Bear Stearns gets emergency funding.

[Admiral Valdemar]

Don't look now, but it would seem HBOS is in real trouble. They've lost a fifth of their value since the City opened this morning and the FTSE is in the red because of it.

[J]

Yesterday's Visa IPO and Fed rate cut will likely tide things over till the end of the week...maybe...

[aerius]

Oil is down, the markets are up; God's in his Heaven, all's right with the world. Crisis averted.

Well that didn't last long, so much for all that market pumping by the Feds. Everything took a big drop today, erasing most of yesterday's gains.

[J]

Marketwatch Link

Congress begins probe of Bear Stearns' sale
By Riley McDermid, MarketWatch
Last update: 3:29 p.m. EDT March 20, 2008

NEW YORK (MarketWatch) -- Congress is looking into the Federal Reserve-backed agreement to sell Bear Stearns to J.P. Morgan Chase, examining the deal to see whether it complied with federal regulations and seeking to determine taxpayer exposure, The Wall Street Journal reported Thursday.

Rep. Henry Waxman, D-Calif., who heads the House Oversight and Government Reform Committee, wants to take a closer look at what the potential taxpayer exposure may be, the paper reported, citing an unnamed Waxman staffer.

"The dramatic and unprecedented actions over the weekend by the Federal Reserve and by the Treasury will be just the first of numerous private and public steps to preserve liquidity in the market and to facilitate rational actions to strengthen the economy," said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, in a statement released to MarketWatch.

"These actions could either implicate or involve securities and tax laws, and I am working to determine whether and to what extent that is the case."

The Senate Finance Committee has announced it will conduct its own investigation into the bailout. Sen. Chuck Grassley, R-Iowa, a ranking member of the committee, weighed in on the inquiry Thursday.
"I've instructed my staff to delve into the details of the deal; I want to understand what the downside risk for the taxpayer is and any upside potential," he said in a statement. "Corporate bigwigs shouldn't be able to profit from a deal while employees, shareholders and creditors have to carry the burden of a company's demise."

The Fed agreed Sunday to provide financing for up to $30 billion of less-liquid assets held by Bear Stearns. Roughly $20 billion of that funding is earmarked to back mortgage securities. JPM 4 is set to exchange 0.05473 of a share of common stock for each share of Bear Stearns. Both boards have approved the transaction, which values Bear Stearns at $2 a share.

Many investors have cried foul at that sale price, saying even if Bear was facing bankruptcy, its headquarters in New York City alone were worth far more than the $237 million takeout value.

Lawmakers appear to agree with that assertion.
"My point is not that bankruptcy would've been the better course for Bear Stearns," Grassley said. "The top executives shouldn't be treated better than anyone else when a company goes under."
Waxman has made headlines recently for conducting high-profile probes into the disparity between pay and performance for executives of financial institutions.

On Thursday, Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, called on lawmakers Thursday morning to find new ways to stabilize the economy.

Frank suggested reforming the regulatory system currently in place, as well as re-examining what capital means in today's economy and monitoring auction-rate securities and municipal-bond markets more closely.

"Ultimately," Baucus said, "Congress has a duty to respond appropriately to increasing bad news in the economy."

Riley McDermid is a MarketWatch reporter based in New York.

The more I read about the deal the fishier it seems.

Also, an excellent cartoon of how the deal may have gone down:
http://stockmania.com/?q=node/4076

[J]

The bid is now $10 a share. This drama gets stranger with each passing day.

CNN link

2nd UPDATE: JPMorgan Raises Price On Bear To $10/Share
Dow Jones
March 24, 2008: 11:48 AM EST

(ADDS details in first 5 paragraph; updates stock prices.)

By Kevin Kingsbury

Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- JPMorgan Chase & Co. (JPM) is raising the price it will pay for Bear Stearns Cos. (BSC) to $10 a share from $2 a share, hoping to stem criticism that the banking giant was getting too sweet a deal.

JPMorgan also needed to assure other banks and investors that the deal will get done because they continued to boycott Bear Stearns as a trading counterparty in the week since the initial deal was announced, said a person close to the transaction. A Bear Stearns spokeswoman declined comment.

