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March 21, 2008



Ah, the problems of ignorance. Bear paid out it's bonuses in company stock, and employees were encouraged to hold onto the stock. That's why Bear is 30% employee owned. So Bear employees are giving back their bonuses thru the loss of the equity value of the firm.

Has Pinch been giving back his bonuses as the stock price tanks? Inquiring minds would like to know.

Rick Ballard

Is the NYT suggesting that Junior is going to reimburse Class A shareholders for his mis/malfeasance? That would be a nice gesture but Junior's bonuses and option won't cover the $2 billion in equity that has vanished during his tenure.

Applying "Better regulation of mortgage markets dual share class public companies would help avoid repeating current excesses." at home at the NYT would be a good thing, too.

As to the "skin in the game" argument, how would the 24,000 layoffs by CITI be counted? I'd be happier if the board were fired, rather than the field workers but that doesn't happen very often.

It may be that the sight of JPM digesting BSC is a sufficent warning for the time being. I haven't read that any parachutes, gold or otherwise, were issued when BSC went into its death dive.

David Walser

Calling for more regulation of one of the most regulated industries is a tad rich. Government helped create this mess and the regulators had all the authority needed to prevent it, why should we believe more government involvement and even more regulation will help? It won't; it'll just choke the mortgage market and prolong the crisis.

For those who will ask how government helped create the mess and what powers regulators had that could have prevented it, I offer the following: Government is heavily involved in the mortgage business. To encourage home ownership, it established quasi-governmental agencies to purchase and guarantee mortgages (FNMA, et al). This made home mortgages very liquid and attracted a lot of additional capital for lending. Without this extra liquidity, it would have been nigh-to-impossible for mortgages to have been packaged into CDMOs and similar financial instruments. Government also moved to prevent unfair and discriminatory lending practices, such as red-lining. While these practices may have been "unfair", their purpose was to reduce the risk of default. (One of the best indications that a mortgage will be repaid is the address of the house -- better neighborhoods mean better credit risk. Even if an owner falls into difficulty, it's easier to sell a home in a good neighborhood than it is in a blighted area. Anti-redlining rules prevent lenders from taking this into account, increasing default risk.) Worse, government often holds banks hostage. For example, if a bank needs approval to merge with another bank (or to build branches in prosperous neighborhoods), the government might extract a promise for the bank to "invest" in blighted areas of the community. Forcing banks to make such "investments" forces them to write bad loans.

Did regulators have the authority needed to prevent this problem? Yes. In 2007, with a stroke of a pen the regulators changed the documentation requirements for home mortgages and all but eliminated so called "liar loans" (mortgages issued without proof of income). This dramatically reduced the amount of sub-prime mortgages that could be issued. (A lot of the borrowers using no-documentation mortgages would not have qualified for loans if their income had been documented.) It also may have contributed to the crisis. By changing the rules, it suddenly became much more difficult to resell these loans, reducing their liquidity and their value. The rule change also made it more difficult to sell the homes of borrowers who were in trouble -- there were fewer qualified borrowers.

Why did it take so long for regulators to act if they had the authority? Because, for the years running up to 2007, regulators were engaged in LOWERING documentation standards for mortgage applications. They were trying to increase the ability of people to buy a home. The regulators, just like the bankers, did not see the problem until it was too late. (As discussed above, once the problem was recognized, the regulators' actions may have made the problem worse.) It's hard to understand how giving the regulators even more power could have prevented a problem the regulators didn't see.


David, I suspect that more than a few "regulators" were aware of the problems. What got us into this mess is that the regulations that the "regulators" were expected to enforce systematically ignored those problems for strictly ideological--not financial--reasons. The intrusion of liberal ideology and its effort to transform the reality of human nature (and the way humans behave economically and financially) by the supposed power of its ideas seems to be the root of the evil here.

Krugman, in his column today, draws a distinction between the banking system (by which I presume he means what are usually called commercial banks) and what he calls the "shadow banking system," by which term I believe he means various funds and investment banks like Bear and JPMorgan. His claim is that the shadow banking system largely falls outside government regulation--and, presumably, that it shouldn't. I'd be interested in your opinion.

