fed's discount window, is under the Fed's supervisory authority, is Bear's clearing bank and knows Bear well from a previous discussion of a possible strategic tie-up.

Thus, technically the Fed still hasn't lent directly to investment banks. But the central bank has explicitly assumed the risk of the loan. If Bear fails and the collateral it posts is insufficient to cover the loan, the Fed will sustain a loss. Officials say there is no preset maximum amount of the loan, other than how much collateral Bear is able to provide to meet the Fed's requirements.

At 9 a.m. Friday, Mr. Geithner; Mr. Paulson; Erik Sirri, head of market regulation at the SEC; and Messrs. Schwartz and Dimon held a conference call with representatives from Bank of New York Mellon and the Wall Street securities firms. Mr. Paulson said all had a stake in making the effort work.

The role of J.P. Morgan as Bear's savior is somewhat paradoxical, considering the recent tense relationship between the two firms. J.P. Morgan was one of several lenders that played a role in Bear's troubles last summer when J.P. Morgan demanded more collateral from one of Bear's struggling hedge funds. There was a heated conversation between Mr. Black, co-head of J.P. Morgan's investment bank, and Mr. Spector, then Bear's co-president, over Bear's reluctance to bail out the hedge fund. J.P. Morgan ultimately served Bear with a default notice on a loan to Bear.

Prosecutors in the U.S. Attorney's office for the Eastern District of New York, based in Brooklyn, are investigating whether the funds' managers misled investors in a way that constitutes fraud.

In addition to being a Bear creditor, J.P. Morgan is a regular trading partner with Bear and therefore could be on the hook for big losses if Bear fails.

Last fall, J.P. Morgan played a leading role in a Treasury-backed effort to thaw frozen credit markets by creating a "superfund" for certain off-balance-sheet investment vehicles that were struggling. Ultimately, the owners of those investment vehicles resolved the problems on their own.

The role of rescuer has long been part of J.P. Morgan's history. In what's known as the Panic of 1907, a semi-retired J. Pierpont Morgan helped stave off a national financial crisis when he helped to shore up a number of banks that had seen a run on their deposits. And when the New York Stock Exchange was close to running out of cash, the financier raised $25 million -- supposedly in 10 minutes -- that kept the exchange in business.

Some 80 years later, the bank played a similar role when it helped organize a government-backed bailout of Chicago's Continental Illinois, a bank sagging under a mountain of bad loans.

J.P. Morgan has been on the prowl for acquisitions. Although it is thought to be most interested in a large regional bank, Bear's assets could be too good, and too cheap, to turn down.

J.P. Morgan might also be interested in buying just Bear's prime brokerage business, a key Wall Street business -- used by hedge funds to borrow money and clear trades -- that J.P. Morgan doesn't now have. The Bear unit has a good reputation but has suffered from a loss of cash balances in recent months.

Rating agencies cut their credit ratings on Bear. Moody's rating is now three levels above junk; S&P's and Fitch's ratings are two above junk.

The immediate capital infusion isn't likely to restore enough confidence in Bear to stop the exodus. Robert Sloan, a managing partner of New York-based S3 Partners LLC, a financing specialist for hedge funds, said that two of them on Friday pulled whatever money of theirs still remained in Bear's prime-brokerage operation. "Once Bear started to come out with: 'Hey, this is why we're OK, this is why we're still liquid and you should keep your assets here,' they were basically telling you to move your business," Mr. Sloan said.

--Serena Ng, David Enrich, Aaron Lucchetti, Jenny Strasburg and Gregory Zuckerman and Michael M. Phillips contributed to this article.

Write to Robin Sidel at robin.sidel@wsj.com

[RicePlateReddy]

How can the Federal Reserve underwrite a private bank with its money? 

"In deploying its most powerful weapon on Friday, the Federal Reserve made clear that some banks are simply too big to fail.
While Bear Stearns (NYSE:BSC)  near-death experience is sending shudders through the financial world, it also provided a reminder that banking giants have the ultimate insurance policy -- a government rescue."

[cricinfo]

wow , this is mind-boggling ....within a period of 48 hours JPMC is planning to snap up Bear Stearns.Bear is desparate to close the deal before tonight Asian market opening just to make sure no more value is eroded

Bear Stearns Closes in on Deal To Sell Itself to J.P. Morgan
By DENNIS K. BERMAN, SUSANNE CRAIG and KATE KELLY

Bear Stearns Cos. was closing in on a deal Sunday afternoon to sell itself to J.P. Morgan Chase & Co., as worries deepened that the financial crisis of confidence could spread if Bear failed to find a buyer by Monday morning.

People familiar with the discussions said all sides were pushing hard to complete an agreement before financial markets in Asia open for Monday trading. "None of these things is done until they're done," Treasury Department spokeswoman Michele Davis said Sunday afternoon. "But I think everyone's expectation is sometime in the early evening hopefully" the deal will be done.

Terms of the deal were still being hammered out Sunday afternoon. Reflecting the dire situation at Bear, the company is likely to fetch considerably less on a per-share basis than its stock price of $30 in New York Stock Exchange composite trading Friday at 4 p.m. Last year, the shares hit $170.

One stumbling point appeared to be the amount of risk that J.P. Morgan would absorb in any type of transaction. While J.P. Morgan is eager to snap up some of Bear Stearns assets -- such as its prime brokerage business that caters to hedge funds -- Chief Executive Officer James Dimon was reluctant to pursue the deal without certain assurances that would protect his firm's exposure, said people familiar with the matter.

Despite the emergency funding from J.P. Morgan and the Federal Reserve that was announced Friday and gives Bear access to cash for an initial period of 28 days, the clock is ticking against the 85-year-old company. Regulators, bankers and investors are concerned that the firm could plummet even further when markets open Monday. A continued exodus by parties that Bear trades with could even cause the investment bank to collapse.

Federal regulators also are trying to prevent Bear's crisis from mushrooming into a systemic threat to the stability of financial markets and other securities firm, for which confidence is essential to their ongoing operations. Unwinding Bear also would be a nightmare because it trades with nearly every firm on Wall Street.

In an interview with George Stephanopoulos on ABC's "This Week," Treasury Secretary Henry Paulson said he has been following the negotiations closely but couldn't predict if Bear Stearns would find a buyer. "I've been on the phone for a couple of days straight, throughout the weekend," he said. "But people are going to need to look and see what -- and I'm not going to project right now what that outcome of that situation is."

On several occasions over the weekend, Mr. Paulson spoke about the Bear negotiations with Federal Reserve Board Chairman Ben Bernanke and New York Fed Bank President Timothy Geithner.

A price substantially below Friday's close could value Bear at just a tiny fraction of the market cap reached at its all-time peak in early 2007. Terms likely will factor in the value of Bear's Madison Avenue headquarters, which could be valued at around $1.2 billion based on going market rates. That could make Bear's banking franchise worth roughly $1 billion -- a pittance for a firm that was regularly making $1 billion to $2 billion in net income during the middle of the decade.

