June 24, 2007

Just when you thought the subprime CDO mess couldn't get any worse, it's gonna get a LOT worse real quick, thank you Bear Stearns hedge fund blowup

Can you say systemic meltdown? Can you say spreading cancer? Can you say Enron-like unraveling?

Homebuilders are holding inventory on their books that is still wildly inflated - that per Sarbanes Oxley must be marked down to true market value. The financials and hedge funds are holding Subprime and Alt-A liar's loan CDO cancer at wildly inflated values, that also must be marked down to true market value.

That's why Merrill didn't sell their Bear Stearns junk the other day - if they did, then the new market price would have been achieved, and you'd have hedge funds (and Merrill themselves) failing left and right.

Get ready HP'ers. The fuse has been lit.

Peter Schiff, president of Euro Pacific Capital] argued that if the bonds in the Bear Stearns Companies Inc. (BSC) funds were auctioned on the open market, much weaker values would be plainly revealed.

"This would force other hedge funds to similarly mark down the value of their holdings. Is it any wonder that Wall street is pulling out the stops to avoid such a catastrophe?," Schiff said.

"Their true weakness will finally reveal the abyss into which the housing market is about to plummet," he said.

22 comments:

Anonymous said...

Shades of the LTCM bailout in 1998?

President Clinton was so shaken by the events of LTCM that he walked into the Council of Foreign Relations on Sept 14, 1998 and announced to the bankers (and it was their system Clinton was talking about) that he wanted their support in his plan to "reform" the current "financial architecture".

It was after that speech (never covered by media but archived on the CFR's website) that these very same bankers moved to oust President Clinton by scandal. It became known as Monica Lewinsky.

To forestall the bankruptcy of their system the bankers went for a hyperinflationary bail out of the system, pumping in trillions of dollars courtesy of that bankers tool Alan Greensperm.

That led to the Nasdaq/IT bubble collapse (and 911 by the way), and when that bubble went bust they got Sir Alan to pump up the real estate bubble.

But we are not facing a real estate collapse. We are facing a blow out of the entire post 1971 IMF floating exchange rate system.

And this time we dont have a President with the competency of Clinton. The bankers learned their lesson and installed "non person" GW Bush in office to preside over the greatest financial crash in all known human history.

Anonymous said...

Didn't Merrill Lynch sell some of the bonds? So, why didn't that set up a mark?

guy n. cognito said...

Peter's too diplomatic, and even then the Street labels him a kook. he should really rub their noses in it good and hard when they sh*t themselves.

chris g said...

I think the attention brought to this CDO issue will convince other investors to draw their money out in other places where they know they are invested in a ticking CDO time bomb. This will start the unraveling effect that has been long predicted. And then, maybe my FED puts will actually be worth what they should be.

K.W. - Southern Ca. said...

It's inevitable that this would happen - a house of cards now colapsing.

*MUCH* worse than Enron, the damage
will be spread over several decades to come.

Anonymous said...

They will try to keep losses off of the books for as long as possible. There is no backup plan.

Anonymous said...

it's all geo bush's grand plan to kill capitalism.

SPECTRE of Deflation said...

From blogger "Great Depression of 2006". I know we have popcorn, but maybe we need to make a "run" for more because tomorrow could be really interesting:

The Monday Morning Run

The WSJ reports that Bear Stearns is injecting 3.2 billion into their hedge funds to stave off the risk of a fund collapse. It was either that or risk having the junk, marked to market and that is not something that any fund wants to see happen.

I would bet that the cash infusion is just a ploy, a stall for time. They are not going to do it. The mere suggestion of a 3.2 billion dollar bailout, suggests that the people in charge are over medicated.

On the street, they are openly laughing at the bond rating services. The reality gap for a lot of these bond ratings could be labeled downright unbelievable. Bankers refer to Equity Tranches as Toxic Waste and now you hear references to them as Radioactive Waste. Even if S&P gets the ratings straight, there are a lot of financial institutions that will have to sell anything re-rated BBB. That could mean a 50% loss of equity. Talk about some mad fund managers! The retirement funds have the weekend to figure out what to sell.

So come Monday morning, it looks like Bear Sterns is in the cross hairs. The words "Coup de grace" come to mind. It kind of has the feel of a 1930’s run on the bank. Where’s Jimmy Stewart when you need him?

Anonymous said...

One obvious solution to the problem of the vast majority of the population not having enough money to satisfy all their needs was to let those who wanted goods buy products on credit. The concept of buying now and paying later caught on quickly. By the end of the 1920's 60% of cars and 80% of radios were bought on installment credit16. Between 1925 and 1929 the total amount of outstanding installment credit more than doubled from $1.38 billion to around $3 billion17. Installment credit allowed one to "telescope the future into the present", as the President's Committee on Social Trends noted18. This strategy created artificial demand for products which people could not ordinarily afford. It put off the day of reckoning, but it made the downfall worse when it came. By telescoping the future into the present, when "the future" arrived, there was little to buy that hadn't already been bought. In addition, people could not longer use their regular wages to purchase whatever items they didn't have yet, because so much of the wages went to paying back past purchases.


History repeats itself

Guy Daley said...

Not sure what kind of entity can borrow money from Japan at .5% interest but lets say the involved companies have access to ultra cheap money so they load up on it, and cover margin calls and since they NEVER have to "mark-to market" their holdings, whats to say they can't hide these losses forever with ultra cheap money?

If that is possible, then this kind of stuff will never blow up. Borrowing ultra cheap money from Japan will help to extend the credit bubble another extended period of time especially since Japan is unwilling to adjust there interest rates.

