Bear Stearns

Monroe · Post by **Monroe** » Sat Mar 22, 2008 5:24 am

So my aunt was / I suppose still is a senior member in Bear Stearns so I've heard some news which the news papers aren't reporting on.

Apparently what happened was Bear Stearns was going to take a big hit in its assets and the new CEO, who is only 2 months into his job, decided to bring the Federal government in to assist without consulting anyone else, no share holders were consulted and my aunt's immediate bosses were not either.

The Federal government had the CEO sign on the dotted line that the gov would give them a loan that they could demand repayment at any time. The CEO didn't actually read the full contract and signed it Friday. Come Sunday the Feds asked for their 40 billion dollars back.

My aunt gets a call Sunday asking what she can liquidate immediately, which is when she was brought into how bad it really was. Her and her coworkers can't liquidate anything immediately and so Bear Stearns defaulted on the loan.

They wanted to declare bankruptcy but weren't able to because bankruptcy protects creditors not stock holders and everyone would have been sent to jail for fraud. The Federal government then decided it will set the market price for Bear Stearn stocks at $2 a share. According to my aunt it was worth around $50 a share and they still had well over $19 billion in assets at that time. Far from being broke.

The guys who bought them out who I forget their name were laughing at people who just lost $800,000 at the last meeting because they made such a sweet steal in the stocks.

This smells of a scandal all over but it'd probably be a few weeks before the News finds out, if ever. So this is a ditl.org exclusive so far

Post by **Teaos** » Sat Mar 22, 2008 9:12 am

Man can I buy some $50 stock for $2 please.

Post by **Tsukiyumi** » Sat Mar 22, 2008 12:05 pm

What a rip-off. I would say file a lawsuit, but what are they going to do? Sue the government that set the whole thing up?

Aaron · Post by **Aaron** » Sat Mar 22, 2008 12:58 pm

Was it J.P. Morgan Chase?

sunnyside · Post by **sunnyside** » Sat Mar 22, 2008 4:17 pm

Teaos wrote:Man can I buy some $50 stock for $2 please.

You could get it for 5.9601

https://www.etrade.wallst.com/v1/stocks ... symbol=BSC

And if you'd done so yesterday you could be much richer today as its going up and will probably continue to do so for a bit.

Sounds like they do have some good collateral so I'd think the odds of them totally folding would be low.

FYI they got smeared in this whole subprime and morgage lending thing (which a lot of banks and investment companies abroad got slammed with as well)

In case some of you don't know this is a bit of real stupidity. For quite some time housing prices had been rocketing. It was all the rage in America to "flip" a house. Buy it from someone. Paint it up a little (or do nothing). And sell it at a higher price.

As always speculation drove the price up. Since home prices were going up banks started offering "subprime" loans. Which means that they were offering people with crappy credit home loans with no money down. I believe with the idea that even if they couldn't pay their loan off they could just sell the house for more and pay the bank. Or that the bank could foreclose at a profit.

This extra competition continued to drive the price up. People were giving seminars on getting rich in real estate and so on.

However as is almost always the case with speculation (and really anything like this that keeps rocketing in price compared to inflation) it made a bubble and now it's popped.

This means that houses are suddenly worth less, a lot less sometimes, than people paid for them.

Bankrupcy laws are pretty lenient so lots of people are saying "screw this" to loans that are larger than the price of the house. It'll screw their credit rating, but often their rating was bad before. If they didn't put any money down it's like they've been paying cheap rent on the house for all this time.

Of course some people are also screwed. Flippers who got caught. People who are having job troubles. But it doesn't matter why someone defaults on their mortgage or declares bankrupcy to a bank.

The bottom line is banks and financial institutions that invested in this are left with a pile of homes they're having trouble selling for a fraction of what they loaned out for them and they're falling to pieces.