Under the revised terms, JPMorgan will buy 95 million new shares of Bear, giving it 39.5% of the troubled broker and a big leg up in getting shareholder approval to approve the takeover. Further, Bear Stearns' board members - including Chairman James Cayne, who was said to be shopping for a better deal - agreed to support the deal. The board controls about 5%, giving the bank almost 45% approval.

In another move to lure business back to Bear Stearns, JPMorgan accelerated the closing date, saying the purchase will be completed by April 8. The revised deal, which was negotiated over the weekend, is also aimed at mollifying Bear's investors. They were furious with the $2-a-share agreement struck last weekend as the investment bank, founded in 1923, teetered on the brink of collapse. Though the new offer price is mathematically five times the original on a dollar basis, it's paying about four times the original offer based on share ratios.

JPMorgan is offering .21753 of its shares for each share of Bear Stearns common, up from .05473 under the original deal announced a week earlier on March 16.

Word of a revised deal was reported in Monday's edition of The New York Times.

Shares of Bear traded well above $2 all of last week in expectations that a sweetened price - either from JPMorgan or a third party - would result from the initial deal's value of $236 million. The stock closed Thursday at $5.96 and surged 95% to $11.73 in recent trading Monday on the New York Stock Exchange.

Shares of JPMorgan were up 2.5% at $47.11.

Other terms of the new deal are different than the original pact, including the role of the Federal Reserve, which played a critical role in the week-old deal. Among other things, JPMorgan will bear the first $1 billion of any losses in financing for Bear's less-liquid assets, such as mortgage securities, with the Fed being responsible for the other $29 billion.

The Fed, which initially agreed to guarantee $30 billion of Bear's most troubled assets, was concerned about appearing to bail out a Wall Street investment bank. The central bank, one of whose missions is assuring the safety and soundness of commercial banks that take deposits, insisted that JPMorgan bear higher exposure if it felt the investment bank was worth the new price, said a person close to the transaction.

The Fed helped arrange the initial deal out of fear that if Bear collapsed a daisy chain of trades it had made with global counterparties worldwide could collapse, generating a worldwide loss of confidence in the credit system. Banks and investors funding the company had already begun making margin calls before JPMorgan's first announcement, forcing Bear to scramble for cash.

It was a scenario akin to a run on a bank, with Bear's cash positions tumbling, necessitating emergency help or bankruptcy protection.

-By Kevin Kingsbury, Dow Jones Newswires; 201-938-2136; kevin.kingsbury@ dowjones.com

(Jed Horowitz of Dow Jones Newswires and Robin Sidel of The Wall Street Journal contributed to this story)

[Fingolfin_Noldor]

Somehow, I find it hard to find sympathy for these buggers at Bear Sterns. They made bad decisions, they should live with the fact that they are screwed up and quit whining. You went to a casino and bet big and lose it all, you pay for it, sucker.

[Darth Wong]

Somehow, I find it hard to find sympathy for these buggers at Bear Sterns. They made bad decisions, they should live with the fact that they are screwed up and quit whining. You went to a casino and bet big and lose it all, you pay for it, sucker.

The thing is, they're no different from any other investment bank. For every dollar in assets, they're walking around with 20 or 30 dollars in debt. They're leveraged up the wazoo, and the whole house of cards only stands up so long as investors are confident enough not to pull their money out en masse.

It's not like a real bank, which has retail outlets and bank machines and tellers.

[Admiral Valdemar]

What pisses me off is that it's perfectly okay to bail out megacorporations for their idiocy with public money, but anyone who gets into difficulty through no fault of their own does not get the same in return.

Just another example of a rigged game with a positive-feedback loop of more success for the successful.

[Fingolfin_Noldor]

The thing is, they're no different from any other investment bank. For every dollar in assets, they're walking around with 20 or 30 dollars in debt. They're leveraged up the wazoo, and the whole house of cards only stands up so long as investors are confident enough not to pull their money out en masse.

It's not like a real bank, which has retail outlets and bank machines and tellers.

