Gary North..on the $200B Fed plan

[ladelfina]

Interesting announcing it on a Sunday. They are in a hurry.

[al_bundy]

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Originally Posted by RockOn I just heard on TV that Bear Sterns is going to be sold to JP for $2 a share. I hope I don't have any shares in any of my funds. They closed at $30 on Friday down from $55. I think there is a solvency problem.

the total is around $270 million for a company that owns a building in NYC valued at $1.2 billion.

JPM wants the brokerage and clearing business as well as the clients, but i doubt this deal assumes one client will stay. and i think i read that they don't have to pay the fed back the $30 billion they borrowed. my guess is they will roll over the loan with some of bear's junk assets and call it even. and 10,000 people will probably be out of a job by the end of the week as well as the executives being out of their life savings because most of it was in company stock a la enron

[RockOn]

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Originally Posted by al_bundy the total is around $270 million for a company that owns a building in NYC valued at $1.2 billion. JPM wants the brokerage and clearing business as well as the clients, but i doubt this deal assumes one client will stay. and i think i read that they don't have to pay the fed back the $30 billion they borrowed. my guess is they will roll over the loan with some of bear's junk assets and call it even. and 10,000 people will probably be out of a job by the end of the week as well as the executives being out of their life savings because most of it was in company stock a la enron

What do you think, is this just the tip of the iceberg? I see the foreign markets and futures are not liking it after an early pop to the upside.

[Notmuchlonger]

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Originally Posted by RockOn What do you think, is this just the tip of the iceberg? I see the foreign markets and futures are not liking it after an early pop to the upside.

I think its time to pay the piper. If I was a market timer I would pull it all out and put my money into Jolly Ranchers.

[RockOn]

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Originally Posted by Notmuchlonger I think its time to pay the piper. If I was a market timer I would pull it all out and put my money into Jolly Ranchers.

Seriously? Not the Jolly Ranchers part, but the rest? I think not.

[al_bundy]

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Originally Posted by RockOn What do you think, is this just the tip of the iceberg? I see the foreign markets and futures are not liking it after an early pop to the upside.

i think so, a lot of these guys have off balance sheet assets that carry a lot of risk and alt-a is starting to crumble. what did bsc in was partly carlyle where some of their alt-a mortgage holdings that were rated AAA had delinquency rates of something like 20% - 40%

last i heard this year something like $1 trillion of mortgages will reset from teaser rates. the foreclosures for these haven't started yet

[Running_Man]

WIth the announcement that they will buy so-called AAA mortgages for 6 months the FED is showing they are intent on becoming the US #1 mortgage broker. Anyone that has the Fed hold their mortgage will not need to worry about that mortgage valuation for 6 months as it must be worth 100% as the goverment lent that much against it eh? How many trillions will the FED ultimately willing to take on?

The Bear Stearns problems must be enormous if JP Morgan is getting the business which was earning one billion a year recently, the real estate at Madison Ave, and a FED guarantee on 30 billion of mortgages (heh, were in neck deep in mortgages now people!) for 2 bucks a share.

This is truly an extraordinary situation. In the meantime the banks lend assets out for 3.25 percent that will earn around 5 percent if the mortgages are paid while in addition being given the cash value for them which they can invest in 6 month treasuries and earn an additional .6 percent of a point so that on the 200 billion made available if all the loans are truly good the Fed will be transferring 2-3 billion for no risk to the banks of america.

This is better than a Pell grant...

[Hamlet]

My point is that people are starting to lump good securities in with the bad ones. People don't trust the AAA ratings anymore, so they are just avoiding all mortgage backed securities, not just the ones backed by poor loans.

I'm trying to say that I think the majority of AAA rated MBS's are going to be fine, even though no one is able to sell them right now.

I agree that there will be no saving the companies that made massive numbers of bad loans. I wouldn't buy any of the investment banking companies, Countrywide, Citybank, or Bank of America. There are just too many bad loans on their books to be comfortable.

I would buy JPMorgan, Wells Fargo, and USBank though. It appears that they kept decent lending standards. I would also buy smaller banks that stuck to decent lending standards.

Disclosure-- I own USBank and TCF stock.

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Originally Posted by nepo I thought this topic was about the Fed actions to rescue financial organizations that have got into trouble and what the implications are. To say most people don't default on their mortgages, while a true statement, is a red herring. The crisis has to do with the securitization of bad loans, which by the magic of financial engineering became AAA rated securities. There are many bag holders and financial institutions that are going to pay the price for this. Ultimately, the risk to everyone is that the tax payers will pay the price and not the Wall Street firms that are on the verge of collapse. A system that is based on absurd levels of leverage, no transparency, and wrong assumptions is bound to collapse. It just happened to Bear Stearns which is been sold for $2 a share of JPM stock. And the Fed is announcing just now new measures to boost liquidity to the primary dealers, companies like Bear Stearns, opening the discount window immediately at a lower rate (just 25 bps above the fed funds rate). This is not a walk in the park.

[nepo]

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Originally Posted by Hamlet I'm trying to say that I think the majority of AAA rated MBS's are going to be fine, even though no one is able to sell them right now.

Yes, the baby is getting thrown out with the bath water. However, the crisis is not about big numbers of good stuff that doesn't have a market. The crisis is about a smaller number of bad stuff bought with high leverage. When you are sinking, there's not much you can do to buy good stuff, you just try to throw away the weight (deleverage) before you hit bottom. By the time you get a margin call, it's too late.

[Notmuchlonger]

At least good old Warren thinks the Fed did the right thing.

Buffett praise for Fed | smh.com.au