Rick Ballard

For those interested in arcana in support of David Walser's excellent overview - Here's a taste:

C.15: HUD will continue to monitor and enforce Fannie Mae’s and Freddie Mac’s performance in meeting or surpassing HUD-defined geographic targets for mortgage purchases in underserved areas. One of the three housing goals that HUD sets for Fannie Mae and Freddie Mac, as government sponsored enterprises, requires Fannie Mae and Freddie Mac to increase the number of mortgage purchases that finance housing located in “central cities, rural areas and other underserved” areas. HUD’s definition of such areas is based on census tracts with below-average income and/or aboveaverage shares of minority households. These neighborhoods historically have been underserved by the mortgage market, as shown by high mortgage denial rates and low mortgage origination rates. Success of Fannie Mae and Freddie Mac in meeting HUD-defined targets is central to meeting the outcome goal of stabilizing homeownership and affordable housing in underserved neighborhoods. HUD set the Underserved Areas goal at 37 percent in 2005, 38 percent in 2006 and 2007, and 39 percent in 2008 and thereafter, or until such time as HUD publishes a regulation changing the goal level.

HUD squeezes Fannie Mae and Freddie Mac and they in turn squeeze the mortgage lenders. Please note that HUD uses a count rather than a percentage of total dollars as the basis for its targets. That feeds directly into the RealtyTrac "horror of horror" stories concerning the number of delinquencies and defaults rather than measuring the volume impact of defaults.

I would also note that the "no doc" provisions are almost mandatory in many redline neighborhoods. The "docs" simply don't exist - one reason that BHO offered to have the IRS fill out 1040EZ's for those who don't bother to file. That and the fact that there are tons of low income people who still don't realize that they can get a "refund" for taxes that they never paid.

ARC: Brian

First rule of sales...

Never let the needs of the customer interfere with the commission plan


On the other Bear thread I quoted from Joel Stein's LATimes article, Someone give Ben Bernanke a hug, which I found amusing--someone else can pass on its accuracy. A portion of the longer quote:

Then, Sunday night, in a mad rush to prevent a panic before global stock markets opened, Bernanke gave a ton of cash to JPMorgan Chase & Co. so it could buy Bear Stearns. That's got to be a sweet phone call to get from the government. "No, no, guys -- not calling about taxes or trading infractions. Just -- crazy question -- we were sitting here and talking, and we wondered if you'd be interested in a huge wad of cash to buy your fiercest competitor? Really? Great. Also, we wanted to invite you to come over and have sex with us and never call us again if you don't feel like it. We've got ice cream!"


All of his extreme action is predicated on the myth that we're entering the Second Great Depression. We're not. The run on investment banks Bernanke thought would occur this week didn't happen. In fact, if he had waited just two more days on the Bear Stearns giveaway, he would have seen that Tuesday's earning reports from Goldman Sachs and Lehman Bros. were so unexpectedly good that the Dow shot up 420 points.

More important, nobody besides the Fed is panicking. People are bummed because their houses are worth less, but people were bummed because their tech stocks were worth less, their alpacas were worth less and their Ugg boots were worth less. But your average American isn't freaking out. A CNN poll this week showed that people's main economic fear is inflation -- which is what you get when you print a lot of money, like the Fed is essentially doing by giving so much away. It makes money fun to borrow and not worth saving, which is how the trouble started in the first place. Plus, it makes the dollar fall, allowing Canadians to make fun of us.

I appreciate the Fed's frantic gestures, but housing prices really are plummeting, and I'd rather hit that bottom as soon as possible. It's a hard choice, but I'll take lower inflation, less national debt and a stable future over job growth right now.

Of course, there are those who maintain that other Federal regulations got Bear into this position, or at least contributed to it.