True. Part of the little furore, is the fact that Bear Stern employees and the executives own some 1/3 of the stake in Bear Stern. So when someone buys the company for what is probably the real value of the stake, they all go "boo boo ballyhoo".

Yeah, that's what you get for leveraging on something that is flimsy as paper set on fire.

[Admiral Valdemar]

They're not stupid. They didn't declare bankruptcy either, because that'd mean the CEOs, CFO, president etc. handing back their billions in net bonuses.

[Uraniun235]

What pisses me off is that it's perfectly okay to bail out megacorporations for their idiocy with public money, but anyone who gets into difficulty through no fault of their own does not get the same in return.

Just another example of a rigged game with a positive-feedback loop of more success for the successful.

I can understand the "well the consequences of letting them fail are too big" rationale, it makes sense - but that just means that we need to hold the individuals responsible for the situation very accountable. Preferably with public flogging.

[Admiral Valdemar]

I can understand the "well the consequences of letting them fail are too big" rationale, it makes sense - but that just means that we need to hold the individuals responsible for the situation very accountable. Preferably with public flogging.

Which would be great. But they don't even do that. They basically go "Hey, we all fuck up. Now here's a few billion of taxpayers' cash. Go and have a champagne fountain on me." Meanwhile, several thousand ordinary workers lose their jobs. Great. No wonder the Fed is still seen as an elite organisation for propping up similar well off folks and playing the system in the process.

[J]

This has now entered the twilight zone.

Fed Bank press release

Statement on Financing Arrangement of JPMorgan Chase's Acquisition of Bear Stearns
March 24, 2008


At the closing of the merger, the Federal Reserve Bank of New York ("New York Fed") will provide term financing to facilitate JPMorgan Chase & Co.'s acquisition of The Bear Stearns Companies Inc. This action is being taken by the Federal Reserve, with the support of the Treasury Department, to bolster market liquidity and promote orderly market functioning.

The New York Fed will take, through a limited liability company formed for this purpose, control of a portfolio of assets valued at $30 billion as of March 14, 2008. The assets will be pledged as security for $29 billion in term financing from the New York Fed at its primary credit rate.

JPMorgan Chase will bear the first $1 billion of any losses associated with the portfolio and any realized gains will accrue to the New York Fed. BlackRock Financial Management, Inc. will manage the portfolio under guidelines established by the New York Fed designed to minimize disruption to financial markets and maximize recovery value.

In an attempt to get around the Federal Reserve Act under which the Fed financed BSC buyout would be illegal according to various experts, the Fed will now take cues from the mafia and launder the money through a shell company it created. Apparently, this is also illegal, but less illegal than what came before.

There are times when I can no longer tell if I'm reading news about America, an Onion news article on the US, or the latest news reports on some Banana Republic.

[J]

BSC hedgefund managers get indicted for fraud.

Bloomberg link

Ex-Bear Stearns Fund Managers Indicted for Fraud (Update1)

By Patricia Hurtado and David Scheer

June 19 (Bloomberg) -- Former Bear Stearns Cos. hedge fund managers Ralph Cioffi and Matthew Tannin, arrested early this morning at their homes in New Jersey and Manhattan, were indicted for mail fraud and conspiracy to commit securities fraud, the first prosecution in a U.S. crackdown on subprime fraud.

The two men were charged with misleading investors about the health of two Bear Stearns hedge funds whose collapse last year ignited the subprime mortgage crisis. Cioffi was also charged with insider trading. The Securities and Exchange Commission sued the men today, claiming they duped investors before the funds imploded.

Federal prosecutors and regulators have been investigating possible fraud by banks and mortgage firms whose investments in subprime loans and securities plunged in value, causing losses that now total $396.6 billion.

``The arrests are appropriate given the magnitude and the egregiousness of their alleged misconduct,'' said attorney Steven Caruso, who is representing investors in arbitration claims against the funds. Cioffi and Tannin engaged in a ``gross violation of the public trust.''

