BEAR STERNS GONE!!!! Are We Heading Toward a Global Depression?

[Commercial Dan]

As a few will now know, Bear Sterns, the 5th largest investment bank in the USA is no more. Will there be more? Is this the tip of the iceberg?

This is big, there will probably be at least one more that falls, many are saying Lehman Brothers is even more exposed to the subprime mess.

Are we heading toward a Global depression?

[essence]

A Global Depression?

I'd say more than likely we are looking a a "WESTERN" depression. Yes, China will be affected to a certain extent, but given that their economy is in a huge growth cycle, I believe they have enough internal money to be self-sustaining. They may slow down somewhat but go into a depression, I don't think so.

[mlkmnz]

I'd say more than likely we are looking a a "WESTERN" depression. Yes, China will be affected to a certain extent, but given that their economy is in a huge growth cycle, I believe they have enough internal money to be self-sustaining. They may slow down somewhat but go into a depression, I don't think so.

China have a lot of cash reserves yes. But don't think that will insulate them from a massive downturn in the west given they have $500 billion plus PA reliant on exports to the west, and the US in particular holds a lot of debt from China.

Someone needs to buy all the cheap crap they're flogging.

[captaincrab]

CD, well gone to JP Morgan really..

http://biz.yahoo.com/ap/080314/fed_credit_crisis.html?.v=20

Still recession is here probably for US, NZ, UK, Spain, Italy and a few more.

[donna]

Last week, the Fed announced an industry-wide rescue package that would provide as much as $200 billion in loans to banks and investment houses and allow them to put up risky home-loan packages as collateral. It was the Fed's latest effort to stem a global credit crisis that began last August with rising loan defaults for subprime mortgages, loans provided to borrowers with weak credit histories.

Not a bad effort aye!

Cheers,

Donna

[Gatekeeper]

$2 a share Down from US$160 last year.
Wonder what value that puts on a lot of other banks shares.

Of course JPM used money from the Fed cash discount window to purchase, no doubt with lots of guarantees behind it.
Covert nationalisation!
Everybody holding USD ends up paying as the USD crashes.
What free market??
I warned of this last week. Still a long way down yet!

[Commercial Dan]

A lot more to come, it ain't over yet!

[Davo36]

I wonder if the boss's at Bears Stearns got a golden handshake? Turned an $18 billion business into a $200 million business! You have to laugh really.

It was all built on greed and now the US taxpayer is bailing them out.

I too think we're only seeing the early stages of this.

David

[Gatekeeper]

December 19, 2007, 6:37 am
Bear Stearns’ bonus breakdownTop execs at Bear Stearns (BSC) are taking their lumps after a lousy year at the big brokerage firm. The Wall Street Journal reports that CEO James Cayne and other high-ranking officials will forgo their bonuses after the firm posted huge losses tied to the collapse of the market for subprime securities. That’s a refreshing change at Bear, which generally hasn’t distinguished itself during this year’s mortgage mess. Ralph Cioffi, the fund manager who led two internal hedge funds that collapsed this summer under the weight of bad bets on mortgage bonds, recently left the firm under a cloud. Prosecutors are probing his decision to yank $2 million out of one of the troubled funds just months before it imploded, the Journal reports.

It’s not clear how deeply bonuses will be slashed for others at Bear, but the outlook can’t be pretty given that the firm has made most of its money in recent years in the fixed-income markets that have swooned so drastically in 2007. Earlier this week, Merrill Lynch moved to slash bonuses for some bond desk employees by as much as 80 percent – though some readers contend a 100 percent decline might be more appropriate. Just how bad Wall Street’s pain will be should become clearer Wednesday, when Morgan Stanley (MS) is due to post fourth-quarter numbers, and tomorrow, when Bear unveils its own ugly quarter.

A third of Bear Stearns was owned by their employees by way of shares.
Oh well! They still get $2.

[Volatile]

I hope it all falls to bits. To many people have been living beyond their means for to long. I'll be waiting right here to pick up the pieces.

[Glenis]

James, If we go into a true 1930's type recession you're not likely to be quite so blase. 9,000 banks in the US failed during the Great Depression - many recalled loans (ie your mortgages) which people couldn't repay in the short time given and they ended up on the street. Incomes dropped 20-50%. Banks stopped lending because people couldn't afford the debt - how many properties will you buy with cash? Assuming your bank doesn't collapse and leave you with nothing. The depression lasted about 8 years until WWII .

[Austrokiwi]

The dreaded "D"

Its really too early to speculate on depression. A few commentators have gone that far and I think it is irresponsible. The markets, finance, insurers, and bankers are suffering and currently emotion rather than facts seems to be the main decider on actions. A depression would be catastrophic for all. I don't think it is possible to call such an event yet, given the exuberance leading up to this year means there has to be some shaking our of risk, but all going well once the bottom lines have been confirmed the world can get on with the business of living and trading. I do believe Banks may come calling on those who are highly leveraged but I do not think they would be silly enough to strangle the economy as happened in the 1930s. More likely those who have no equity and no way of building equity will loose their homes/IP but those with a reasonable amount of equity the banks, at the worst, will restructure the debt if the "R" starts tracking down the Alphabet towards D.
I am sure there will be a few more banks hitting the wall but that is capitalism. It will be interesting to see if the Aussi banks and insurance firms have taken some heavy hits.

[Volatile]

James, If we go into a true 1930's type recession you're not likely to be quite so blase. 9,000 banks in the US failed during the Great Depression - many recalled loans (ie your mortgages) which people couldn't repay in the short time given and they ended up on the street. Incomes dropped 20-50%. Banks stopped lending because people couldn't afford the debt - how many properties will you buy with cash? Assuming your bank doesn't collapse and leave you with nothing. The depression lasted about 8 years until WWII .

Everything comes in cycles. We have had years of stellar growth...you know what comes next. The situation you described wouldn't surprise me and is not unreasonable given 10%-20% PA growth of the last half decade.

[Glenis]

What worries me is the amount of debt the US is holding, trillions and trillions. It's all very well to bail out the banks/investment companies but where is that money coming from, certainly not US surpluses. Sooner or later someone will say 'enough' and then what happens?

[Gatekeeper]

I read yesterday that the US Fed has 800billion and 400billion has already been traded with banks (for dubious mortgage paper) through the discount window.

Personally I don't think they can work their way out of this one. They can try and let it down as gently as possible. The direction is down, as all that funny money is destroyed.

If mentioning the "D" word scares people. Good! Nothing else seems to have worked to get people to live within their means. Resources are precious and shouldn't be wasted.