[AlanY]

Fun times in the financial industry... after becoming insolvent and receiving an emergency bailout (but being no longer able to attract new business), it looks like Bear Stearns is either going to be sold or declare bankruptcy in the next couple of days:
Bear Stearns Weekend Talks Reveal 2 Key Contenders

That's the fifth largest US investment bank down. Any bets on which of the top four is going to be next? My money is on Lehman Bros.

 

[saint.panda]

Lehman, if at all. But a friend is working there and he said it should be fine (then again, he's still at the bottom of the food chain there). The others are probably too big. Although unlikely, it'd be really funny if Goldman went down. The sovereign wealth funds are probably already lying in wait.
Anyway, that's what they get for thinking that they got the whole risk game in their pockets.

 

[AlanY]

Quote:

Originally Posted by saint.panda /img/forum/go_quote.gif Lehman, if at all. But a friend is working there and he said it should be fine (then again, he's still at the bottom of the food chain there). The others are probably too big. Although unlikely, it'd be really funny if Goldman went down. The sovereign wealth funds are probably already lying in wait.

I don't really see any fundamental difference between the majors. Bear was the smallest, but they're all between 27x and 36x leveraged (Bear was around 30x), so a 3% drop in their assets wipes them out. The only difference between the banks is their asset mix. Now that the counterparty risk dominoes are falling, it's inevitable in my view that at least one more bank falls.

The clues are all over, e.g.:
UK traders told stop dealing with Bear | Reuters
"You can safely assume that Bear is not alone here," said an interest rate strategist at one European investment bank in London, who declined to be identified. "We have been setting prices in swaps markets in recent days that were designed to say 'no deal' and at least one other U.S. investment bank -- not Bear -- dealt. That is very worrying if they needed the cash that badly. We have been forced to review our counterparty limits ever since."

 

[Carmantom]

It seems when all are predicting how gloomy it is going to be, the worst is over. I think investment firm go back up slowly from here and there are no more to go down.

 

[slwiser]

Watch out on Monday!!!!!

Everything depends on how Uncle Ben is able to handle things. There should be a big FED surprise I would think.

 

[SuperNothing]

I definitely think if any other bank does go down it will be Lehman. I don't think the Fed should be bailing them out though. They got themselves into this mess, let them suffer the consequences.

 

[slwiser]

Quote:

Originally Posted by SuperNothing /img/forum/go_quote.gif I definitely think if any other bank does go down it will be Lehman. I don't think the Fed should be bailing them out though. They got themselves into this mess, let them suffer the consequences.

They are just following the regulations that are allowed by Congress, nothing more and nothing less. Congress is behind the business practices as I see it today. Oh! there is the odd one that pushes those regulations and gets further into the mire than the others such as Bear.

 

[ecclesand]

When the Fed loaned the money to Bear, guess what they accepted as collateral...you guessed it, those same sub-prime mortgages that got Bear in trouble in the first place. And, if they should default on payback, then the taxpayers of this country will pay for it....as usual.

 

[saint.panda]

Quote:

Originally Posted by slwiser /img/forum/go_quote.gif They are just following the regulations that are allowed by Congress, nothing more and nothing less. Congress is behind the business practices as I see it today. Oh! there is the odd one that pushes those regulations and gets further into the mire than the others such as Bear.

I think banks are still for the main part responsible for the mess. The legislature only knows so much about financial markets, and the risk still is the banks' to take (and gain from). In the case of securitisation for example, it has been shown that lax lending has fuelled the mortgage problem and fostered moral hazard that brought lending standards down. Mortgage banks often made bad matches between lenders and borrowers without properly aligning interests. The rate of defaults was the highest in those areas in which mortgage banks were most willing to lend, and those loan packages that were more likely to be securitised were also shown to be far more likely to default.

 

[SuperNothing]

Quote:

Originally Posted by slwiser /img/forum/go_quote.gif They are just following the regulations that are allowed by Congress, nothing more and nothing less. Congress is behind the business practices as I see it today. Oh! there is the odd one that pushes those regulations and gets further into the mire than the others such as Bear.

