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Bear Stearns? More like Bear Shit. It's financial meltdown time!
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Trickle down
This could be very bad. And I don't like that the fed got involved here, but Bear selling its stocks at $2 a share to JP is hardly a bailout. Thats like a 98% loss from its value last year.
This is my question too.
My wife and I have a mortgage and we make enough money to live fairly comfortably. Neither of our jobs are in jeopardy.
We don't have any "investments" other than our 401ks which we won't touch for about 35 years.
We don't have any high interest debt.
Forgive me but I never took any economics classes in college so I'm kind of ignorant about this whole thing (which is probably why we don't have any stock market investments).
BONUS question: I've never understood what it means when "the Fed lowered the interest rate." On what?
The fucked up thing is that $2 a share is greatly overpriced...
It's the percentage charged to banks which borrow money from the Fed. So a cut from 3.5 to 3.25 means that it the interest charged is lower, providing a higher incentive to borrow.
Interest rates are a standard fee you pay for borrowing money - Fed set interest rates are a basic level on which other interest rates are calculated (ie how much your bank is willing to give you in interest rates depends on how much they are having to pay the Fed - it becomes a chain reaction).
High interest rates (ie you have to pay a lot to borrow money) therefore discourage borrowing.
Low interest rates (ie pay less to borrow money) encourage borrowing.
So when the Fed lowers the interest rate, they are encouraging people to borrow money and thus (presumably) spend it, rather than saving it. This is intended to stimulate economic performance by encouraging consumer spending, namely keeping demand high to ensure supply follows suite.
.....
As to your first question, that's way too complex certainly for me to predict, and I suspect most people who say they have a firm answer are lying or stupid.
I don't think anyone is seriously worried about an actual crash of Great Depression proportions. But a lot of folks are going to lose money today and it will no doubt trickle down to us non-billionaire plebs. I think maybe that's what most folks are worried about when it comes to a major investment bank going under like this.
Eh, anyway, the market is actually up from the open, so maybe it's not as bad as everyone thought.
"No.. I was wrong. This must be what going mad feels like."
My vote goes to something along the lines of "Everything is OK, pay no attention to the man behind the curtain."
EDIT: Looks like it was "Heck-of-a job, Paulson." Goddammit.
Probably, but on the plus side for JP the real estate that comes with the sale is worth more than the company.
Not that they care much, they definitely won't be using the Bear building.
The company itself is worth essentially zero. Their assets are their real estate, their office equipment, and their human capital (which was clearly overrated).
As I'm sure you know though, the problem here is, unless that building is worth somewhere around 40 billion, JP is taking a massive massive loss on this buyout.
What I don't get right now is that Bear is selling at nearly twice the price (3.70ish a share at the time of this writing) of the buyout right now. How is that possible? Are investors just dumb or is there some weird economic maneuver I'm not aware of here?
"No.. I was wrong. This must be what going mad feels like."
Retarded traders.
And yeah, this is definitely a charity case on JP's part. They're probably the only one with the size to take the hit at this point though, since they didn't have much exposure to sub-prime. Dimon understands that letting one of the bulge banks crash and burn with no assistance owuld probably be worse for his business than them doing this.
The rest seems like business as usual.
What's the fuss?
It's the degree to which the Fed is involved which, in part, makes it a pretty big deal. Such involvement is highly unusual.
While I don't dispute that, I fail to see how the sky is falling.
The fuss, I guess, is that a major investment firm just went belly up and even if the market doesn't crash majorly at some point in the next day or two, we're certainly gonna be feeling the effects of this for a while. Fear is a major factor in the markets and, well, it'd sure as hell scare me if a major firm went under so fast like Bear did. Additionally, there's rumblings of more of these firms going down soon as well.
It may not mean much to the average joe at the moment, but you'll be feeling it in your wallet sooner or later.
Then again, who knows, investors are the ones who will decide here over the course of the next couple weeks.
Right now, it really doesn't look terrible at all, so here's hoping..
"No.. I was wrong. This must be what going mad feels like."
I doubt JP will take a loss in the end. The only problem with their situation is its difficult to value the securities they bought. on the upside the fed guaranteed those securities, if I understand it correctly. Their share price is reflecting this (up around 7% last I looked). The reason they paid less than the value of their office building and stuff is the liklihood BS will be sued, thus JP will be sued as they agreed to take on legal responsibilities as well. But you see, in a few months when the market has recovered this will be a great bargain.
I mean, the global market is self correcting... it just takes some time (help from the fed speeds things up).
My parents, my sister's family, and my family are all pretty well entrenched in the markets... it's just the way life is if you're not going to own a business, luck into O&G reserves or other minerals (we have those, too), or be a land baron these days. We've taken a couple of hits recently, but it's not so bad since I told them a few years back to not leave everything in the US and not to invest in things that weren't "real" real estate, to keep long-term investments into institutions with real assets, to not be shy of investing in real commodities, and to step back when something in the market is "soaring" and ask "what the fuck is going on here, this doesn't seem right" rather than just get on the party wagon. You may lose an opportunity, but it kept my family out of Bear Stearns and Countrywide.