HUD’s definition of such areas is based on census tracts with below-average income and/or aboveaverage shares of minority households. These neighborhoods historically have been underserved by the mortgage market, as shown by high mortgage denial rates and low mortgage origination rates.

Very amusing. Translation: people with below average income (the "and/or" bit seems to be a throwaway gag line) have historically not incurred mortgage debt. Seems like those with below average income have, historically, not been as dumb as government policy wonks.


David Walser--well stated comments--thank you.

Yesterday on CNBC a commenter made the point that with OFEO's actions--Fannie Mae and Freddie Mac were going to be leveraged at something like thirty three to one.
Bear was leveraged at thirty two to one?

This scenario sounds perilous but perhaps necessary.


glasater, the WSJ had a big editorial on that situation--calling for the complete (i.e., real) privatization of Fannie Mae and Freddie Mac.

...aligning the interests of the financial services "producers" with shareholders and risk regulators.
The problem with using options as compensation is that they use the wrong kind of options. Employment is already a call option. If you really wanted to align the interests of employees with owners, you would force the employees to write put options to the company stock.

A long call and a short put together add up to the underlying instrument. (Ok, they add up to a forward contract on the underlying, but that is a minor quibble about cost-of-carry.) The employees are already long the call because they are employees. Giving them call options only worsens the imbalance. Giving them stock (both the upside and downside) and then not allowing them to sell it is a lot closer to the right incentives. Employment is still a long call, but if they have enough to lose in their stock positions it gets to dwarf their jobs.

(Funny thing about Arthur Anderson. Prosecuting AA put all those employees out of work who hadn't done anything wrong. But the Enron fiasco caused the ugliness which is sarb-ox, which ensures full employment for accountants for as far as the eye can see. So, on balance, those not-out-of-work-for-long employees have been richly rewarded by the Enron follies.)

David Walser
Funny thing about Arthur Anderson. Prosecuting AA put all those employees out of work who hadn't done anything wrong. But the Enron fiasco caused the ugliness which is sarb-ox, which ensures full employment for accountants for as far as the eye can see. So, on balance, those not-out-of-work-for-long employees have been richly rewarded by the Enron follies. - Cathyf

Well, those who specialized in tax, rather than financial audits, haven't been so richly rewarded. And, except for those AA partners who saw their personal net worth wiped out. Other than than these two groups, former Arthur Andersen folks are making out like bandits.

David Walser
Krugman, in his column today, draws a distinction between the banking system (by which I presume he means what are usually called commercial banks) and what he calls the "shadow banking system," by which term I believe he means various funds and investment banks like Bear and JPMorgan. His claim is that the shadow banking system largely falls outside government regulation--and, presumably, that it shouldn't. I'd be interested in your opinion. - Andruil

Krugman's right and wrong. (In this case, I suspect space limitations are at fault rather than any bias.) Investment banks are not subject to the same regulations as other banks. That's not to say investment banks are not subject to a ton of regulations; they are. While there is substantial overlap, investment banking is subject to regulation from the SEC and related agencies. Commercial banks answer to the Fed, the Comptroller of the Currency, and related agencies. Maybe the gross number of regulations imposed on one type of bank is greater than the amount imposed on the other type, but it's unfair to say one is regulated and the other is not. It is fair to say that the regulations differ.


It seems that according to the NY Times, no financial penalty on someone wealthy is sufficient unless he ends up no longer wealthy. A billionaire ends up with $10 million--can't feel sorry for him, he's still rich! Since the Times begins with the premise that no one (except those with the last name Sulzberger) is deserving of riches, it's not surprising. But in the real world it sure seems as though the Bear Sterns execs have been punished substantially for their errors.


So, if an organization does poorly, the managers aren't to get bonuses and, really, should be looking to give part of their pay back?

Can we generalize this rule?

Say if an organization loses market share and capital value due to poor management, thus giving poor shareholder return, the managers should do likewise? If you are on with this, can we apply it to the NYT? How about the LAT? WaPo? Lets reach down into the editorial staff and managers and have them give back bonuses when the company doesn't perform well... take pay decreases, even!

