Bear Stearns, I May Have Gotten a Prediction Right

On August 2 of last year, I said that within a year, Bear Stearns would cease to function as an independent entity.

I'm not right yet, but I don't see how I won't be right in the next 5 months.

Dr. Peter Venkman: This city is headed for a disaster of biblical proportions.
Mayor: What do you mean, "biblical"?
Dr Ray Stantz: What he means is Old Testament, Mr. Mayor, real wrath of God type stuff.
Dr. Peter Venkman: Exactly.
Dr Ray Stantz: Fire and brimstone coming down from the skies! Rivers and seas boiling!
Dr. Egon Spengler: Forty years of darkness! Earthquakes, volcanoes...
Winston Zeddemore: The dead rising from the grave!
Dr. Peter Venkman: Human sacrifice, dogs and cats living together... mass hysteria!

And it would seem, that I actually get a prediction right, which is another sign of the apocalypse.

Just yesterday, the Bear Stearns CEO said that there were no liquidity issues, but today, JPMorgan Chase and the New York Fed have gotten together to bail them out.

Basically, the Fed can't bail out Bear Stearns, it's out of its authority, but it can guarantee JP Morgan's loans to the embattled investment bank, which it did.

Actually, a closer reading makes it even more extraordinary. The Fed directly lent money to Bear Stearns, using an authority last used in the 1960s, which required a vote of the Fed's Board of Governors.

Typically, the Fed is only supposed to lend to banks, and Bear is not a bank, but an investment house.

As to the statements of the CEO yesterday, I would call them a bald faced lie, but I don't have a Harvard MBA, so I don't know the fancy term for blowing smoke up everyone's ass.

Of interest is some potential insider trading, specifically, someone traded 55,000 Bear Stearns puts Tuesday. (A "Put Option" is basically a bet that the stock will decline in value.)

One of the results of all of this is that money has been fleeing to Treasuries, or fleeing the US entirely, with the dollar down.

One of the things you have to understand is that Bear Stearns is a pretty small player in all this, with a market capitalization of "only" about $15 billion dollars, and we've got the markets jumping out windows.