Bear Stearns...

vimothy

yurp
What caught your eye - the bit about how the debt isn't guaranteed?

Yeah, and the fact that it was a Lehman Brothers analyst who asked about it.

These do seem a bit weird, there was a brief mention of a couple of pissed off shareholders in one of the articles but I'm surprised they aren't making more racket - can they stop it?

Don't think so (I mean, it's obviously not a "fair" price for shareholders, and you'd hope that JP Morgan wouldn't have bought the bank if it was), but I suspect they have other plans. JP Morgan have $5bn + set aside for "litigation".
 

IdleRich

IdleRich
"Lehman Brothers analyst who asked about it."
OK, wondered if that was what you meant as well but I don't think you can read too much into it, I mean, is that guy really going to be sounding out the situation for Lehman? I guess it's possible, who is the guy, how important is he?
 

vimothy

yurp
OK, wondered if that was what you meant as well but I don't think you can read too much into it, I mean, is that guy really going to be sounding out the situation for Lehman? I guess it's possible, who is the guy, how important is he?

No, I agree -- not worth reading anything into it.
 

vimothy

yurp
"Our liquidity position has been and continues to be very strong," Lehman Brothers said in a statement.

Well, in that case... short 'em or sell quick!
 

IdleRich

IdleRich
"Think that they were pretty much told to buy Bear Stearns by the Fed...?"
Not such a bad thing to be told really considering that every other banking stock has sunk like a stone and JP Morgan are the highest climbers...
 

swears

preppy-kei
I don't understand any of this stuff, to be honest, and I'm hardly alone in this. It's so far removed from what most people actually do and think about on a daly basis yet somehow exerts a powerful influence on everyones' lives - it's like a bit like astrology, except actually, you know, true. Weird.

Doesn't it all boil down to the fact that people running businesses and individuals purchasing things from said businesses will have less credit available to be able to do so now? Less buying of consumer goods, less jobs, less investment: a vicious circle of everyone getting poorer and poorer? While still having to pay back all the cash borrowed in the boom years?

Correct me if I'm completely missing the point, anyone.
 

IdleRich

IdleRich
"Doesn't it all boil down to the fact that people running businesses and individuals purchasing things from said businesses will have less credit available to be able to do so now? Less buying of consumer goods, less jobs, less investment: a vicious circle of everyone getting poorer and poorer? While still having to pay back all the cash borrowed in the boom years?"
Basically that's what people think the upshot is likely to be, yes.
 

vimothy

yurp
Doesn't it all boil down to the fact that people running businesses and individuals purchasing things from said businesses will have less credit available to be able to do so now? Less buying of consumer goods, less jobs, less investment: a vicious circle of everyone getting poorer and poorer? While still having to pay back all the cash borrowed in the boom years?

Also, add the possiblity of global financial meltdown... :eek:
 

luka

Well-known member
i know this is not really relevant but i was reading those pound on money pamphlets and other things and ezra pound is always going on about how banks create money from thin air. then i was reading the thing vimothy linked to, how banks work and it says there

nowhere in this exercise does the bank "create money." It borrows from one entity (the depositor mostly) and loans to another. It is an intermediary. Nor does the bank "multiply money." Try asking a banker, "How much money did you multiply last year?" Huh?

so what is the real true answer then?
 

swears

preppy-kei
From the beeb website:

Mr Cameron added: "Spain's budget is in balance. Germany, the Netherlands, Denmark and Sweden all have budget surpluses.

"But Britain has the largest budget deficit in western Europe. Does the prime minister now regret that we're the one country that failed to prepare for the downturn by putting money aside in the good years?"


Tory leader as europhile social democrat. lol

Gotta love this country, it's like a Tesco value version of the US.
 

IdleRich

IdleRich
Well, what people are talking about when they say banks create money is (presumably) fractional reserve banking. Basically that means a bank only has to keep a certain fraction of the money loaned to it in reserve at a given time (on the expectation that not everyone will take out all their money at once) and can lend the rest out. Say the reserve is ten percent and a bank is lent £100, they only need to keep £10 and can lend out the other £90 to someone who will spend it and give it to someone else. Say that person then puts the money in the bank again, the bank only needs to deposit £9 (10%) and can lend out the other £81 which will find its way back into the banking system and the bank can lend a further £72.90 and so on and so forth until it has lent a total of £900 with the original £100 that was deposited. Money may not have been "created" or "multiplied" but £100 has been used to lend £900 so I think he's being disingenuous to simply say:

"nowhere in this exercise does the bank "create money." It borrows from one entity (the depositor mostly) and loans to another. It is an intermediary. Nor does the bank "multiply money." Try asking a banker, "How much money did you multiply last year?" Huh?"
He's being especially sneaky with that last bit. He's just saying that because an individual banker doesn't use that terminology it means that the bank as a whole doesn't act in such a way that some people could fairly use the terms he disparages.
 

crackerjack

Well-known member
Well, what people are talking about when they say banks create money is (presumably) fractional reserve banking. Basically that means a bank only has to keep a certain fraction of the money loaned to it in reserve at a given time (on the expectation that not everyone will take out all their money at once) and can lend the rest out. Say the reserve is ten percent and a bank is lent £100, they only need to keep £10 and can lend out the other £90 to someone who will spend it and give it to someone else. Say that person then puts the money in the bank again, the bank only needs to deposit £9 (10%) and can lend out the other £81 which will find its way back into the banking system and the bank can lend a further £72.90 and so on and so forth until it has lent a total of £900 with the original £100 that was deposited. Money may not have been "created" or "multiplied" but £100 has been used to lend £900 so I think he's being disingenuous to simply say:


He's being especially sneaky with that last bit. He's just saying that because an individual banker doesn't use that terminology it means that the bank as a whole doesn't act in such a way that some people could fairly use the terms he disparages.

Pound was a Fascist advocate though, wasn't he. I thought the notion that you could print your way out of recession was quite common back then.
 

vimothy

yurp
i know this is not really relevant but i was reading those pound on money pamphlets and other things and ezra pound is always going on about how banks create money from thin air. then i was reading the thing vimothy linked to, how banks work and it says there

nowhere in this exercise does the bank "create money." It borrows from one entity (the depositor mostly) and loans to another. It is an intermediary. Nor does the bank "multiply money." Try asking a banker, "How much money did you multiply last year?" Huh?

so what is the real true answer then?

I think Lewis is a bit more on the ball than IdleRich gives him credit for. Banks are basically big piles of loans (to its customers) and debt (from other banks) and a smaller capital base (i.e. shareholder equity). Banks borrow money at one rate and lend to someone else at another, and therefore hope to make a profit. In normal times, when the economy is healthy, banks don't need large reserves because they can borrow from other banks if, say, any given depositor wants his or her money back. Banks do keep reserves ("provisions") against loss, but these are typically small because they don't earn the bank any return. The bank is expected to maintian a certain asset to capital ratio (which Bear Stearns must have fallen foul of) -- Lewis says it's about 10:1, and this high leverage is either the killer and the cream depending on how the economy's doing.

As I understand it, the banks don't create money, they borrow it to make loans to others. That's why, on a financial statement, assets = liabilities + equity.

Well, what people are talking about when they say banks create money is (presumably) fractional reserve banking. Basically that means a bank only has to keep a certain fraction of the money loaned to it in reserve at a given time (on the expectation that not everyone will take out all their money at once) and can lend the rest out. Say the reserve is ten percent and a bank is lent £100, they only need to keep £10 and can lend out the other £90 to someone who will spend it and give it to someone else. Say that person then puts the money in the bank again, the bank only needs to deposit £9 (10%) and can lend out the other £81 which will find its way back into the banking system and the bank can lend a further £72.90 and so on and so forth until it has lent a total of £900 with the original £100 that was deposited. Money may not have been "created" or "multiplied" but £100 has been used to lend £900....

Is that the right way to think about it? Someone lends the bank £100, they lend out £90 (probably more) to someone who then lends it back to the bank, who promptly lend it out to someone else. That's what deposits are, right -- liabilities?
 

vimothy

yurp
Bear Stearns financial statement

Looks like JP Morgan got a pretty sweet deal!

Market moves:

bearst.jpg


Bear Stearns trading a $5 a share. I guess people don't really believe it's only worth $2.

Felix Salmon says Lehman Brothers has recovered a bit.

Lehman Brothers say,

GLOBAL EQUITY STRATEGY
MARKETS IN “OVERSHOOT” TERRITORY - POLICY SHOULD PROVIDE A PANACEA

We suggest that financial markets are now in “overshoot” territory and are now close to the point of maximum stress.

Markets have moved rapidly to discount the possibility of a systemic financial crisis

We think the combination of an aggressive Fed, valuations as attractive as they have been in 30 years…

…and a slowing in the rate of earnings downgrades will lead markets to bounce higher very soon

For the first time since last summer, stocks have reacted more negatively than credit to policy announcements…

…we think this is a mistake and stocks should take heart from > an expected improvement in financial credit spreads​
 
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