Through the weekend, Bear Stearns bankers were summoned to the company's headquarters on Madison Avenue, where they were told to prepare lists of ongoing deals and business relationships. Representatives from prospective buyers circulated through conference rooms, with J.P. Morgan executives asking questions of Bear's senior people. A separate bidding group, including J.C. Flowers & Co. and Kohlberg Kravis Roberts & Co., also was in the mix, said a person familiar with the discussions.

People briefed on the talks describe them as very fragile, meaning that they could culminate in a deal or very well fall apart. The final price paid could also be in flux.

Bear also has been preparing for the possibility of a bankruptcy filing, with that as the likeliest scenario if an acquisition by J.P. Morgan falls apart, according to a person familiar with the situation. Such a filing might even occur before financial markets in Asia open for Monday trading.

A takeover agreement, which still would require formal approval by the Federal Reserve, also would signal a stunning, crushing end for Bear Stearns. It has been one of Wall Street's best-known firms, surviving swoons that rivals could not. But Bear was savaged the mortgage meltdown.

Whatever the outcome of the ongoing discussions, there is likely to be a tense market opening in the U.S. on Monday, as investors worry that the run-on-the-bank-type retreat by worried Bear customers last week could spread to other firms. On Sunday, Mr. Paulson, the Treasury secretary, said in a TV interview that the government "would do what it takes" to protect the integrity of the financial system.

Any deal would all but wipe out Bear Stearns shareholders, whose shares have not traded below $20 since 1995. The pain would be most acute for Bear's own employees, who were seeped in a culture of firm ownership -- and own about a third of the outstanding shares.

Over the weekend, some Bear employees were hoping a foreign bank would emerge as the winning suitor, since that might mean fewer job cuts than by a domestic buyer. But those prospects dwindled, leaving J.P. Morgan in the prime position to acquire Bear.

Over time, Bear's misfortune could bear fruit for J.P. Morgan. Bear's investment-banking unit -- which underwrites stocks and bonds and advises on mergers -- and its fixed-income and capital-markets trading businesses, have been badly bruised by the credit crunch but still have some value.

Likely even more valuable are Bear's clearing unit, which settles trades and also services and lends to hedge funds, and an investment-advisory business catering to customers having a high net worth. Both of those operations have suffered from withdrawals in recent days.

The likely sale of Bear Stearns is the latest in the cascading mortgage-related blows that began last summer and have resulted in staggering losses and write-downs on Wall Street, the ouster of CEOs and an epidemic of worry that the financial system faces even more turmoil.

On Friday, Bear sought and received emergency funding backed by the federal government. Both the Fed and J.P Morgan stepped in to keep Bear afloat following a severe cash crunch as investors moved to pull assets from the firm.

In stepping in, the Fed was trying to move aggressively to prevent Bear's crisis from spreading to the broader economy. The lifeline gave Bear access to cash for an initial period of 28 days -- but it was widely believed Bear would be sold within days to stop it from going under.

The Fed's unusual intervention was motivated by a concern that a rapid and disorderly failure of Bear would wreak havoc on the markets in which Bear is an intermediary, particularly the huge and important repo market.

Bear risked defaulting on extensive "repo" loans, in which it pledges securities as collateral for overnight loans from money-market funds. If that happened, other securities dealers would see access to repo loans become more restrictive. The pledged securities behind those loans could be dumped in a fire sale, deepening the plunge in securities prices.

As a result, a priority for regulators in any deal for Bear or its parts is to minimize the risk to the financial system. That suggests that regulators want those counterparties furthest removed from Bear itself, for those parties to know immediately where they stand in any deal, and that a buyer have sufficient financial strength to reassure those counterparties.

The Fed's loan facility is for up to 28 days. Other terms haven't been disclosed. The Fed's leverage is unclear, though it does have the power of moral suasion -- or trying to convince many individual parties that acting for the greater good is in their own collective self-interest.

http://online.wsj.com/article/SB120569598608739825.html?mod=hpp_us_whats_news

[Aloo Kashmiri Ul Haq]

 

[cricinfo]

The deal goes through...a shocking(?) $2 pers share...Friday Bear traded for $30 at 4 PM !!

J.P. Morgan Rescues Bear Stearns
U.S. Pushed Deal To Avert Crisis;
A Fire-Sale Price
By DENNIS K. BERMAN, SUSANNE CRAIG and KATE KELLY
March 17, 2008

Bear Stearns Cos. reached an agreement to sell itself to J.P. Morgan Chase & Co., as worries grew that failing to find a buyer for the beleaguered investment bank could cause the crisis of confidence gripping Wall Street to worsen.

The deal calls for J.P. Morgan to pay $2 a share in a stock-swap transaction, with J.P. Morgan Chase exchanging 0.05473 share of its common stock for each Bear Stearns share. Both companies' boards have approved the transaction, which values Bear Stearns at just $236 million based on the number of shares outstanding as of Feb. 16. At Friday's close, Bear Stearns's stock-market value was about $3.54 billion. It finished at $30 a share in 4 p.m. New York Stock Exchange composite trading Friday.

Effective immediately, J.P. Morgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. The deal isn't subject to any conditions, except shareholder approval. It is expected to close before the end of the second quarter.

Government regulators, including the Federal Reserve and the Office of the Comptroller of the Currency, have given their blessing to the transaction

Many well-known investors, from billionaire Joe Lewis to Bruce Sherman, the head of Legg Mason Inc.'s Private Capital Management Inc. money-management firm, have seen the value of their stakes in Bear Stearns plummet. The pain could be most acute for Bear Stearns's employees, who are steeped in a culture of personal ownership -- and hold about a third of the firm's shares outstanding.

Through the weekend, Bear Stearns bankers were summoned to the company's headquarters on New York's Madison Avenue, where they were told to prepare lists of ongoing deals and business relationships. Representatives from prospective buyers circulated through conference rooms, with J.P. Morgan executives asking questions of Bear Stearns's senior management. A separate bidding group, including J.C. Flowers & Co. and Kohlberg Kravis Roberts & Co., also was in the mix, said a person familiar with the discussions.

Bear Stearns shares, which traded as high as $170 in January 2007, fell 47% on Friday after the firm was forced to seek emergency funding from the Federal Reserve and J.P. Morgan to stay afloat amid a severe cash crunch.

One stumbling point for a sale appeared to be the amount of risk that J.P. Morgan would absorb in any type of transaction. While J.P. Morgan was eager to snap up some of Bear Stearns assets -- such as its prime brokerage business that caters to hedge funds -- Chief Executive Officer James Dimon was reluctant to pursue the deal without certain assurances that would protect his firm's exposure, said people familiar with the matter. Spokesmen for Mr. Dimon couldn't be reached yesterday.

Despite the emergency funding from J.P. Morgan and the Federal Reserve that was announced Friday and gives Bear access to cash for an initial period of 28 days, the clock is ticking on the 85-year-old firm. Late Friday, credit-ratings firms downgraded Bear Stearns to two or three levels above junk status. The downgrades also had a big impact on Bear Stearns's viability, as they severely crimped the firm's number of potential trading partners.