Hey!! I'm getting to like this idea...

How about doing that for when government goes into deficeit spending? Can we make Congresscritters give back their pay? How about adding a 'surtax' with no allowances for anything on the rest of their holdings and income? Say 1% for every billion dollars in the red the government goes? Put Congress on charity at no time at all, begging for rides home and metro fare...

Say, I'm really getting to like this idea!

How about a special 'surtax' for those that propose additional government spending, to that similar tune of 1% per billion dollars? Lobby Congress to get more money put out and, if Congress does that, then you can start forking over net worth to pay for it... suddenly makes lobbying for multi-billion dollar spending increases look not-so-hot. If it is for 'the public good' then you would not lose the right to petition, but would gain the cost of personally knowing you hard earned wealth would be at risk for those things you lobby for.

Hmmmmm.... yes, I'm up with that!

Where can I sign on to the 'personal responsibility for costing people money' petition? I can think of all sorts of lobbying firms, 527s and other such organizations and their members that would benefit from knowing direct cost to 'social good' from government and industry. Really, why just stop at those in the financial markets? There are all sorts of folks out there losing other people's money and the financial markets are only a *part of it*... and the only complaints we hear when they are doing well is the old 'widening the gap between rich and poor' saw. Here the gap gets smaller and people *complain*?

Sounds like a bunch of complainers, to me...

So sign me up on the fiscal ties for those costing people money and get a cluebat out for the complainers. Can't hand them $0.02 to buy a clue as they would waste it on lobbying for others to spend other people's money, thus remaining clueless.


There are all sorts of folks out there losing other people's money and the financial markets are only a *part of it*
-and the government can say the same thing, and they each hide behind the other.
it sure seems as though the Bear Sterns execs have been punished substantially for their errors.
Substantially, yes, Proportionally? Not sure.

I don't trust the government to fix things, but it looks like things are broken. cathyf's thoughts about aligning incentives sound promising.


33 to 1? 33 dollars to 1 dollar? What is the percentage? Is it 1% of 30 billion? Why did the hedge fund groups margin call equal the funds equity at 1% of the debt leverage? Did the hedge group plan that? Did Merrill's CEO plan his bonuses would equal 10% of Merrill's losses at 30 billion or whatever? Was he on crack and should the Bear employees give it a try?

The market is fixing itself. Merrill got foreign investors to buy them. Bear got US investors to buy them. Should the foreign investors be worried?


Thanks, David. I knew that had to be the case. Apparently he wants more--or different?--regulation of investment banking. He's fuzzy about that. His criticism seems to be of the new types of investment vehicles. But it's not like investment banking is new, and he's not specific about his criticisms or the remedies he'd like to say. Hey, change! So maybe those who are starting to criticize the forced sale of Bear have a point, including those criticizing the mark to market stuff. I think we all know that Bear was not literally worthless. Maybe regulations forced the sale sooner than made sense. Comments, anyone?

Jim Brady

Mortgage origination in effect has two sets of regulators. Banks that have federal charters are regulated by the Federal Reserve and such. Independent mortgage brokers are licensed by the individual states and are regulated by state banking commissions and such. Wanna guess who originated most the busted mortgages?


"but there were some very savvy investors who get suckered by this sub-prime mess, just as there were some very savvy investors who were suckered by the internet bubble "

Sorry, if even I could tell before the end of the tech bubble and the housing bubble that it was a bubble, and I almost never read the business section of the paper, than those investors weren't so savvy.

I remember discussing the stock market before the fall with some guys (who were educated, professional, higher up than me) and the housing market with some realtors and some other people, and they were all CONVINCED that the sky was the limit, and thought I was a nincompoop and seemed to feel sorry for me I couldn't participate in the financial party like they were. They all assumed because they read the WSJ on a regular basis, (and also probably because they were male), that they were smarter than I was. But - not. I remember the day there was one very bad day for tech stocks not too long after our discussion and they came in in a very bad mood, and admitted to losing a lot of money that day on risky tech stocks, never to return again as it turned out.