Cioffi, 52, was arrested at his Tenafly, New Jersey, home and Tannin, 46, at his Manhattan apartment, said James Margolin, a spokesman for the Federal Bureau of Investigation's New York office. The two men were fingerprinted at FBI headquarters in Manhattan, then taken in handcuffs by six FBI agents to be transported across the East River to Brooklyn federal court for an appearance later today in connection with an indictment.

`Credit Crisis'

The collapse of the hedge funds began a credit squeeze that led to lawsuits against Countrywide Financial Corp., American Home Mortgage Investment Corp., Citigroup Inc. and JPMorgan Chase & Co.

After demands by clients and lenders for payment threatened Bear Stearns with bankruptcy, the 85-year-old firm agreed to sell itself to New York-based JPMorgan in March.

If convicted of conspiracy to commit securities fraud, wire fraud or mail fraud, the defendants face as long as 30 years in prison. Cioffi's lawyer attacked the arrests, triggered by an investigation by U.S. Attorney Benton Campbell, as an effort by the government to make an example of innocent men.

``Because his funds were the first to lose might make him an easy target but doesn't mean he did anything wrong,'' said Edward Little, Cioffi's lawyer, in a statement. ``Cioffi had no motive to do anything wrong. He did not and could not have profited by doing anything the government now claims he did.''

Susan Brune, a lawyer for Tannin, also said her client is innocent and that he ``is being made a scapegoat for a widespread market crisis.''

SEC spokesman John Nester declined to comment.

Cioffi, Tannin

Cioffi managed the two funds that collapsed, and Tannin served as his chief operating officer. The hedge funds invested almost all of their assets in subprime-mortgage-related securities. Their investment bets failed last June when prices for collateralized-debt obligations, called CDOs, linked to loans plummeted amid rising late payments by borrowers with poor credit histories or heavy debt.

U.S. prosecutors are focusing on an e-mail allegedly sent by the two suggesting that their funds were headed for trouble, four days before they told investors they were comfortable with their holdings, the Wall Street Journal reported today, citing people familiar with the situation.

Tannin allegedly e-mailed Cioffi saying he was afraid that the market for bond securities they had invested in was ``toast,'' and suggested shutting the funds, the Journal said. The two have told colleagues that they quickly were convinced that Tannin's concerns were misplaced, according to the Journal.

`Floodgates'

Indictments against Cioffi and Tannin might lead to a cascade of criminal cases and civil suits, said former prosecutor Robert Bunzel, a white-collar criminal defense lawyer in San Francisco.

``The floodgates could open,'' Bunzel said.

In a separate move today, two government officials said more than 400 people have been charged in a U.S. Justice Department mortgage-fraud sweep.

Called Operation Malicious Mortgage, the arrests are to be announced this afternoon by FBI Director Robert Mueller and Deputy Attorney General Mark Filip at the Justice Department in Washington. A number of arrests were made earlier this week and the FBI is still tallying the final numbers, said the officials who requested anonymity.

New Job

Cioffi, now with Tenafly-based RCAM Capital LP, left Bear Stearns in December amid inquiries by prosecutors and the SEC into whether he withdrew $2 million from two funds before their collapse in July, three people with knowledge of the matter said at the time. He was relieved of his duties as a fund manager in June, when his funds' subprime mortgage investments began to unravel.

Cioffi was born on Jan. 5, 1956, and grew up in South Burlington, Vermont, a city of 16,500 that borders Lake Champlain. He went to Rice Memorial High School and St. Michael's College, three miles down the road from each other in the neighboring towns of South Burlington and Colchester.

He was a running back, fullback and offensive guard on the Rice football team and worked at bodybuilding at St. Michael's. He was an A student in math and economics in high school, a Rice official said. At St. Michael's, he studied business administration and graduated with honors in 1978.

Tannin

Tannin had been with Bear Stearns since 1994, according to a company prospectus. He spent seven years on the CDO structuring desk focusing on emerging markets, high grade and market value transactions. From June of 2001 through February 2003, he followed the CDO market as a research analyst in Bear's asset- backed research group.

Tannin, a lawyer, has a Juris Doctor from the University of San Francisco and served as a clerk for a California appeals court. He was also a Preston Warren scholar in philosophy at Bucknell University.

