Archive for March, 2008

 

Happy Vernal Equinox

Thursday, March 20th, 2008

I think it’s on the 20th this year due to leap year.

BOSTON — Thursday marks the beginning of spring. The vernal equinox occurs “egg-xactly” at 1:48 a.m.

Every year on this date we hear about a magical property that allows eggs to be balanced on end. To be honest, I remember as a kid getting a couple of eggs on this date — and with my brothers — spending what seemed like hours trying to balance an egg on its end.

Don’t bother. It’s an old wife’s tale.

 
 

Bear Stearns Being Investigated

Thursday, March 20th, 2008

I caught this over at Drudge. Frankly, I didn’t think it would really happen:

NEW YORK (Reuters) – The Securities and Exchange Commission is investigating the events leading up to the collapse of Bear Stearns (NYSE:BSC – News), specifically a surge in options contracts betting that the investment bank’s share price would fall sharply, according to the Wall Street Journal

Citing people familiar with the matter, the paper reported the SEC probe focuses on a surge last week in “put” options that came days before the firm’s proposed sale to J.P. Morgan Chase & Co. (NYSE:JPM – News) for stock now valued at about $278.5 million, or $2.32 a share.

A put option allows the buyer of the option the right to sell a certain number of shares in the company at a specific price within a set time.

I really hope someone goes to jail over this.

Previously: Bear Stearns Pump and Dump

 
 

Reader & Short Links

Wednesday, March 19th, 2008

It’s been a while since I did one of these. Here goes:

That’s it.

 
 

What Cramer Meant

Wednesday, March 19th, 2008

So there seems to be some confusion about what Jim Cramer meant when he said it would be ridiculous to pull your money out of Bear Stearns. Did he mean that Bear Stearns was a stock that you shouldn’t dump, or that your money would be safe in Bear Stearns investment accounts. He claims the latter. Don Harrold begs to differ:

 
 

Limbaugh – Shark – Jump

Wednesday, March 19th, 2008

Rush Limbaugh jumped the shark today.

 
 

Bear Stearns, Japan 1997, and Pump and Dump

Wednesday, March 19th, 2008

Eric Janszen over at iTulip has a great post recounting the history of the wind-down of Yamaichi Securities Company in 1997 compared to the wind-down of Bear Stearns in 2008. And he gives us some cause for optimism:

In summary, during the early stages of the debt deflation and its impact on the US financial sector the US policy response is showing itself to be in critical ways healthier than under the Japanese institutional and policy framework. More rapid market clearing implies a shorter period of uncertainty when the question of who’s solvent and who isn’t lingers. That in turn implies a more rapid return of confidence in the remaining firms, a shorter credit crunch, and a more rapid return to normalcy within the US credit system.

And pessimism:

On the other hand, the willingness of US policy makers to pursue policies that result in the rapid decline in the exchange rate value of the dollar reflects an outmoded American belief rooted in the pre-European Union era and before the rise of Asia as a powerful economic trade block. In an earlier era of US global economic dominance US policy could reflect the belief with respect to its trade partners that “the dollar is our currency but your problem.” This may have been viable, although never moral, before the rise of Asia and increased trade among Asian nations as well as between Asia and Europe, but has not been true for at least ten years. If the US persists with its policy of depreciating the dollar to maintain GDP growth via exports at the expense of its trade partners we can expect the process of decoupling of trade from the US to accelerate, a trend that is already in progress.

But one thing that didn’t happen during the Japanese bailout (so far as we know) was a pump and dump scheme to defraud shareholders on the part of management [emphasis mine]:

There was massive buying of near term puts days prior to Bear Stearns crash.

Why would anyone buy the right to sell a company’s shares at 5 or 20 when the stock is trading at 57 or 62, especially when the options were to expire in 7 days? Thehe answer is that they knew it was going to crash and were trading on inside information – which is a felony under SEC Rule 10-b-5 and various state criminal statutes.

Below is a list of the volume and open interest in the March out of the moneys. Some of the series were opened for trading for the first time on March 14, 2008. Why the exchanges opened the series a week before expiration is puzzling. Actually I know why but I have not confirmed it sufficiently.[...]

In summary, we find massive volumes in the soon to expire March put options. It began in the Marches on the 10th and continued through the day of March 14, 2008. The open interest in the options on the close of March 14 can be estimated by adding the open interest on March 17 to the volume that same day March 17. I would say that, given the massive volumes of March puts traded between March 10-14 (March contracts for a total of 200,000 to sell 20 million shares traded on March 14) followed by the crash of Bear Stearns on the 14 and 17 and large volumes in puts other than the March options, that this is the worse case of insider trading in the history of the world.

Now comes the question of whether the SEC, the Exchanges and the Justice Dept will in fact prosecute those insider traders.

Their profits should be seized immediately and forfeited.

The beginning of the massive volumes on March 10, 2008 and continuing through March 14 also indicates that the bad news about the stock possibly going to two was being negotiated. This was contrary to statements being made by officials from Bear Stears.

But that’s not all. The more I think about it, the more this deal stinks to high heaven.