Anyway, now that I watch some of those business shows on TV I have definitely seen that those "experts" are full of it. They were talking up the housing market even until recently. They are most likely being paid by their financial companies to get the word out to the public that everything is okay so they can cash out while the rest of the suckers buy. Don't trust any of those shows or your financial advisers (ie Merryl Lynch), use your common sense instead.

Foo Bar

Off topic:

Karl Rove reads JustOneMinute.


Wow congrats Tom on Rove's JOM affection. That's bigtime. Maybe he gives little snippets to Bush to read.


Yeah, apparently one of the features he likes most are the lengthy extracts from interesting articles that some of the commenters here provide. He finds it an easy way to keep up on important topics.

Barney Frank

Yeah, apparently one of the features he likes most are the lengthy extracts from interesting articles that some of the commenters here provide. He finds it an easy way to keep up on important topics.

LOL. From Karl's lips to Sue's ears.


The reality is that Federal Government did a lot of stupid moves, that made this likely crisis much worse. Overspending on non-essential governmental items (pork) and ancillary social programs. Raising interest
rates, for at least a year an half; knowing how these interest sensitive sub prime CDO's
would react. Then taking forever, when the
bubble popped, to start to lower rates or do anything substantial to control the collapsing bubble. The Fed feared another LTCM fiasco writ large and so acted accordingly; it's a little reminiscent of
the Hoover era RFC which did little good;
specially against the self inflicted chest wound from Smoot Hawley's cauterizing of capital flows


Irwin Stelzer at Weekly Standard takes a pretty readable stab at explaining what happened and what's in store, for the general reader: The Credit Crisis of 2008. Included are comments about the likely political effects (Dem proposals) and the effects on foreign countries (which means, on foreign policy and our faith and credit with foreign countries), as well as on taxpayers. Maybe especially on taxpayers.

Future researchers are also going to have to sort out the relationship between the Fed's monetary policy, the rate of inflation, the value of the dollar, the trade balance, and a host of other economic drivers. The March 18 cut in the so-called Fed funds rate, lowering it to 2.25 percent (a negative interest rate, when inflation is factored in) was only the latest in a three-percentage point cut since September of last year. As every economist knows, or thought he did, such a reduction in short-term rates will bring long-term rates, set in the market, down with them. Except that long-term rates, which are most relevant to businesses seeking to expand and consumers considering purchasing a car or a house, remain stubbornly high, diluting the stimulating effect of the Fed's actions. Many lenders believe that the Fed is playing too fast and loose with the money supply, and that the resultant inflation will drive down the value of the dollars with which they will be repaid. So they raise the price of their money--the interest rate that they charge for its use.

It seems that the inflation-wary have guessed right: Prices of food, energy, and just about everything that is not an electronic gadget have risen, and with them inflationary expectations. All exacerbated by the path of the dollar, which has been spiraling down. Despite singing that old tune, "American interests are served by a strong dollar," the administration is humming under its breath something like "down and down it goes, in a spin, and we are loving the spin it's in." A cheap dollar makes our goods less expensive abroad, stimulating exports and thus adding significant growth to a slowing economy. True, the decline in the value of the dollars that oil producers are getting for their crude causes them to raise the price in order to protect their ability to purchase arms and baubles in the world's poshest shops. They also worry that the imported laborers who do the work that their native populations find offensive are restive: The dollars these workers send home to their families are buying less and less. The last thing the rulers of Arab nations want is an uprising by foreign workers who in many cases outnumber the native population.

True, too, that the falling dollar has the Chinese very nervous. "What concerns me now is the continuous depreciation of the dollar," says Prime Minister Wen Jiabao. No wonder. The vaults of his country's central bank are overflowing with stacks of financially deteriorating green paper adorned with pictures of American presidents. But Bernanke has had to choose ... Bernanke is betting that the economic slowdown will lower inflationary pressures, and that if he has uncorked the inflation genie he will be able to bottle it up again by raising interest rates once the current credit crisis has run its course.

