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Why do you people read and print this polical crap?
Think for yourselves.
There are many examples of this same type of Federally
arranged buyout or merger. There IS NOTHING ilegal or
unusual in what just happened.
These people are just flapping their jaws to get
readers...and writing nonsense.
I don't mind opinions on the markets, but this is the
third quote of this rediculous junk that is nothing
more than polital fluff by pro hedgefund people trying
to get ink.
Please...wad it up and dump it.
Tim Morge
--- fxapprentice <fxapprentice@xxxxxxxxx> wrote:
> Hussman has interesting opinion on the BSC matter:
>
>
--------------------------------------------------------
>
> March 24, 2008
> Why is Bear Stearns Trading at $6 Instead of $2?
>
> John P. Hussman, Ph.D.
> All rights reserved and actively enforced.
> Reprint Policy
>
> Well, the ECRI (one of the more reliable private
> economic analysis
> groups) has finally thrown in the towel ? "With the
> Weekly Leading
> Index having dropped more than 13 points in the last
> nine months, it
> is exhibiting a pronounced, pervasive, and
> persistent decline that is
> unambiguously recessionary."
>
> The possibility of a "bear market rally" aside, if
> the S&P 500 has
> already set its low, it will have been the first
> time that the market
> has responded to a similar economic downturn with
> less than a 20%
> loss on a closing basis. If we define the recent
> downturn as a bear
> market anyway, the recent low will represent the
> highest level of
> valuation that has ever prevailed at the bottom of a
> bear market. I
> expect neither of these to be true for long, but as
> usual, we'll
> respond to the evidence as it unfolds ? without the
> need to forecast
> any particular scenario.
>
> Though our investment horizon of interest is a
> complete market cycle,
> we don't generally think in terms of bull and bear
> markets, because
> they can only be determined in hindsight. We prefer
> observable
> measures that allow us to identify the prevailing
> state or "Market
> Climate" at every point in time. We don't expect
> various Market
> Climates to overlap tightly with actual bull or bear
> markets.
> Instead, we expect that, on average, the return/risk
> profile
> in "favorable" Market Climates will significantly
> exceed the
> return/risk profile in "unfavorable" Market
> Climates. Accordingly, if
> we accept a greater amount of risk during favorable
> conditions, and
> less during unfavorable conditions, we expect to
> perform strongly ?
> at controlled risk ? over the complete market cycle.
>
>
> For now, we remain defensive, but we recognize the
> potential for
> a "bear market rally" despite conditions that, as
> yet, do not provide
> enough evidence to warrant removing a significant
> portion of our
> hedges.
>
> Why is Bear Stearns trading at $6 instead of $2?
>
> As I emphasized last week, the large "term
> financing" and "term
> securities lending" programs initiated by the Fed do
> not expose the
> Fed to default risk in mortgage collateral it
> accepts from the banks
> that act as primary dealers. Even if the underlying
> securities
> default, those facilities involve repurchase
> agreements, so the bank
> putting up the collateral has to repurchase the
> collateral at the
> original price plus interest after a term of 28 or
> 90 days. The Fed
> only stands to lose if the bank itself fails, and so
> spectacularly
> that the bank's liquidation value goes negative even
> after zeroing
> out bondholder claims and stockholder equity. Even
> in the present
> environment, this is unlikely.
>
> Alarmingly, immediately after the pixels dried on
> last week's comment
> (noting "the Fed is emphatically not taking the
> default risk of the
> mortgage market onto itself" with these term
> facilities), details
> emerged that the Fed had agreed to a very different
> deal in its
> attempt to rescue Bear Stearns. This is a major and
> ominous departure
> from historical Fed policy, and from legality.
>
> I'll cut straight to the chase.
>
> Bear Stearns is trading at $6 instead of $2 because
> unelected
> bureaucrats went beyond their legal mandates,
> delivered a windfall to
> a single private company at public expense, entered
> agreements that
> violate the the public trust, and created a
> situation where even if
> the bureaucratic malfeasance stands, the
> shareholders of Bear Stearns
> will either reject the deal or be deprived of their
> right to
> determine the fate of the company they own. Very
> simply, Bear Stearns
> is still in play. Still, when all is said and done,
> my own impression
> is that the ultimate value of the stock will not be
> $2, but exactly
> zero.
>
> In effect, the Federal Reserve decided last week to
> overstep its
> legal boundaries ? going beyond providing liquidity
> to the banking
> system and attempting to ensure the solvency of a
> non-bank entity.
> Specifically, the Fed agreed to provide a $30
> billion "non-recourse
> loan" to J.P. Morgan, secured only by the worst
> tranche of Bear
> Stearns' mortgage debt. But the bank ? J.P. Morgan ?
> was in no
> financial trouble. Instead, it was effectively
> offered a subsidy by
> the Fed at public expense. Rick Santelli of CNBC is
> exactly right. If
> this is how the U.S. government is going to operate
> in a democratic,
> free-market society, "we might as well put a hammer
> and sickle on the
> flag."
>
> What is a "non-recourse loan"? Put simply, if the
> homeowners
> underlying that weak tranche of debt go into
> foreclosure, they will
> lose their homes, and the public will lose as well.
> But J.P. Morgan
> will not lose, nor will Bear Stearns' bondholders.
> This will be an
> outrageous outcome if it is allowed to stand.
>
> In my view, the deal would be palatable if J.P.
> Morgan was to remain
> fully responsible for any losses on the "collateral"
> provided to the
> Federal Reserve, assuming shareholders were to
> consent to the buyout.
> As it stands, Congress should quickly step in to
> bust the existing
> deal and demand an alternate resolution, by clearly
> insisting that
> the Fed's action was not legal.
>
> The Fed did not act to save a bank, but to enrich
> one. Congress has
> the power to appropriate resources for such a deal
> by the
> representative will of the people ? the Fed does
> not, even under
> Depression era banking laws. The "loan" falls
> outside of Section 13-3
> of the Federal Reserve Act, because it is not in
> fact a loan to
> either Bear Stearns or J.P. Morgan. Bear Stearns is
> no longer a
> business entity under this agreement. And if the
> fiction that this is
> a "loan" to J.P. Morgan was true, then the only
> point at which
> the "collateral" would become an issue would be in
> the event that
> J.P. Morgan itself was to fail. No, this is not a
> loan. It is a put
> option granted by the Fed to J.P. Morgan on a basket
> of toxic
> securities. And it is not legal.
>
> The deal was made under duress, to the benefit of a
> private company,
> on the basis of financial assurances that the
> bureaucrats
=== message truncated ===
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