Sunday, March 16, 2008

Financial Bloodbath

Ok, I won't lie. I'm absolutely stunned at this news about the Bear Stearns buyout at $2 per share. Darn, wasn't Bear Stearns trading at $30 per share till even yesterday? Well granted that this was after a free fall from around $150 per share sometime in the middle of last year when sub-prime wasn't a term that had imprinted itself into public consciousness.

Which then begs the question - is Bear Stearns the only major investment bank out there to be in such serious trouble? Weren't the Bear executives, just like the executives of all major investment banks swearing up and down that the effects of the sub-prime loans, credit crunch, market downturn etc.,etc. were rather negligible? I mean, damn it, look at this statement from the Yahoo article

JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago. It marked a 93.3 percent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb. 29.
How is that even possible unless assets were ridiculously overvalued (I'm looking at you creative accountants)? Hmm...maybe I should have taken those Chartered Accountancy exams anyway (not too late to get a CPA though). Accountants shall inherit the earth.

You know what, much as I try, I just cannot squeeze out even a shred of schadenfreude about this. I mean sure, investment b(w)ankers have a reputation for arrogance and general assholic behaviour, and at least the top executives at Bear Stearns deserve to be skewered for their general incompetence and short-sighted focus on fat cat bonuses while running the company to the ground. One cannot talk enough about the moral hazards of playing professional investment banker with someone else's money.

However, Bear employs 14000 employees, and there is great uncertainty about the future of those jobs, given that no one has a clue as to what exactly JP Morgan wishes to do with the company. This is a distress sale, and Bear Stearns couldn't possible dictate any of its terms.

Tomorrow brings much palpitation and trepidation to the financial markets. The fallout of the Bear Stearns affair promises to be messy. This is where it helps to be the over-educated poor. One can watch with bemused disinterest and sigh over human folly. No money, no cry.

14 Comments:

Blogger Tabula Rasa said...

ahh, you softie. how can you not like the free market? (which at the rate it's going it soon will be -- right now it's just heavily discounted.)

6:10 AM  
Blogger thalassa_mikra said...

TR: I'm a perma-cynic given to view all irrational exuberance with suspicion. And the part of me that loves "buy lo sell hi" is really liking these basement bargains.

But the financials are dragging everyone down with them and folks like me are left trying to score jobs in a shitty economy. Besides, I have a friend working for Lehmans, and there are some very disturbing rumours about that firm as well.

9:18 AM  
Blogger ggop said...

Heh, a friend had 75 cents in his pocket and joke texted me if i wanted to go 50% in for Lehman Brothers.
Hope your friend is ok.
New grads really have it tough TM.

9:25 AM  
Blogger IR said...

no money no cry - is very ture , in these times

i think what is most suprising about this whole turnaround is the fed funding the bear buyout.is the us headed for nationalised banks next ?

about the asset business, the us mortgage market which was on an upswing lead to nice balance sheets of the i banks, when there valuse started eroding , the banks started taking a hit on thier b/s.

bears was the largest underwriter of the us mortgage ,hence it was the first to take the hit

12:03 AM  
Blogger thalassa_mikra said...

GGOP - Given that we have Wall Street socialism in full flow, and sweetheart lending deals for Lehman and Goldman, it's probably a good thing after all that you didn't take up the offer. So I guess my friend is OK for now - and yeah, life's still tough for new grads like me.

IR - Well, the Fed is technically not a central bank anyway, though the money being proferred is certainly US taxpayer money.

Bear actually wasn't the largest underwriter of US mortgages. That honour belonged to Lehman. Which is precisely why when Bear fell, people started taking bets on when Lehman will fall (and I honestly don't think Lehman's out of trouble yet).

9:20 AM  
Blogger IR said...

my mistake , lehman was the largest underwriter
anybody betting against them ?

1:29 AM  
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Hi,
Visited this blog after ages and read this post. Interesting reading about the ides of march in september...:-)

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