Regulators, bankers and investors are concerned Bear Stearns's stock could plummet even further when the stock market opens today. A continued exodus by parties with which the investment bank trades could even cause it to collapse. Still, unwinding Bear Stearns could be a nightmare because of the plethora of Wall Street firms with which it has dealings.

Analysts and investors are bracing for more bad news as securities firms report earnings this week, though Bear Stearns's results are expected to surpass the average estimate from analysts surveyed by Thomson Financial, say people familiar with the matter. A Bear spokesman declined to comment.

Meanwhile, worries are deepening that other securities firms and commercial banks might be on shaky ground. Lehman Brothers Holdings Inc. Chief Executive Richard Fuld, concerned about the markets and possible fallout from Bear Stearns's troubles, cut short a trip to India and returned home Sunday, ahead of schedule, according to people familiar with the matter. The decision came after a series of calls Saturday to both senior executives at the firm and Treasury Secretary Henry Paulson, these people say.

Investors' concerns that the flight of worried Bear Stearns customers last week might spread to other firms is likely to make for a tense opening today on Wall Street. Yesterday, Mr. Paulson said in a TV interview that the government "would do what it takes" to protect the integrity of the financial system.

On several occasions over the weekend, Mr. Paulson spoke about the Bear Stearns negotiations with Federal Reserve Chairman Ben Bernanke and New York Federal Reserve Bank President Timothy Geithner, according to people familiar with the matter.

The takeover agreement signals an abrupt and crushing end for Bear Stearns, one of Wall Street's best-known firms. Though it had survived many previous market swoons, it was savaged by the crisis in the nation's mortgage market, which began last August.

Over the weekend, some Bear Stearns employees were hoping a foreign bank would emerge as the winning suitor, since that might mean fewer job cuts than in a domestic acquisition. But those prospects dwindled, leaving J.P. Morgan in the prime position to acquire the firm.

For J.P. Morgan, a Bear Stearns deal essentially would be one of convenience. The big New York bank hadn't planned on buying a Wall Street firm. It was focusing instead on the prospect of buying a large regional bank. But people familiar with the matter said that the Bear acquisition doesn't preclude J.P. Morgan from pursuing that strategy.

One of Bear's biggest attractions for J.P. Morgan is its prime brokerage business which caters to hedge fund clients. J.P. Morgan doesn't have such a business and executives there have long said that they would like to add those operations to the bank's portfolio. J.P. Morgan has been one of the banks eyeing the prime brokerage business of Bank of America Corp. That business reportedly is on the auction block.

J.P. Morgan executives, however, are far less interested in the rest of Bear's operations, including its investment-banking unit. J.P. Morgan already has a substantial investment-banking operation with ties to many high-profile clients. Indeed, executives have scoffed at the idea that J.P. Morgan would buy a large Wall Street firm despite repeated speculation that the bank would ultimately buy a rival such as Morgan Stanley.

"Fill-ins, piecemeals, joint ventures, small purchases, where they're filling gaps, [we are] absolutely, always open, always interested. But on doing something major that would create a dramatically different landscape, not in my lifetime," Steve Black, co-head of J.P. Morgan's investment bank, said last year.

Over time, Bear Stearns's misfortune could bear fruit for J.P. Morgan. Bear Stearns's investment-banking unit, which underwrites stocks and bonds and advises on mergers, and its fixed-income and capital-markets trading businesses have been badly bruised by the credit crunch but still have some value.

Likely even more valuable are Bear Stearns's clearing unit, which settles trades and also services and lends to hedge funds, and an investment-advisory business catering to wealthy customers. Both of those operations have suffered from withdrawals in recent days.

The probable sale of Bear Stearns is the latest in the cascading mortgage-related blows that began last summer and have resulted in staggering losses and write-downs on Wall Street, the ouster of several high-profile CEOs and an epidemic of worry that the financial system faces even more turmoil.

On Friday, Bear Stearns sought and received emergency funding backed by the federal government. Both the Fed and J.P Morgan stepped in to keep Bear afloat as investors moved to pull assets out of the firm. In stepping in, the Fed was trying to move aggressively to prevent the firm's from spreading to the broader economy. The lifeline gave Bear access to cash for an initial period of 28 days -- but it was widely believed Bear would be sold within days to keep it from going under.

The Fed's unusual intervention was motivated by a concern that a rapid and disorderly failure of Bear Stearns would wreak havoc on the markets in which the firm is an intermediary, particularly the huge and important securities-repurchase, or "repo" market.

Bear Stearns risked defaulting on extensive "repo" loans, on which firms pledge securities as collateral for overnight loans from money-market funds. If that happened, other securities dealers would find their access to repo loans restricted. The pledged securities behind those loans could be dumped in a fire sale, deepening the plunge in securities prices.

As a result, one of regulators' priorities in any deal for Bear Stearns or its parts is to minimize the risk to the financial system. That suggests that they want those counterparties furthest removed from Bear Stearns itself to know immediately where they stand in any deal, and for a buyer to have sufficient financial strength to reassure those counterparties.

Bankruptcy experts said filing for bankruptcy protection wouldn't have been an attractive option for Bear Stearns, partly due to recent changes in the federal Bankruptcy Code relating to financial instruments like derivatives and repurchasing trades. Unlike most parties in bankruptcy, lenders in such transactions aren't stayed or prevented from acting to seize or control the assets involved in those deals.

"They can send you a letter saying the value of the assets is falling, so either pay us back or we will liquidate the asset," said Holly Etlin, a managing director at AlixPartners, a turnaround and business advisory firm.

Financial regulators, which had been monitoring the situation at Bear on a daily basis leading up to Friday, beefed up their presence inside the firm over the weekend. Staff from the Securities and Exchange Commission's examinations group and trading and markets division, which monitors capital levels for soundness, worked with representatives from Wall Street's self-regulator, the Financial Industry Regulatory Authority, and Federal Reserve.

The SEC and Finra staff inspected Bear's books to ensure that if customers began pulling their accounts that there was a process to unwind the positions fairly, so as to prevent additional losses.

The regulators also had staff at other firms to monitor the brokerage firm's capital level amid speculation it could face liquidity problems. A person familiar with regulators said their presence wasn't to suggest that any particular firm was in trouble, rather it was to examine whether there was enough cash on hand to deal with potential problems.

http://online.wsj.com/article/SB120569598608739825.html?mod=hpp_us_inside_today

[Aloo Kashmiri Ul Haq]

Expect an oil bath in Wall Street Tomorrow

[cricinfo]

Expect an oil bath in Wall Street Tomorrow

thanks for reminding me...whatever little bit i have in stocks ....i see that evaporating , i just have to be happy about the runs i have in DG bank

[Aloo Kashmiri Ul Haq]

Expect an oil bath in Wall Street Tomorrow

thanks for reminding me...whatever little bit i have in stocks ....i see that evaporating , i just have to be happy about the runs i have in DG bank

Silver, Gold, Oil 

[cricinfo]

Expect an oil bath in Wall Street Tomorrow

thanks for reminding me...whatever little bit i have in stocks ....i see that evaporating , i just have to be happy about the runs i have in DG bank

Silver, Gold, Oil 

i dont own oil stocks...neither i own any of silver/gold funds...my wife probably has of those...but i dont want to get assaulted by asking her to sell those !

