"If all the economists were laid end to end, they would not reach a conclusion." ~ George Bernard Shaw
Today I've decided to explain a recent economic event:
Bear Stearns
Within the last 30 days the FED opened the discount window to major banks (but not investment banks) to exchange their insured collateral instruments for cash to cover the ever growing wave of withdrawals.
The discount window is a FED bank that other banks can take their collateral to (which they are having trouble turning into liquid/cash) and exchange it for dollars.
On Tuesday March 11th the CEO of Bear Stearns, Mr. Schwartz, Reported on CNBC that bear sterns did not have a liquidity problem, that they where well capitalized, and that the rumors around the financial industry regarding their inliquid position was false.
Thursday the 13th several hedge and 401k funds made calls/withdrawal requests to Bear Stearns for over 4billion dollars.
Friday morning, the 14th another 11billion dollars was called at Bear Stearns by corresponding banks. The afternoon of the 14th the market started to fall for all banks.
Over the weekend of the 15 and 16th JP Morgan, with the insistence of the FED agreed to purchase bear sterns at $2 a share. This included the bank building of Bear Stearns, which holds a market value of approximately 1.5billion dollars. The total purchase price, paid by JP Morgan for Bear Stearns was 236Million dollars.
Bear Stearns itself was valued at approximately 20Billion dollars a week before the buyout.
Thats a steal for the building - let alone the entire company aswell.
The FED guaranteed that JP Morgan would sustain NO losses while undertaking the purchase. In other words they guaranteed that Bear Stearns liabilities (its debt) would be covered by the FED.
On the morning of Monday the 17th, the FED announced the purchase of Bear Stearns by JP Morgan, and then opened the FED discount window to all investment banks.
Had they opened the discount window on the previous Friday, Bear Stearns would still be intact exactly as it was the week before, at approximately $80 a share. It would have been able to exchange collateral for cash to cover all the withdrawals.
Most Investment banking stocks have been falling over the last few months, the reason for this is that they are getting more withdrawal requests than normal, which they where having trouble covering.
Since Monday, the FED has opened up the discount window to these specific banks, they are now able to cover the calls by trading in their unmovable collateral for cash which is allowing them to cover all their calls, temporarily. Stock prices are therefore going up, which intern is lifting up the entire Amex.
So, the point? Yes, yes getting there.
30% of Bear Stearns was held by employees, what that means is 30% of that company was held up in peoples 401ks for retirement.
People worth 80Million on the 14th, are now worth 2Million (18th).
Today I've decided to explain a recent economic event:
Bear Stearns
Within the last 30 days the FED opened the discount window to major banks (but not investment banks) to exchange their insured collateral instruments for cash to cover the ever growing wave of withdrawals.
The discount window is a FED bank that other banks can take their collateral to (which they are having trouble turning into liquid/cash) and exchange it for dollars.
On Tuesday March 11th the CEO of Bear Stearns, Mr. Schwartz, Reported on CNBC that bear sterns did not have a liquidity problem, that they where well capitalized, and that the rumors around the financial industry regarding their inliquid position was false.
Thursday the 13th several hedge and 401k funds made calls/withdrawal requests to Bear Stearns for over 4billion dollars.
Friday morning, the 14th another 11billion dollars was called at Bear Stearns by corresponding banks. The afternoon of the 14th the market started to fall for all banks.
Over the weekend of the 15 and 16th JP Morgan, with the insistence of the FED agreed to purchase bear sterns at $2 a share. This included the bank building of Bear Stearns, which holds a market value of approximately 1.5billion dollars. The total purchase price, paid by JP Morgan for Bear Stearns was 236Million dollars.
Bear Stearns itself was valued at approximately 20Billion dollars a week before the buyout.
Thats a steal for the building - let alone the entire company aswell.
The FED guaranteed that JP Morgan would sustain NO losses while undertaking the purchase. In other words they guaranteed that Bear Stearns liabilities (its debt) would be covered by the FED.
On the morning of Monday the 17th, the FED announced the purchase of Bear Stearns by JP Morgan, and then opened the FED discount window to all investment banks.
Had they opened the discount window on the previous Friday, Bear Stearns would still be intact exactly as it was the week before, at approximately $80 a share. It would have been able to exchange collateral for cash to cover all the withdrawals.
Most Investment banking stocks have been falling over the last few months, the reason for this is that they are getting more withdrawal requests than normal, which they where having trouble covering.
Since Monday, the FED has opened up the discount window to these specific banks, they are now able to cover the calls by trading in their unmovable collateral for cash which is allowing them to cover all their calls, temporarily. Stock prices are therefore going up, which intern is lifting up the entire Amex.
So, the point? Yes, yes getting there.
30% of Bear Stearns was held by employees, what that means is 30% of that company was held up in peoples 401ks for retirement.
People worth 80Million on the 14th, are now worth 2Million (18th).
I told him to wait before he bought a new car. He recently been working there for 2 years as a intern and then finally got full time spot in the past 3 months. Then this happens...