"Play money" can go into "finanical gambling", but never forget that you're gambling, and don't be pissed when you lose. I think that's where a lot of folks get caught. They make a little, and then they make more, and more... and then they decide to go all in on "the next big thing" and then end up tanking. They also don't know how to analyze the markets... which isn't as easy as just listening to Jim Cramer scream.
It would seem so, because these financial problems are likely going to cause the US dollar to tank even further, which generally causes gold to go up.
On the other hand, the US dollar has already tanked a lot, and gold has increased in price drastically over the past few years. It seems that its a bit pricey at the moment to buy, and I dont know if it could suddenly drop in price for some reason.
Thoughts?
All I can say is "Ha ha, cock".
Now, if only Soros was somehow caught up in this mess than it'd be a perfect day.
I made a game, it has penguins in it. It's pay what you like on Gumroad.
Currently Ebaying Nothing at all but I might do in the future.
Doesn't mean the sky is falling. It just pisses me off.
A couple of years ago, yes. Now, it's kind of high. However, it is gold. It will always be there, especially because of the industrial applications.
Gold's real, real high ($1,000/oz). Not as high as it was in the 80's (adjusted for inflation, like $2,000), but high none the less. I lack the education and facilities to prognosticate on these kind of things, but if you think it can get higher, buy.
No.
First of all because it's just going to depreciate the way our money keeps tanking, and secondly because if you have some spare cash, now is a good time to invest in stable markets while the chicken littles are running around scared.
This. This so hard.
Rule #1 of investing in markets - Investing in the stock market (at least in "big thing" stocks) is akin to going to Vegas. Absolutely, positively do not walk into the casino with any money you are not prepared to lose. Economies move in cycles, they can't always be going up. A lot of people were fucking stupid and didn't take time to analyze the market, went all in, lost a lot of money, hurt the economy, and Jack and Jill Taxpayer get to bail them out. Yay economic deregulation.
(Rule #2 would be diversify, rule #3 would be think long-term growth.)
I'm fairly certain I know people that went from my old company to Bear Sterns. I just can't remember who.
I see this argument a lot, and I understand to a certain extent. But really, the fed rarely loses money. In 1987 when the fed bailed people out during that collapse it bought a lot of things. Once the market recovered it sold those things. Kind of by definition that means it bought low and sold high, so it made a nice profit.
the 1987 crash was one of the best buying opportunities in the history of the US stock exchange. In a few months its likely this whole thing will be considered a great buying opportunity, of course only if you know where the bottom is.
If the fed bails someone out and then the market ends up failing anyway, there's a much bigger problem then the federal government losing a few billion dollars.
Personally, I think gold has been overvalued for quite some time, and is due for a crash in the near future. However, it hasn't happened yet, and lord knows my crystal ball is far from perfect.
I don't think gold is going to "crash" but I wouldn't buy right now.
I wasn't actually talking about this specific bank going down, but more the general overstretch of the financial sector which looks like grinding abruptly into reverse over the next year or so.
Capital investment is seen, rightly or wrong, as an indicator of general economic performance in the US & similar markets (UK, EU, bits of ASEAN). So yes, it has a lesser effect on consumer spending, but the assumption is that if the conditions are right for spending & borrowing at the top of the pile, the same applies to the bottom of the pile.
Yeah it seems unlikely to crash while the US dollar is so shitty, and lord knows thats not going to be improving anytime soon (yay enormous deficit).
I am interested in buying something though, namely something that I can physically have in my possession. Gold is kinda the default for this, buy buying things while they are at record highs seems to be questionable at best.
But holding onto a stack of currency doesn't seem so promising at the moment. I have Canadian dollars, which are unlikely to tank the like the USD, but it now seems likely they'll take a bit of a hit. I'd really like to be able to hold onto some resource that will maintain its value (it doesn't even have to increase, I mostly just want something stable).
Any suggestions? As well I could use some links where I can get the value per unit of mass of various precious metals, I'm looking at gold right now but I'd like to get them all from the same site. [edit: well I found price listings, prehaps more useful to me would be sites where I can get charts of the prices of these metals back over the past few years]
Seriously though, it kinda looks like things are moving upwards. At least Lehman Brothers isn't as boned as it looked to be earlier this morning.
Short term savings, not looking past 5 years in the future, small quantities (not more than a couple grand, and thats the extreme max).
My dad has been into gold for years, I should have been paying more attention.
If any other bulge banks go out, it's going to be Lehman. I would not own their stock right now.
I dont know what liquid means in this context, but I'd be looking for an actual resource that I could get in my possession, instead of just a piece of paper.