[Aloo Kashmiri Ul Haq]

Expect an oil bath in Wall Street Tomorrow

thanks for reminding me...whatever little bit i have in stocks ....i see that evaporating , i just have to be happy about the runs i have in DG bank

Silver, Gold, Oil 

i dont own oil stocks...neither i own any of silver/gold funds...my wife probably has of those...but i dont want to get assaulted by asking her to sell those !

Why would you sell Oil or Precious Metal in the current scenario?

[cricinfo]

Expect an oil bath in Wall Street Tomorrow

thanks for reminding me...whatever little bit i have in stocks ....i see that evaporating , i just have to be happy about the runs i have in DG bank

Silver, Gold, Oil 

i dont own oil stocks...neither i own any of silver/gold funds...my wife probably has of those...but i dont want to get assaulted by asking her to sell those !

Why would you sell Oil or Precious Metal in the current scenario?

well if i had  huge amounts of gold i would sell to cash in, this is the highest in last 10 years...and with stock market improving (which eventually will happen within next 1 year ) the value will go down ...then i will buy back more gold !

[Aloo Kashmiri Ul Haq]

Expect an oil bath in Wall Street Tomorrow

thanks for reminding me...whatever little bit i have in stocks ....i see that evaporating , i just have to be happy about the runs i have in DG bank

Silver, Gold, Oil 

i dont own oil stocks...neither i own any of silver/gold funds...my wife probably has of those...but i dont want to get assaulted by asking her to sell those !

Why would you sell Oil or Precious Metal in the current scenario?

well if i had  huge amounts of gold i would sell to cash in, this is the highest in last 10 years...and with stock market improving (which eventually will happen within next 1 year ) the value will go down ...then i will buy back more gold !

I am holding onto my Silver Investments for another 2 months. Stupid short term capital gains laws

[cricinfo]

lucky you ....maybe when prices go down , i will buy some ...now it is scorching hot!

[LosingNow]

Asian stocks are down .. how far will Sensex fall?

[LosingNow]

A DEAL FOR BEAR STEARNS 
 

A Stake Through the Heart
Bear's Biggest Holders
May Have Little Choice
But to Cut Their Losses
By CASSELL BRYAN-LOW and KATE KELLY
March 17, 2008

British billionaire Joseph Lewis made his fortune gambling on currencies. His recent investment in Bear Stearns Cos. has turned out to be a disastrous bet.
 
The elusive septuagenarian is one the biggest losers from the New York investment bank's problems. In just a few months, he has paper losses of about $800 million on his roughly 9.6% stake in Bear, whose share price has cratered in recent days.

 
A small cadre of investors, often considered some of the best in the business, own big stakes in Bear that aren't looking good. A number of these shareholders are the type of investors who ordinarily would take a hard line in a sale, demanding a higher price. But with Bear on the brink, they may have little choice.

Among the stakeholders: James Barrow, a Dallas money manager who runs the firm Barrow, Hanley, Mewhinney & Strauss Inc., is the single biggest investor, with a 9.95% stake, according to recent regulatory filings. Bear Stearns Chairman James Cayne, who stepped down as chief executive in January amid criticisms by some investors that he was too hands-off when the mortgage mess unfolded, holds a stake just under 5%. So does activist investor Bruce Sherman, the CEO of Naples, Fla., money-manager Private Capital Management Inc., a unit of Legg Mason Inc., recent regulatory filings show.

Mr. Sherman, who persuaded the media company Knight Ridder Inc. to put itself up for sale in 2005, has taken a more active stance with Bear in recent months, say people familiar with the matter. He closely questioned Bear lead director Vincent Tese about the investment bank's problems last summer and made his dissatisfaction with Mr. Cayne clear to Bear officials in the weeks preceding Mr. Cayne's early-January resignation as CEO, these people said. Mr. Sherman's firm held 5.5 million Bear shares as of Dec. 31, 2007, or a 4.8% stake. Those 5.5 million shares at Friday's close were valued roughly at about $166.5 million, down 80% from a year ago. (WN: At $2/share.. it is down to $11million!!!!!!)

Mr. Sherman was unavailable to comment, a spokesman said yesterday. Mr. Lewis was unavailable to comment, a spokesman said. An assistant in Mr. Cayne's Bear office said he was in a meeting and unavailable for comment. Mr. Barrow didn't respond to a request for comment.

Mr. Lewis made his fortune as a currency trader, once amassing a 30% stake in auctioneer Christie's International PLC, and has spent the past decade investing in an array of businesses, including real estate, oil and gas, and sports. He now lives in the tony Lyford Cay development in the Bahamas. He got involved with Bear first as a client and became a major investor last year.

Mr. Lewis long has been a client of Kurt Butenhoff, one of Bear Stearns's heavy hitters in private-client services. Mr. Butenhoff brought the relationship with him to Bear from Salomon Bros., where Mr. Butenhoff was a high-net-worth broker in the early 1990s.

Mr. Lewis began rapidly building his stake in Bear Stearns last summer, shortly after the bank announced that two internal hedge funds had imploded. In December, his stake rose to just under 10% from about 7% when Bear's stock price fell below $110, forcing him to make good on an options trade he had made with another party.

Mr. Lewis could have sold his obligation to buy and washed his hands of an unlucky trade. Instead, he chose to exercise his options, filings show, acquiring hundreds of thousands of new shares. He owns more than 11 million Bear Stearns shares, according to a December regulatory filing.

Friday, Bear's shares fell 47% to a nine-year low of $30 in New York Stock Exchange composite trading after the Federal Reserve and J.P. Morgan Chase & Co. stepped in to keep the firm afloat following a severe cash crunch. It doesn't appear from reviews of regulatory filings that Messrs. Sherman, Cayne, Barrow and Lewis have sold shares in recent weeks.

The son of a cafe owner in London's East End, Mr. Lewis started work there and later expanded the family business to create a small empire of theme restaurants. He acquired the nickname "the boxer" in part because his name is similar to boxing legend Joe Louis and also because of his shrewd approach to business.

Mr. Lewis's recent endeavors have included developments in central Florida, where he owns Isleworth and another gated community. About six years ago, Mr. Lewis purchased a stake in Tottenham Hotspur PLC, a soccer club based in northeast London. A keen golfer, Mr. Lewis hosts the Tavistock Cup tournament and has befriended golf star Tiger Woods.

[RicePlateReddy]

Mr. Sherman's firm held 5.5 million Bear shares as of Dec. 31, 2007, or a 4.8% stake. Those 5.5 million shares at Friday's close were valued roughly at about $166.5 million, down 80% from a year ago. (WN: At $2/share.. it is down to $11million!!!!!!)

Somehow, I can't get myself to feel sorry for him. 

[RicePlateReddy]

From Reuters:

"Schwartz replaced Cayne as CEO in January as shareholders, upset by Cayne's hands-off approach during a serious financial crisis, pushed the long-time chief to step aside.