All of this is being played out against a background of longer-term problems in the banking system. As more and more loans are being written off, the asset sides of banks' balance sheets are dropping. That reduces the banks' ability to take on liabilities, i.e., to make loans. And by a large multiple since banks typically lend many multiples of their assets, and for long periods. ... when Long Term Capital Management went under in 1998, and Alan Greenspan organized a rescue effort by major banks in order to ease strains on the financial system, only Bear Stearns refused to help. Which might explain why the firm, famous for its macho, cigar-chomping, go-it-alone style found itself friendless just when it needed more than a few friends.

Two things have to happen before we put paid to the current problems. First, house prices have to bottom out. So long as they keep falling, which almost all experts expect them to do, the value of the mortgages held by the banks will fall. In the case of defaults, the banks are lucky to get half of the face value of the mortgage. And when a house is worth less than the mortgage, the circumstance in which an estimated 8 million homeowners now find themselves, and 14 million soon might, we get the phenomenon known as "jingle mail." That's the term used to describe the sound when the owners walk away from their house and mail the keys to whoever is responsible for collecting their monthly payments of interest and principal.

Second, banks will have to raise more capital. Paulson wants them to stop paying dividends and retain those funds as new capital. This, the boards of most banks do not want to do, lest shareholders, many now holding onto their shares because dividends seem so generous, rise up in indignation. ... Bank presidents are making pilgrimages to the Middle East to meet with managers of sovereign wealth funds, which are attractive sources of capital from the point of view of bank executives ...

But once burned, twice shy. Sovereign wealth funds have watched the value of their investments in American banks wither under the dual blows of falling share prices and a declining dollar. ...

How the banks will solve their need for capital no one can predict. My own guess is that we will see a combination of dividend cuts, the emergence of "bottom fishers" (investors who at some point decide bank shares are under-valued), and a call on taxpayers to swallow hard and ante up to rescue the banking system, even if that means also coming to the aid of bleating bankers. You know, the guys who were so generous to you when you came around for help without so much collateral that you didn't really need any help at all.


Gary Becker says it so we can all understand it. However he fails to cite another prominent example of irresponsibility--bankers:

Hardly a day goes by during this housing crisis that the media does not report on families in foreclosure proceedings, or in arrears in repayment on mortgages that had close to zero down payment requirements and low "teaser" interest rates. The many excuses offered by some home owners for their plight, and also eagerly by the authors of these human interest stories, is that the borrowers did not understand that these introductory interest rates might rise a lot after a few years, or that they would have negative equity in their homes if housing prices stopped rising and began to fall. An obvious alternative explanation for their behavior is that they gambled that the good times would continue indefinitely.

This type of response to failed decisions is not unique to the present housing crisis, but is part of a strong trend toward shifting responsibility to others. Women who sign a pre-nuptial agreement specifying the amount of their husband's pre-marital wealth that would be theirs in the event of divorce often try to have the agreements overthrown in divorce litigation. They claim that they did not understand what the agreements meant, or that their husbands took advantage of them in other ways to get them to sign the agreements. Usually they signed simply because that was the only way they could marry the men they very much wanted to marry, perhaps in part because the men were wealthy.


Successful attempts to shift the responsibility for bad decisions toward others and to society more generally create a "moral hazard" in behavior. If individuals are not held accountable for decisions and actions that harm themselves or others, they have less incentive to act responsibly in the first place since they will escape some or all of the bad consequences of their actions.


Well I see the number one securities class action firm is already on the BSC case. From what I have read the 200 odd million purchase price is being dwarfed by the supposed 6 Billion dollar reserve JP Morgan has set aside for lawsuits from liabilities they are taking on.

But at least outside advisors are not likely to get drawn into this whirlpool after a recent SCOTUS decision says they shouldn't be part of the lawsuits for this type of issue.


Which firm is that, SlimGuy?