Can anyone shed additional light on why this is or isn't possible?

retards r u said...


hyperinflationary bail out of the system, pumping in trillions of dollars courtesy of that bankers tool Alan Greensperm.

That led to the Nasdaq/IT bubble collapse (and 911 by the way),


Geez you are one dumb son of brick. Hyperinflation led to the dotcom bubble. How in the world could hyperinflation cause a bubble to collapse? Go back and take Econ 101 before spouting more stupidity. Besides, the dotcom collapse started in March 2000, which was 10 months BEFORE bush was even sworn into office.

mcjobs said...

The carry trade can prevent any blowup as long as the Yen doesn't rise vs the USD. It is a limitless supply of free money even better than the Fed creating of money or Treasury selling of bonds.

The only ones complaining about the weak Yen are US auto makers. both governments love it as do the bankers.Who wouldn't like to borrow money at .5% and lend it at 7% for a fat profit? It's the free lunch that everyone is always looking for - better than welfare.

stuckinthecity said...

can't stop it. i read that Bear was halting trading on their funds. they can't do that forever.

Anonymous said...

Geez you are one dumb son of brick. Hyperinflation led to the dotcom bubble. How in the world could hyperinflation cause a bubble to collapse? Go back and take Econ 101 before spouting more stupidity. Besides, the dotcom collapse started in March 2000, which was 10 months BEFORE bush was even sworn into office.
=================================
Youre the idiot. Yes pumping money to feed a bubble is hyperinflationary. How the hell do you think these bubbles grow? Monetary policy by central bankers feed the bubble. And yes you idiot you can have a hyperinflationary blow out which is what you saw with Nasdaq.
Just watch this latest one.

And just for your informastion Econ 101 has always been fraudulent which is one of the reasons guys like you are so stupid.

Anonymous said...

it's all geo bush's grand plan to kill capitalism.

"Bush" and "Grand Plan" in the same sentence. That's Gold Jerry.

retards r u said...

Here it is in your own words, you dimwitted sack of rocks:


To forestall the bankruptcy of their system the bankers went for a hyperinflationary bail out of the system, pumping in trillions of dollars courtesy of that bankers tool Alan Greensperm.

That led to the Nasdaq/IT bubble collapse (and 911 by the way), and when that bubble went bust they got Sir Alan to pump up the real estate bubble.


Hyperinflation caused the bubble in the first place, you moron. You claim that hyperinflation caused the bubble to pop.

As for Clinton, you claim that his bailout of a rogue hedge fund was a good thing? Why not let it collapse? The bailout of LTCM only encouraged Wall St to take more risk, thinking that the government would bail them out. Only a moron like you would think that was a competent thing to do.

Go back to frying your wilted brain with weed and stay out of economic discussions, you uneducated imbecile.

Anonymous said...

Hyperinflation caused the bubble in the first place, you moron. You claim that hyperinflation caused the bubble to pop.
===================================
The flooding of the system with money caused the hyperinflation, which they did because the fall out from LTCM could have caused the whole system to collapse.
Therefore they were faced with two choices
1. Put the system through bankruptcy reorg
2. Throw money at the problem, which delayed the collapse but also makes the inevitable collapse that much worse.

You write that hyperinflation "caused" the bubble. Thats a bone head view.

Both the hyperinfaltion and the bubble were caused by Wall Street assholes who believe in Econ 101.

Hyperinflation neither caused the bubble nor did it cause the bubble to pop. Amd I made neither claim.

Does "hyperinflation" cause a "baloon" to inflate? Does hyperinflation cause a "baloon" to pop? Thats a big no to both questions. A baloon and financial bubbles both pop when certain "boundary conditions" are reached.

And I was rooting for Clinton's plan for a new "financial architecture" which meant there would have to be a government supervised bankruptcy re-org. where all the derivative obligations were simply written off as if they never existed.

That means for me "NO BAIL OUT" of LTCM but I didnt want to see a chaotic collapse either. I was going for an orderly bankruptcy reorganization.

And hyperinflation was not the cause of any bubble you idiot. Hyperinflation was the "by product" of inflating the bubble with printing press money.
I cant state it any clearer than I did in my first post.

"To forestall the bankruptcy of their system the bankers went for a hyperinflationary bail out of the system, pumping in trillions of dollars courtesy of that bankers tool Alan Greensperm."

Paul E. Math said...

retards r u, you could express your disagreement with a little more courtesy and respect. Even your choice of name is offensive.

Anonymous said...

Short Bus Window Lickers

Anonymous said...

A chaotic collapse in 1998 from LTCM would have been better than the coming chaotic collapse of epic proportions. A 1998 collapse would have nipped the NASDAQ bubble in the bud as prevented the RE bubble. Saving the system back then was the OK signal for speculators to start gambling with the taxpayers' money.

Anonymous said...

That led to the Nasdaq/IT bubble collapse (and 911 by the way) ...

Whats this - another 911 conspiracy theory - or is there more you can share?

Anonymous said...

That led to the Nasdaq/IT bubble collapse (and 911 by the way) ...

Whats this - another 911 conspiracy theory - or is there more you can share?

June 25, 2007 4:48 AM

=================================
If you have a financial system that you know is collapsing and you dont want to submit your self to a bankruptcy reorganization under government power then what do you do?
Stage a provocation so frightening that you can ram through certain changes in the government which allow you to impose your will on the population?
Does anyone have any idea just how much money was required to stage the 911 attack? That alone limits the number of suspects.