Just because the Fed is allowed to bail out the banks doesn't mean it should. In the town by my University where lots of students live there is a law that technically more than three women living in a house together is considered a brothel. That doesn't mean the police go around evicting these tenants.

When taking financial risk it is supposed to be managed risk and the banks obviously didn't do too well on remembering the managed part.

 

[Lazarus Short]

Quote:

Originally Posted by ecclesand /img/forum/go_quote.gif When the Fed loaned the money to Bear, guess what they accepted as collateral...you guessed it, those same sub-prime mortgages that got Bear in trouble in the first place. And, if they should default on payback, then the taxpayers of this country will pay for it....as usual.

Why am I not surprised? Now what will happen, besides the usual fleecing of the taxpayers, now that our society is in deep doo-doo? Again, the usual, I suppose: rwa, awr, wra, raw, arw, um, I just can't seem to spell it right...

BTW, I did not vote - I hope they all go down.

Laz

 

[slwiser]

Quote:

Originally Posted by saint.panda /img/forum/go_quote.gif I think banks are still for the main part responsible for the mess. The legislature only knows so much about financial markets, and the risk still is the banks' to take (and gain from). In the case of securitisation for example, it has been shown that lax lending has fuelled the mortgage problem and fostered moral hazard that brought lending standards down. Mortgage banks often made bad matches between lenders and borrowers without properly aligning interests. The rate of defaults was the highest in those areas in which mortgage banks were most willing to lend, and those loan packages that were more likely to be securitised were also shown to be far more likely to default.

Quote:

Originally Posted by SuperNothing /img/forum/go_quote.gif Just because the Fed is allowed to bail out the banks doesn't mean it should. In the town by my University where lots of students live there is a law that technically more than three women living in a house together is considered a brothel. That doesn't mean the police go around evicting these tenants. When taking financial risk it is supposed to be managed risk and the banks obviously didn't do too well on remembering the managed part.

I don't disagree with either of you. The banks should be more responsible and the FED should allow banks to fail. The problem is that the string has been allowed to be pulled so tight that I am afraid the string may break and we all may feel the consequences in a very bad way. So the order of the day is to keep on tweaking the markets or manipulation of the markets if you will until any semblance of control is lost.

 

[Hopstretch]

Quote:

Originally Posted by slwiser /img/forum/go_quote.gif I don't disagree with either of you. The banks should be more responsible and the FED should allow banks to fail. The problem is that the string has been allowed to be pulled so tight that I am afraid the string may break and we all may feel the consequences in a very bad way. So the order of the day is to keep on tweaking the markets or manipulation of the markets if you will until any semblance of control is lost.

Yeah, it's a classic case of good old moral hazard. As long as you bet big enough, there's essentially no downside. Guess right and get rich. Guess wrong and get rescued, because you'd take everyone else down with you. Nice game if you can afford the buy-in.

 

[SuperNothing]

Quote:

Originally Posted by slwiser /img/forum/go_quote.gif I don't disagree with either of you. The banks should be more responsible and the FED should allow banks to fail. The problem is that the string has been allowed to be pulled so tight that I am afraid the string may break and we all may feel the consequences in a very bad way. So the order of the day is to keep on tweaking the markets or manipulation of the markets if you will until any semblance of control is lost.

I understand that point of view and it does have merit. At this point we just have to see what is going to happen. And as you say at this point it is just a waiting game until it gets better while just making sure it downs implode catastrophically

 

[Lazarus Short]

Quote:

Originally Posted by Hopstretch /img/forum/go_quote.gif Yeah, it's a classic case of good old moral hazard. As long as you bet big enough, there's essentially no downside. Guess right and get rich. Guess wrong and get rescued, because you'd take everyone else down with you. Nice game if you can afford the buy-in.

I see you know how the Game is played.

Laz