Today, both men walked out of FBI headquarters in lower Manhattan looking straight ahead with their hands cuffed behind their backs. More than two dozen reporters, photographers and television cameramen watched as Cioffi, wearing a blue blazer, tan slacks and no tie, and Tannin, wearing a blue suit and tie, were led into separate vehicles. Neither man made any comment.

Since the failure of the two Bear Stearns hedge funds, investors claimed in lawsuits that banks and financial companies such as the New York-based securities firm knew their underlying investments weren't worth what they were telling shareholders.

New Chapter

Today's arrests ``signal a new chapter in the subprime debacle,'' defense lawyer Bunzel said.

Investors in the two Bear funds, which filed for bankruptcy in July, lost $1.6 billion. Barclay's Bank PLC said in a lawsuit that the funds once held a total of about $20 billion in assets.

Cioffi allegedly pulled the $2 million of his own money, one third of the amount he'd invested in one of the funds, before March 2007, so he could commit it to another fund he set up, said a person familiar with the investigation. The withdrawal occurred before the funds ran into trouble, the person said.

CDOs are created by packaging assets including bonds and loans and using their income to pay investors. The securities are divided into different portions of varying risk and can offer higher returns than the debt on which they are based.

The two Bear Stearns funds are part of Bear Stearns Asset Management Inc. They were the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd. and the Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd.

More Collateral

As the securities dropped in value, the funds' creditors demanded more collateral. Bear Stearns extended $1.6 billion in credit to one of the funds before seizing its assets in July. Both funds filed for bankruptcy protection two weeks after the firm told investors they would get little if any money back.

The hedge funds tried to liquidate in the Cayman Islands before a U.S. judge held that New York was a more appropriate jurisdiction, ruling they can't shield their U.S. assets from lawsuits.

Barclays PLC, the U.K.'s third-biggest bank, claimed in its lawsuit, filed last year in federal court in New York, that it was misled about the health of Bear's so-called enhanced fund.

Bear Stearns, Cioffi and Tannin are named as defendants in London-based Barclays suit. The British bank accused Cioffi of withdrawing his $2 million at the same time Bear persuaded Barclays to double its investment, according to the complaint.

The suit cites a February e-mail to Barclays in which Tannin allegedly said the fund is ``having our best month ever'' and that our ``hedges are working beautifully.''

Liquidity Problems

By then, the fund was having ``severe'' liquidity problems, said Barclays, which said it lost ``hundreds of millions of dollars,'' as a result. Internally, Cioffi and Tannin discussed the ``wipe out'' of the fund, according to the complaint.

Prosecutors relied on e-mail in another high-profile case. Former Credit Suisse Group banker Frank Quattrone was accused in 2003 of hindering the government's probe of Zurich-based Credit Suisse. The chief piece of evidence was an e-mail Quattrone wrote advising employees to ``clean up'' their files. Prosecutors said he sent the message, suggesting subordinates destroy records, after learning a grand jury was probing how Credit Suisse doled out shares in initial public offerings.

The government dismissed the case against Quattrone in August 2007, after one jury failed to reach a verdict and a second jury's conviction was overturned by an appeals court. Quattrone said in March that he is starting his own firm focused on technology companies.

Elizabeth Ventura, a spokeswoman for New York-based Bear Stearns, didn't return a call seeking comment.

The case is U.S. v. Cioffi, U.S. District Court for the Eastern District of New York (Brooklyn).

It's about time those bankers started doing the perp walk, hopefully, it'll soon be a perp parade.

[Einhander Sn0m4n]

Good, I hope the bastards swing from a lamp post before all is said and done. The banks literally cannot function at all without extremely strongly-enforced regulation. Deregulating the banking industry is exactly the same thing as deliberately stealing from the poor and giving to the rich, thereby crashing the economy. There is no distinction.

What's even worse is when the fat fucks start driving up the price of oil and food with speculation, thereby directly killing people through hunger and unaffordable cost-of-living. That deserves the Death Penalty.

[bobalot]

There is speculation, but thats not the primary driver of oil prices. Stagnating levels of production and rising demand is.