That said, JPMorgan Chief Financial Officer Mike Cavanagh late Sunday said taking over Bear would generate about $6 billion in merger-related costs.

JPMorgan has not broken down those figures, but much of that will be earmarked for severance pay and potential exit packages for top executives like Schwartz. "


"Those who ignore history are doomed to repeat it"

[LosingNow]

Mr. Sherman's firm held 5.5 million Bear shares as of Dec. 31, 2007, or a 4.8% stake. Those 5.5 million shares at Friday's close were valued roughly at about $166.5 million, down 80% from a year ago. (WN: At $2/share.. it is down to $11million!!!!!!)

Somehow, I can't get myself to feel sorry for him. 

I know.. but imagine a normal hard-working employee/jr executive who got a few 1000 shares as bonus for all his hard work.. all the long term $ that he/she was going to cash out .. gone down the drain!!

It is always the middle managers who pay the heaviest (not absolute $ wise) price in such fallouts.

[RicePlateReddy]

I know.. but imagine a normal hard-working employee/jr executive who got a few 1000 shares as bonus for all his hard work.. all the long term $ that he/she was going to cash out .. gone down the drain!!

It is always the middle managers who pay the heaviest (not absolute $ wise) price in such fallouts.

The junior guys are also 100k+ no - am I supposed to feel sorry for them too  When the bonuses pile on, I always hear that i-bankers "get what they deserve". It is time for them to have a come-to-Jesus moment with Jules:

"The path of the righteous man is beset on all sides by the iniquities of the selfish and the tyranny of evil men. Blessed is he, who in the name of charity and good will, shepherds the weak through the valley of darkness, for he is truly his brother's keeper and the finder of lost children. And I will strike down upon thee with great vengeance and furious anger those who would attempt to poison and destroy my brothers. And you will know my name is the Lord when I lay my vengeance upon thee."

[cricinfo]

I know.. but imagine a normal hard-working employee/jr executive who got a few 1000 shares as bonus for all his hard work.. all the long term $ that he/she was going to cash out .. gone down the drain!!

It is always the middle managers who pay the heaviest (not absolute $ wise) price in such fallouts.

The junior guys north of a six figure salary - am I supposed to feel sorry for them too  When the bonuses pile on, I always hear that i-bankers "get what they deserve". It is time for them to listen to Jules:

"The path of the righteous man is beset on all sides by the iniquities of the selfish and the tyranny of evil men. Blessed is he, who in the name of charity and good will, shepherds the weak through the valley of darkness, for he is truly his brother's keeper and the finder of lost children. And I will strike down upon thee with great vengeance and furious anger those who would attempt to poison and destroy my brothers. And you will know my name is the Lord when I lay my vengeance upon thee."

please dont get offended ....somehow you sound like a staunch communist.....those employees worked hard and deserved to be paid six figure salary and the stocks they have earned by their hard work .For example I do own some stock here and there....i belong to a minority community whose household income is more than average american household income...and obviously my lifestyle also has changed accordingly.I do have mortgage and other monthly payments to make. So if all of  a sudden if i loose my job because of a merger or all my stocks are valued at nothing ...i will be mighty pissed off and broke...and my reaction to a comment like yours will not be nice.Hope you get my point.

[RicePlateReddy]

please dont get offended ....somehow you sound like a staunch communist.....

Damn, you've outed me.

those employees worked hard and deserved to be paid six figure salary and the stocks they have earned by their hard work .For example I do own some stock here and there....i belong to a minority community whose household income is more than average american household income...and obviously my lifestyle also has changed accordingly.I do have mortgage and other monthly payments to make. So if all of  a sudden if i loose my job because of a merger or all my stocks are valued at nothing ...i will be mighty pissed off and broke...and my reaction to a comment like yours will not be nice.Hope you get my point.

I don't mock their hardship, but I sure as hell mock their career choice. Arms dealers are the hardest working people I know, BTW and I know two of them rather well. Not that I have ever made brilliant and ethically superior choices, myself. The bottom line is these people will move along; after all they were smart enough to make it into the company and while they may have to endure some scaling down, they will be fine. I honestly feel there are far more worthy people to worry about than 99% of the people at Bear Sterns. What the hell were they thinking their company's first name meant?

[cricinfo]

please dont get offended ....somehow you sound like a staunch communist.....

Damn, you've outed me.

those employees worked hard and deserved to be paid six figure salary and the stocks they have earned by their hard work .For example I do own some stock here and there....i belong to a minority community whose household income is more than average american household income...and obviously my lifestyle also has changed accordingly.I do have mortgage and other monthly payments to make. So if all of  a sudden if i loose my job because of a merger or all my stocks are valued at nothing ...i will be mighty pissed off and broke...and my reaction to a comment like yours will not be nice.Hope you get my point.

I don't mock their hardship, but I sure as hell mock their career choice. Arms dealers are the hardest working people I know, BTW and I know two of them rather well. Not that I have ever made a brilliant or ethically superior choice, myself. These people will move along; after all they were smart enough to make it into the company and while they may have to endure some scaling down, they will be fine. I honestly feel there are far more worthy people to worry about than people at Bear Strerns.

this is a very dicey situation...let me explain my POV ...you want to worry about generaly public...for example middle class in india.I think if you want to worry about middle class in India ...you better worry about Bear Stearns Investory and employees  first!!! As of right now because of Bear Stearns failure stocks have started going down ...wait till it wipes out millions of networth of middle class people in India who have invested their hard earned money in stocks, i am afraid it will be a pretty bad situation but that is what the reality is.The so called large IB stock which was valued 30/share on Fri 4 PM  is valued 2/share today by JPMC, this means insitutional investors will now reevaluate any IB stock they hold and wonder if all of them are overpriced!! And if they start pulling out their billions then only God can help our middle class . If middle class starts suffering through loss of networth it will not be long when major economic indicators will start suffering....and that might impact the farmer in some remote parts of Andhra who already thought of committing suicide multiple times in last year.
I have painted a very simplistic picture of a very complicated scenario. But hope you see point

[RicePlateReddy]

Dude, the stock market crashes will affect that farmer in Andhra and increase the suicide rate? 

[cricinfo]

Dude, the stock market crashes will affect that farmer in Andhra and increase the suicide rate? 

Dude my sincere advice, please read a little bit about recession.

just curious if you know how current economic scenario is increasing the price of poultry...a quick crash course for you

Oil and NG prices going up -> More industries looking for Alternate Fuel -> There is a high demand of Ethanol -> There is high demand of Corn -> Corn price increases -> Corn is also main feed for Poultry -> Meat industry feels the pressue -> Production goes down impacting payroll of millions associated with this industry - > consumers also feel the pain of high prices -> Retail prices go up

Hope you see how everything gets related and i just gave you one isolated scenario ..in a prolonged US recession you can take it from me - India will suffer across the whole society(farmers to CEOs)

[LosingNow]

Oil and NG prices going up -> More industries looking for Alternate Fuel -> There is a high demand of Ethanol -> There is high demand of Corn -> Corn price increases -> Corn is also main feed for Poultry -> Meat industry feels the pressue -> Production goes down impacting payroll of millions associated with this industry - > consumers also feel the pain of high prices -> Retail prices go up

..and where is Bear Sterns in this chain ?

