Was Bear Stearns stock manipulated into a tailspin?
With all of those options that traded last week in Bear Stearns, many have been wondering if the firm was helped into the abyss. Apparently, now the SEC may be wondering the same thing:
U.S. regulators are investigating whether traders illegally sought to force Bear Stearns Cos. shares into a tailspin last week by spreading false information about the firm's finances, two people familiar with the inquiry said.
The Securities and Exchange Commission probe is focusing on whether hedge funds or other investors bet on a drop in the company's shares while disseminating rumors that the New York- based company was nearing collapse, said the people, who declined to be identified because the inquiry isn't public. The New York Stock Exchange's regulatory arm is also involved in the investigation, the people said.
"we cannot trust anything that the corporations, media, and government are saying about the crisis."
Every new revelation in the subprime debacle has turned out to be far worse than initially reported. That much is obvious to anyone who has followed the thing closely. But that's not to say that what happened with Bear Stearns over the past week fits the "worse than it looks" pattern. No indeed. In fact, the disintegration of
Bear Stearns
has moved the subprime debacle from "worse than it looks" to the level of "we cannot trust anything that the corporations, media, and government are saying about the crisis."
Yes, that may seem like an extreme remark. But read these comments. Then let's consider if my conclusion seems "extreme."
The corporation
"There is absolutely no truth to the rumors of liquidity problems that circulated in the market."
Public statement by Bear Stearns on March 10, 2008, as reported by The Wall Street Journal.
The media
Question from viewer to Jim Cramer, host of CNBC's "Mad Money":
"Should I be worried about Bear Stearns in terms of liquidity and get my money out of there?"
Answer from Cramer on March 11, 2008:
"No! No! No! Bear Stearns is not in trouble. If anything, they're more likely to be taken over. Don't move your money from Bear."
The government
"U.S. Securities and Exchange Chairman Christopher Cox told reporters on Tuesday [March 11, 2008] that capital adequacy at the five largest U.S. investment banks was being closely watched. 'We are reviewing the adequacy of capital at the holding company level on a constant basis, daily in some cases,' Cox said. 'We have a good deal of comfort about the capital cushions at these firms at the moment,' he said, including Bear."
Reuters news, March 11, 2008.
Okay, so does my conclusion still seem "extreme"? The entire financial establishment went on the record regarding Bear Stearns, and unanimously declared "No Problem." Within one week the firm was so bankrupt that it was bought out for $2 per share. Others folks may have a different standard than mine about "credible" sources -- I've drawn my conclusion.
Mind you, I am not saying that the people and sources above were being knowingly dishonest. What I am saying is that, in practical terms, honesty is less relevant than credibility. For all I know, a lot of smart people really did believe that Bear Stearns' $33 billion securities portfolio was sufficient collateral to meet any liquidity demands. Problem is, if lenders won't accept your collateral, and buyers won't purchase your assets... well, your collateral and assets have no monetary value.
Now those assets -- the mortgages, mortgage-backed securities, etc., etc. -- have been nationalized. Here again, "nationalized" is a strong word. But to see what I mean, you need only read as much fine print as you can get your eyes on regarding the Federal Reserve's $30 billion pledge to J.P. Morgan Chase, which took over Bear Stearns' securities. According to The Wall Street Journal:
"Fed officials wouldn't describe the exact financing terms or assets involved. But if those assets decline in value, the Fed would bear any loss, not J.P. Morgan."
And if the Fed bears a loss, guess who gets handed the bill: That would be you (and me), Mr. & Mrs. Taxpayer. Welcome to the subprime debacle.
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"5) Någon visste något????????Någon köpte 55.000 kontakt Bear Stearns puts 30 strike med 20:e mars lösen för 15 cents så sent som förra veckan. Det blev en ganska bra affär." // Finansblogg
|StRY| "Caveat emptor. Buyer beware."