While Becker makes a reasonable point about responsibility, in the circs its seems odd that he focuses on individuals in society. I mean, it's not like consumers come into banks and hold a gun to the loan officers' heads until they get a mortgage, right?

David Walser
I mean, it's not like consumers come into banks and hold a gun to the loan officers' heads until they get a mortgage, right?
No, and it's not as if loan officers held a gun to consumers' heads, either. If you wanted to, you could find reams of financial advice articles printed in newspapers and magazines about how it was smart for buyers to take advantage of low variable rate loans rather than locking in a higher fixed rate. (And, in some very rare circumstances, that could have been the smart move.) The reasoning was home prices would go up (as they always do) and the buyers could always refinance into a new low rate variable loan. The problem, of course, is that when rates went up and housing prices went down, consumers lost their exit strategy.

While I'm sure there are a handful of buyers who did not understand what they were doing, most went in with their eyes wide open. They sought to profit by buying more home than they could afford (or from lower payments). They got burned. I have a lot of sympathy for them, just as I do for someone who places a bad bet at a casino. If they try to shift the burden of their bet to government (or to the banks), they're welshers.


Agreed, David, but...

I've read articles to the effect that many of the subprime mortgages that are actually in default are for SECOND residences--and that would tend to bear out what you're saying. These people have walked away from their second homes and restored their financial health by doing so, and still have roofs over their heads (don't you wonder why that isn't "rooves"?).

On the other hand, there were surely naive people out there, too, who were not terribly smart and who thought it was sensible to follow the advice of the well dressed and well spoken people in the magazines and on TV. And who can fault them for supposing that people at banks are taking the proper safeguards and wouldn't just be throwing money around without a thought for tomorrow? Bankers have fiduciary responsibilities to others, after all, just as consumers do. I CAN feel sorry for the unsophisticated consumers to some extent--although not to the extent that I think they should be able to shift the burden to the government. Which is to say, to ME.


I've also read articles that there could be considerable resentment at a bailout of "consumers," many of whom were in fact speculators. I would certainly resent that. My wife and I have always tried to be responsible and I see no reason to bail out people who thought they were being clever by taking risks they should not have taken.


The class action firm is Coughlin Stoia Geller Rudman Robbins.

Figures I have on them is last year they recovered about 7.3 Billion and 12 Billion plus over the last 4 years ranking them at the top of the top 50.




Story in the NYSUN about the suit they are bringing


Coughlin Stoia's suit seeks certification for a class action on behalf of purchasers of Bear Stearns common stock between December 14, 2006, and March 14, 2008. The lawsuit names as defendants Bear Stearns, the company's chairman, James Cayne, its president, Alan Schwartz, a director and co-president who resigned last year, Warren Spector, the chief operating officer, Samuel Molinaro, and the chairman of the executive committee, Alan Greenberg.


The reason I became aware of this is I was following BSC pretty close because I did my homework a few months back to see who likely had a pretty large exposure on the subprime issue and I was sitting on a bunch of puts I had bought on them with strike prices of 75, 70 and 60....which I exercised last Friday and this past Monday.

Kah Ching!!!


Thanks, SlimGuy. Next time clue the rest of us in, OK? :-)


As per my usual tactics, when I exercised the options (which went at about 30 to 1 for what I bought them for) I took 1% of the profits and bought BSC stock and a few of call contracts in case their was a bottom bounce.

Was not expecting the new price offer from JPM this morning but the stock I am holding right now is up by about 4 times what I bought it at and the calls are anywhere from doubled to way more than that.

Looks like some are pricing in that the purchase price may even go higher than 10 per share.

Someone is figuring out that the 300 billion in assets that BSC is holding is not all junk bonds quality.

Popcorn more popcorn.

BTW I will hold the stock I have now for conversion to whoever is the eventual buyer.

Even if it falls apart I will only be out 1% of my profits, but if it works I make out at 10 or 12 to 1 again to the upside.


Even if it falls apart I will only be out 1% of my profits, but if it works I make out at 10 or 12 to 1 again to the upside.

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