[RicePlateReddy]

Oil and NG prices going up -> More industries looking for Alternate Fuel -> There is a high demand of Ethanol -> There is high demand of Corn -> Corn price increases -> Corn is also main feed for Poultry -> Meat industry feels the pressue -> Production goes down impacting payroll of millions associated with this industry - > consumers also feel the pain of high prices -> Retail prices go up

Damn, I would have thought that retail prices go up primarily, because if oil and NG prices rise, transportation costs rise and ferrying retail good around costs more. But what do I know of economics.

See, all I am saying is I will not lament Bear and Sterns melting. They are world experts in their employ who are were paid pretty penny on understanding risk models. WTF happened? Its very easy to blame everyone else for failures. I'll wait for the "Conspiracy of Fools, part deux" to hit the book stores.

[RicePlateReddy]

Oil and NG prices going up -> More industries looking for Alternate Fuel -> There is a high demand of Ethanol -> There is high demand of Corn -> Corn price increases -> Corn is also main feed for Poultry -> Meat industry feels the pressue -> Production goes down impacting payroll of millions associated with this industry - > consumers also feel the pain of high prices -> Retail prices go up

..and where is Bear Sterns in this chain ?

What - you didn't follow? They are the chicken.

[cricinfo]

Oil and NG prices going up -> More industries looking for Alternate Fuel -> There is a high demand of Ethanol -> There is high demand of Corn -> Corn price increases -> Corn is also main feed for Poultry -> Meat industry feels the pressue -> Production goes down impacting payroll of millions associated with this industry - > consumers also feel the pain of high prices -> Retail prices go up

..and where is Bear Sterns in this chain ?

there are parallel thingies ...
Mortgage meltdown and Oil/NG prices go up happen together(typical double whammy) ->IBs do badly + investors pull out money from IB stock and put in gold/silver/oil funds -> IB stocks suffer + the demand for alternate fuel goes up.
IB stock suffering i covered in couple of posts back, last post was in fuel prices going up . So together they are really a strong force to bring everything down  

[cricinfo]

Oil and NG prices going up -> More industries looking for Alternate Fuel -> There is a high demand of Ethanol -> There is high demand of Corn -> Corn price increases -> Corn is also main feed for Poultry -> Meat industry feels the pressue -> Production goes down impacting payroll of millions associated with this industry - > consumers also feel the pain of high prices -> Retail prices go up

Damn, I would have thought that retail prices go up primarily, because if oil and NG prices rise, transportation costs rise and ferrying retail good around costs more. But what do I know of economics.

See, all I am saying is I will not lament Bear and Sterns melting. They are world experts in their employ who are were paid pretty penny on understanding risk models. WTF happened? Its very easy to blame everyone else for failures. I'll wait for the "Conspiracy of Fools, part deux" to hit the book stores.

I agree 100% about your second paran.I dont know of anyone who ever claimed they can predict economcy 100%. That is probably the nature of a capitalist society where it is always a game of tug-of-war and uncontrolled demand-supply.But i am surprised BS CEO on thursday said that company is doing fine and all that changed on friday.Bascailly BS CEO was BSing us or he didnt have a freaking idea what he was talking about.
Regarding Retail i meant Meat Retail...sorry for the confusion.All i was trying to point out is everyone in the food chain do get impacted in a prolonged slump.

[LosingNow]

AND ... Greenspan is blaming it all on MODELS. Damn, those geeks and econometricians, why cant they get their models right? What is this with missing variables and all .. WTF

---
We will never have a perfect model of risk
By Alan Greenspan

Published: March 16 2008 18:25 | Last updated: March 16 2008 18:25

The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.

Home price stabilisation will restore much-needed clarity to the marketplace because losses will be realised rather than prospective. The major source of contagion will be removed. Financial institutions will then recapitalise or go out of business. Trust in the solvency of remaining counterparties will be gradually restored and issuance of loans and securities will slowly return to normal. Although inventories of vacant single-family homes – those belonging to builders and investors – have recently peaked, until liquidation of these inventories proceeds in earnest, the level at which home prices will stabilise remains problematic.

The American housing bubble peaked in early 2006, followed by an abrupt and rapid retreat over the past two years. Since summer 2006, hundreds of thousands of homeowners, many forced by foreclosure, have moved out of single-family homes into rental housing, creating an excess of approximately 600,000 vacant, largely investor-owned single-family units for sale. Homebuilders caught by the market’s rapid contraction have involuntarily added an additional 200,000 newly built homes to the “empty-house-for-sale” market.

Home prices have been receding rapidly under the weight of this inventory overhang. Single-family housing starts have declined by 60 per cent since early 2006, but have only recently fallen below single-family home demand. Indeed, this sharply lower level of pending housing additions, together with the expected 1m increase in the number of US households this year as well as underlying demand for second homes and replacement homes, together imply a decline in the stock of vacant single-family homes for sale of approximately 400,000 over the course of 2008.

The pace of liquidation is likely to pick up even more as new-home construction falls further. The level of home prices will probably stabilise as soon as the rate of inventory liquidation reaches its maximum, well before the ultimate elimination of inventory excess. That point, however, is still an indeterminate number of months in the future.

The crisis will leave many casualties. Particularly hard hit will be much of today’s financial risk-valuation system, significant parts of which failed under stress. Those of us who look to the self-interest of lending institutions to protect shareholder equity have to be in a state of shocked disbelief. But I hope that one of the casualties will not be reliance on counterparty surveillance, and more generally financial self-regulation, as the fundamental balance mechanism for global finance.

The problems, at least in the early stages of this crisis, were most pronounced among banks whose regulatory oversight has been elaborate for years. To be sure, the systems of setting bank capital requirements, both economic and regulatory, which have developed over the past two decades will be overhauled substantially in light of recent experience. Indeed, private investors are already demanding larger capital buffers and collateral, and the mavens convened under the auspices of the Bank for International Settlements will surely amend the newly minted Basel II international regulatory accord. Also being questioned, tangentially, are the mathematically elegant economic forecasting models that once again have been unable to anticipate a financial crisis or the onset of recession.

Credit market systems and their degree of leverage and liquidity are rooted in trust in the solvency of counterparties. That trust was badly shaken on August 9 2007 when BNP Paribas revealed large unanticipated losses on US subprime securities. Risk management systems – and the models at their core – were supposed to guard against outsized losses. How did we go so wrong?

The essential problem is that our models – both risk models and econometric models – as complex as they have become, are still too simple (WN : Greenspan speak!!) to capture the full array of governing variables that drive global economic reality. A model, of necessity, is an abstraction from the full detail of the real world. In line with the time-honoured observation that diversification lowers risk, computers crunched reams of historical data in quest of negative correlations between prices of tradeable assets; correlations that could help insulate investment portfolios from the broad swings in an economy. When such asset prices, rather than offsetting each other’s movements, fell in unison on and following August 9 last year, huge losses across virtually all risk-asset classes ensued.