So consider this: Bear Stearns faced liquidity issues because the principle assets they were borrowing against, mortgage backed securities, had dubious value due to the higher than anticipated rates of non-repayment. Moreover, Bear Stearns foolishly repeated the mistake of the S&L’s, matching long term assets against short term borrowings. This meant that when it came time to refinance their debts, they couldn’t do it at a rate low enough to make a profit. Not that rates went up, but the rates being demanded of borrowers went up, because of the dubious value of the collateral.

So the weak link at Bear was the mortgage backed securities. Bear couldn’t borrow any more money, but JP Morgan could. So it’s understandable that Bear would sell out to Morgan. And it’s understandable that Morgan would need some guarantees to insure against the potential further collapse in value of the mortgage backed securities. But my question is, with that guarantee, who did Morgan get to pay such a low price for Bear? The stock was trading, I believe, in the $30 range on Friday. So why did Morgan, with a free guarantee from the Fed, get to pay only $2/share for Bear? Didn’t that, in essence, rip off all of Bear’s shareholders? Shouldn’t Morgan have paid more for the stock than what it was trading at, given the guarantee from the Fed? What am I missing here?

I STILL think that if the Fed was going to offer guarantees to Morgan on Bear’s assets, that they should have demanded that management pay back the last few years’ bonuses. And some sort of investigation for criminal malfeasance is warranted (not to mention insider trading).

Read further thoughts from Holman Jenkins.

 
 

Safari 3.1

Tuesday, March 18th, 2008

Apple released Safari 3.1 today:

Safari 3.1 is out. Web Kit additions include support for local (i.e. not over the network) SQLite databases, CSS 3 web fonts, CSS transforms and transitions, and the new HTML 5

That last part is huge, and is intended to be an Adobe FLASH killer. I expect YouTube to announce their support for these new tags relatively soon, once enough downloads of the new Safari have taken place.

More here.

 
 

Bear Stearns

Monday, March 17th, 2008

I feel tired and awful even having to blog about this, but I will. So Bear Stearns was sold to JP Morgan Chase last night (Will they now be called JP Morgan Chase Bear Stearns? Or will it be JP Morgan CBS? Or maybe they should just go all KPMG style and call themselves JPMCBS…) for an absurd price of $237 million. Oh, but of course, that’s backed up by Federal Reserve guarantees of $30 billion.

This is getting ridiculous. Surely, we’d be better off letting them fail, right? Or at a minimum, if the Federal Reserve (that’s you and me folks) is going to offer guarantees like this, perhaps we ought to have asked a few questions:

  • How many Bear Stearns executives will be returning their bonuses to the company as a result of their malfeasance?
  • Have bonuses been reduced at all? Is the executive leadership team taking salaries? Will they be getting severance? How much will they be returning to the company they helped bankrupt?
  • Was any of this negligence of a criminal nature? I think a full government sponsored audit should be in order here.

And then there’s Adam Shostack’s wry observation:

Apparently, Bear Stearns owned less of the risk than the Fed. I wonder when the Fed knew that? According to the same New York Times story, Bear Stearns has known it all along:

“Even up until last week, Alan “Ace” Greenberg, Bear Stearn’s chairman for more than 20 years and a champion bridge player, still regaled its partners over lengthy lunches about gambling with the firm’s money in its wood-paneled dining room.”

The firm’s money, indeed.

I’m enraged. And we’re lowering rates again this week. When does it end? Are we going to let any bank take a loss on these mortgages, or are we going to let every single bank refinance with the fed and skip along their merry little ways?

Read also today’s WSJ.

 
 

Mac Question

Monday, March 17th, 2008

So my iBook turned itself off last w2eek, and it won’t turn itself back on. SO I took it into the genius bar and they said that it seemed to be a logic board failure. They said that Apple has a program where they will fix everything wrong with a laptop (that shows no signs of physical damage) for a flat $300. That comes with a new 90 day warranty.

So my first inclination was to say screw that, I’d rather not throw good money after bad, I’ll just get a new laptop. The guy at the genius bar asked me about my data on the machine, and explained that while they move data from a working machine to a new one for free for any new purchase made at the store, they need to charge to move data from a non-working machine. I had thought that all my data was backed up via duover, but it appears that my wedding and honeymoon pictures are not backed up. So I’ll need to get those off the machine at the very least.

I neglected to price out what it would cost to have them move the data from the dead iBook, so coming out with a price comparison is difficult. Part of me thinks that for whatever it’ll cost to get the data moved, it’ll cost only marginally more at best to send the laptop int o be fixed, and therefore, I should just do that. But I really don’t know. I am beginning to get a little frustrated with my iBook. It’s a g4, and it’s just slow at things like ripping DVDs , and it can’t play new games like Civ IV (if that can even be considered new any more). So I want a new machine, but I was thinking (hoping?) to wait until Apple put BlueRay into their laptops before getting a new one. OTOH, given that Apple just upgraded their laptops, now would be a good time to buy.

So what do you think? I’m open to any and all suggestions.

 
 

Slip Inside This House

Friday, March 14th, 2008

I’ve been obsessing over the song, Slip Inside This House by the 13th Floor Elevators for a while now. Check out the lyrics.