The most credible explanation of why risk management based on state-of-the-art statistical models can perform so poorly is that the underlying data used to estimate a model’s structure are drawn generally from both periods of euphoria and periods of fear, that is, from regimes with importantly different dynamics.

The contraction phase of credit and business cycles, driven by fear, have historically been far shorter and far more abrupt than the expansion phase, which is driven by a slow but cumulative build-up of euphoria. Over the past half-century, the American economy was in contraction only one-seventh of the time. But it is the onset of that one-seventh for which risk management must be most prepared. Negative correlations among asset classes, so evident during an expansion, can collapse as all asset prices fall together, undermining the strategy of improving risk/reward trade-offs through diversification.

If we could adequately model each phase of the cycle separately and divine (WN: ) the signals that tell us when the shift in regimes is about to occur, risk management systems would be improved significantly. One difficult problem is that much of the dubious financial-market behaviour that chronically emerges during the expansion phase is the result not of ignorance of badly underpriced risk, but of the concern that unless firms participate in a current euphoria, they will irretrievably lose market share.

Risk management seeks to maximise risk-adjusted rates of return on equity; often, in the process, underused capital is considered “waste”. Gone are the days when banks prided themselves on triple-A ratings and sometimes hinted at hidden balance-sheet reserves (often true) that conveyed an aura of invulnerability. Today, or at least prior to August 9 2007, the assets and capital that define triple-A status, or seemed to, entailed too high a competitive cost.

I do not say that the current systems of risk management or econometric forecasting are not in large measure soundly rooted in the real world. The exploration of the benefits of diversification in risk-management models is unquestionably sound and the use of an elaborate macroeconometric model does enforce forecasting discipline. It requires, for example, that saving equal investment, that the marginal propensity to consume be positive, and that inventories be non-negative. These restraints, among others, eliminated most of the distressing inconsistencies of the unsophisticated forecasting world of a half century ago.

But these models do not fully capture what I believe has been, to date, only a peripheral addendum to business-cycle and financial modelling – the innate human responses that result in swings between euphoria and fear that repeat themselves generation after generation with little evidence of a learning curve. Asset-price bubbles build and burst today as they have since the early 18th century, when modern competitive markets evolved. To be sure, we tend to label such behavioural responses as non-rational. But forecasters’ concerns should be not whether human response is rational or irrational, only that it is observable and systematic.

This, to me, is the large missing “explanatory variable” (WN: OMG!! )in both risk-management and macroeconometric models. Current practice is to introduce notions of “animal spirits”, as John Maynard Keynes put it, through “add factors”. That is, we arbitrarily change the outcome of our model’s equations. Add-factoring, however, is an implicit recognition that models, as we currently employ them, are structurally deficient; it does not sufficiently address the problem of the missing variable.


We will never be able to anticipate all discontinuities in financial markets. Discontinuities are, of necessity, a surprise. Anticipated events are arbitraged away. But if, as I strongly suspect, periods of euphoria are very difficult to suppress as they build, they will not collapse until the speculative fever breaks on its own. Paradoxically, to the extent risk management succeeds in identifying such episodes, it can prolong and enlarge the period of euphoria. But risk management can never reach perfection. It will eventually fail and a disturbing reality will be laid bare, prompting an unexpected and sharp discontinuous response.

In the current crisis, as in past crises, we can learn much, and policy in the future will be informed by these lessons. But we cannot hope to anticipate the specifics of future crises with any degree of confidence. Thus it is important, indeed crucial, that any reforms in, and adjustments to, the structure of markets and regulation not inhibit our most reliable and effective safeguards against cumulative economic failure: market flexibility and open competition.

The writer is former chairman of the US Federal Reserve and author of ‘The Age of Turbulence: Adventures in a New World’

[RicePlateReddy]

and divine (WN: ) the signals that tell us when the shift in regimes is about to occur

The last time I heard about divinity and regime change, we were about $600B richer. Greenspan is on the money.

[RicePlateReddy]

Does anyone remember the banking blood bath in 1990? Here is an extract from Berkshire Hathaway's annual shareholder report from 1990:


http://www.berkshirehathaway.com/letters/1990.html

Our purchases of Wells Fargo in 1990 were helped by a chaotic market in bank stocks. The disarray was appropriate: Month by month the foolish loan decisions of once well-regarded banks were put on public display. As one huge loss after another was unveiled - often on the heels of managerial assurances that all was well - investors understandably concluded that no bank's numbers were to be trusted. Aided by their flight from bank stocks, we purchased our 10% interest in Wells Fargo for $290 million, less than five times after-tax earnings, and less than three times pre-tax earnings.

Wells Fargo is big - it has $56 billion in assets - and has been earning more than 20% on equity and 1.25% on assets. Our purchase of one-tenth of the bank may be thought of as roughly equivalent to our buying 100% of a $5 billion bank with identical financial characteristics. But were we to make such a purchase, we would have to pay about twice the $290 million we paid for Wells Fargo. Moreover, that $5 billion bank, commanding a premium price, would present us with another problem: We would not be able to find a Carl Reichardt to run it. In recent years, Wells Fargo executives have been more avidly recruited than any others in the banking business; no one, however, has been able to hire the dean.

Of course, ownership of a bank - or about any other business - is far from riskless. California banks face the specific risk of a major earthquake, which might wreak enough havoc on borrowers to in turn destroy the banks lending to them. A second risk is systemic - the possibility of a business contraction or financial panic so severe that it would endanger almost every highly-leveraged institution, no matter how intelligently run. Finally, the market's major fear of the moment is that West Coast real estate values will tumble because of overbuilding and deliver huge losses to banks that have financed the expansion. Because it is a leading real estate lender, Wells Fargo is thought to be particularly vulnerable.

None of these eventualities can be ruled out. The probability of the first two occurring, however, is low and even a meaningful drop in real estate values is unlikely to cause major problems for well-managed institutions. Consider some mathematics: Wells Fargo currently earns well over $1 billion pre-tax annually after expensing more than $300 million for loan losses. If 10% of all $48 billion of the bank's loans - not just its real estate loans - were hit by problems in 1991, and these produced losses (including foregone interest) averaging 30% of principal, the company would roughly break even.

A year like that - which we consider only a low-level possibility, not a likelihood - would not distress us. In fact, at Berkshire we would love to acquire businesses or invest in capital projects that produced no return for a year, but that could then be expected to earn 20% on growing equity. Nevertheless, fears of a California real estate disaster similar to that experienced in New England caused the price of Wells Fargo stock to fall almost 50% within a few months during 1990. Even though we had bought some shares at the prices prevailing before the fall, we welcomed the decline because it allowed us to pick up many more shares at the new, panic prices.

Investors who expect to be ongoing buyers of investments throughout their lifetimes should adopt a similar attitude toward market fluctuations; instead many illogically become euphoric when stock prices rise and unhappy when they fall. They show no such confusion in their reaction to food prices: Knowing they are forever going to be buyers of food, they welcome falling prices and deplore price increases. (It's the seller of food who doesn't like declining prices.) Similarly, at the Buffalo News we would cheer lower prices for newsprint - even though it would mean marking down the value of the large inventory of newsprint we always keep on hand - because we know we are going to be perpetually buying the product.

[LosingNow]

Sensex sheds over 600 points
Bijay S Patel
Monday, March 17, 2008 (Mumbai)
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Markets are trading weak in the early deals of Monday with the benchmark index Sensex shedding 4.2 per cent or 655 points. It is trading at 15,104 levels. 

In broader markets, Nifty is in the red by 189 points or four per cent and is trading at 4556 levels. Selling is visible in real estate, oil & gas, banking and metal counters by over 3.1 per cent each.

“The pain in the market will last for few months. Investors have become a lot more cautious,” said Sharad Shukla, Chief Investment Officer- Wealth Management Group, Axis Bank.

“The important support level is 4450 for the Nifty and if it breaks this level then the markets will plunge further,” added Anu Jain, Technical Advisor, The Omniscient Securities.

The other Asian markets are also trading weak on Monday. Hong Kong's Hang Seng, Japan’s Nikkei and South Korea's Kospi are in red territory by over 2.3 per cent each.

Jaiprakash Associates at Rs 216 shedding 8.6 per cent or Rs 20 is the biggest loser in the BSE-30 pack. DLF Ltd,  ICICI Bank, BHEL and HDFC Bank are some of the other major losers.

Among the NSE-50 scrips, Housing Development Finance, Unitech, Siemens India and SAIL are in the red by over 4.4 per cent each.

Realty cracks

The BSE real estate index shedding 5.3 per cent or 411 points is worst hit among the sectoral indices. Housing Development & Infra, DLF, Indiabulls real estate and Puravankara are the major losers in this pack.

[LosingNow]

'We Are All in a Daze,'
Says One Employee;
Life Savings Wiped Out
By PETER LATTMAN and JENNY STRASBURG
March 18, 2008; Page C1

NEW YORK -- The bagpipes from New York's famed St. Patrick's Day parade a block away provided a funereal soundtrack as workers at Bear Stearns Cos. headquarters mourned their company and the loss of billions in personal savings.

J.P. Morgan Chase & Co.'s deal to buy Bear Stearns for $2 a share wiped out the life savings of many of Bear's 14,000 employees, who owned one-third of the firm's shares. Most employees at Bear, known for its loyalty and a strong merit-driven culture, expected to lose their jobs.

"It's devastating," said Stephen Raphael, 62 years old, a semiretired Bear broker who joined the firm in 1974. "I have a lot of good friends here, from mail clerks to senior people. I've spent more time at Bear Stearns than I have with my own family."

Mr. Raphael, a Bear Stearns board member until recently, said he spent the weekend telling clients their money was safe and added that all Wall Street brokers were vulnerable. "I blame the system, I blame greed," he said. "Wall Street is really predicated on greed. This could happen to any firm."

Bear Stearns shares were worth $160 each a year ago and $87 fewer than three weeks ago, which left employees gaping at the $2-a-share deal price. At its peak, the employees' stake in Bear was valued at $6.3 billion. At the deal price, it was worth $79 million. (At Bear's price of $4.81 in 4 p.m. New York Stock Exchange composite trading yesterday, the stake had jumped to about $190 million.) Recently, employees were unable to sell shares because of a blackout period before Bear's earnings release.

One trader said that when he first saw the $2 price, he thought it was a typo. "Two dollars a share?" he said. "I thought it had to be $20."

Firefighters in kilts and St. Patrick's Day revelers on their way to the parade streamed by Bear employees smoking cigarettes in front of the firm's headquarters. Many Bear employees blamed Chairman and former Chief Executive James Cayne, current CEO Alan Schwartz and Chief Financial Officer Sam Molinaro for failing to bolster the firm's financial position when they could have and for taking outsize pay packages.

"Two weeks ago, these guys said they didn't need to raise more capital," said a fixed-income executive who has been with the firm for 16 years. "And now they're selling the firm for a quarter of the price this building is worth!"

Two employees who service the mortgage-trading desk have been with Bear Stearns for nine years and seven years, respectively. One, a resident of Staten Island, says he has lost $600,000 in Bear Stearns stock, virtually his entire life savings. The other, from Port Washington, N.Y., her lip quivering, said she has lost $400,000.

A Culture Gone

Employees also lamented the loss of Bear's rough-hewn but familial culture, which sought out employees it described as PSDs -- poor, smart and with a deep desire to be rich. Former CEO Alan "Ace" Greenberg, now 80, still comes to work at a desk on the firm's trading floor, but his mantras to reuse paper clips and rubber bands became increasingly anachronistic during the recent boom years when Bear moved into its new tower and Mr. Cayne became the first Wall Street CEO to have a personal stake in his company valued at $1 billion.

Even in these tough times, Mr. Greenberg, who is chairman of Bear's executive committee and a director on the firm's board, has maintained his business etiquette, showing up for work as usual and returning calls promptly. Still, one associate who saw him over the weekend described his reaction as one of "shell shock." Reached yesterday for comment, Mr. Greenberg dismissed that description. "I wouldn't even comment on that -- it's silly," he said, before referring questions to Bear's spokesman.

Mr. Greenberg's thriftiness fits closely with J.P. Morgan CEO James Dimon's emphasis on cost cutting, but the risk-taking culture of a Wall Street trading house is very different from the button-down attitude of a big commercial bank with more than ten times as many employees.

"I am very, very upset -- heartbroken, actually. I figure I will probably be laid off," said Carol Guenther, 38, an executive administrative assistant who has worked at Bear Stearns for 13 years. "I love the people I work with. And Bear is very good to employees. So, we have a great sense of teamwork. Now, we are all in a daze," she said.

Wall Street recruiters are being inundated with calls from Bear employees. Options Group fielded nearly 100 calls yesterday from Bear Stearns executives and middle managers world-wide, said CEO Michael Karp, adding that money-management firms and small investment banks are quickly trying to snap up employees. "Some people will walk before the deal closes," Mr. Karp said. With their employer being sold for $2 a share, "it's a lot easier to bail out right now."

Top J.P. Morgan executives yesterday gently reminded employees not to gloat about their former rival's misfortunes. "As we now begin the important work of integrating the two firms, we are counting on you to embrace our new partners at Bear Stearns in a first-class way and ensure they feel welcome at our firm," wrote Messrs. Steve Black and Bill Winters, co-heads of the investment bank, in a memo to employees.

--Joanne S. Lublin, Kate Kelly, Robin Sidel, Aaron Lucchetti, Susan Pulliam and Ianthe Jeanne Dugan contributed to this article.

Write to Peter Lattman at peter.lattman@wsj.com16 and Jenny Strasburg at jenny.strasburg@wsj.com17

[dhruvdeepak]

sh*t companies deserve sh*t valuations. at just double the price of a soda, JP have got it about right.

[cricinfo]

question is how you know that JP Morgan is also not * or a Google at USD700 is not * ? basically in a hot market where everything goes up high astronomically from property to stock price to what an employee earns...everything is eventually worth * without a proper valuation