Stocks Tumble On Plan To Aid Bear Stearns

Ailing Investment Bank Gets Financial Lifeline, But Move Troubles Investors About Overall Credit Woes

(CBS/AP)  Stocks have suffered another big drop Friday after The Federal Reserve invoked a rarely used Depression-era procedure to bolster troubled Bear Stearns Cos., touching off concerns about the severity of the credit market's overall troubles.

Friday's plan by the New York Federal Reserve and JP Morgan Chase & Co. offers Bear Stearns relief from a sudden liquidity crunch that analysts surmised could have felled the investment bank. But the company's position on the precipice of financial disaster has left many investors shaken and spoils some hopes that the moribund credit market is on the mend.

The Dow Jones industrial average has closed down about 194 points at the 11,951 level.

The action won praise from the administration, with President Bush saying that Fed Chairman Ben Bernanke was "doing a good job under tough circumstances."

Bernanke, delivering a speech later Friday, told a housing group he had had a "busy morning." He did not elaborate on the Fed's action regarding Bear Stearns.

"The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system," the board said in its statement. It said members had voted unanimously to approve the arrangement, announced by JP Morgan Chase and Bear Stearns earlier.

Delivering a speech on the economy in New York, Bush voiced confidence in the Fed's actions to aggressively cut interest rates and the Fed announcement last week that it would supply up to $200 billion in loans to cash-strapped financial institutions.

"It was a strong action by the Fed and they did so because some financial institutions that borrowed money to buy securities in the housing industry must now repair their balance sheets before they can make further loans," Bush said. "Today's actions are fast moving, but the chairman of the Federal Reserve and the secretary of the treasury are on top of them and will take the appropriate steps to promote stability in our markets."

The investment bank, set to report earnings next Wednesday, was the largest underwriter of global mortgage-backed securities in 2007 and second only to Lehman Brothers in U.S. mortgage-backed securities, reports the Wall Street Journal.

CBS News anchor Katie Couric reports that there had been whispers of trouble at Bear Stearns - Wall Street's 5th biggest investment bank - for weeks. By Friday's opening bell, it was a full blown alarm: the 85-year-old investment bank was on the brink of a liquidity crisis.

"The danger of Bear Stearns having a liquidity crisis," Morningstar's Ryan Lentell told CBS News, "is that they could quickly be out of business."

Bear Stearns is heavily invested in complex financial instruments tied to risky subprime mortgages. As fears grew that the value of theseinvestments could plummet, other firms stopped pumping new money into Bear Stearns - or they cashed out.

The plan announced Friday will supply secured funding to Bear Stearns for an initial period of 28 days, seeking to provide short-term relief for the investment bank.

Senior Federal Reserve staffers said the arrangement allows JPMorgan Chase and Co. to borrow from the Fed's discount window and put up collateral from Bear Stearns to back up the loans.

"If they hadn't," said Harvard Business School professor Samuel Hayes, "this would have been a domino which would have probably caused other firms to go under as well."

JP Morgan, a bank, has access to the discount window to obtain direct loans from the Fed, but Bear Stearns, an investment house, does not.

This type of procedure, Fed officials said, dates back to the Great Depression of the 1930s but has rarely been used since that time.

In his speech, Bush said the administration had a plan to deal with the problems in credit and housing markets and said he opposed a number of measures pending in Congress to go further by allocating billions of dollars to purchase abandoned and foreclosed home and changing the bankruptcy code to allow judges to adjust mortgage terms.

However, Senate Banking Committee Chairman Christopher Dodd, D-Conn., said the problems at Bearn Stearns, one of the country's largest investment banks, highlighed the need for more aggressive efforts.

"Instead of cheerleading and reacting with tepid measures, the administration should act boldly and decisively to prevent the looming foreclosure crisis from having catastrophic consequences for our economy and our markets," Dodd said in a statement.

Treasury Secretary Henry Paulson praised the Fed's leadership and said that the country's financial system would be able to weather the problems.

"As we have been saying for some time, there are challenges in our financial markets and we continue to address them," Paulson said in a statement. "This is another challenge that market participants and regulators are addressing. We are working closely with the Federal Reserve" and the Securities and Exchange Commission.

Paulson said he appreciated the leadership of the Fed "in enhancing the stability and orderliness of our markets."

The action by the Fed board in Washington represented an endorsement of a rescue effort for Bear Stearns that had already been arranged by JPMorgan and the Federal Reserve's New York regional bank.

It was seen as a last-ditch effort to save the investment bank, which on Friday acknowledged its serious financial problems after a week of denials.

JPMorgan Chase is providing an undisclosed amount of secured funding to Bear for 28 days, backstopped by the Federal Reserve Bank of New York.

The Securities and Exchange Commission issued a statement saying it has been "in close contact" with Treasury, the Federal Reserve and the Federal Reserve Bank of New York during discussions concerning an agreement by J.P. Morgan Chase & Co. to provide a secured loan facility to The Bear Stearns Companies.

But Couric reports, the financial rescue did nothing to keep Bear Stearns stock from falling more than 40 percent today, with one stock analyst predicting it could soon be worthless.

"The difficulty in a relationship, even in a financial relationship, trust is very important," UBS Financial Services' Arthur Cashin told Couric. "And when trust is shaken, it takes a while to get it back."

[gkc99]

So an individual misses a credit card payment, and by "universal default" so beloved by the credit predators, all the interest rates shoot up to 35%, guaranteeing the borrower will never be able to pay.

Response of Repugniscum Bushits: "Too bad".

An individual is sucker punched into a mortgage with monthly payments escalating like a Scud missile at launch.

Response of Repugniscum Bushits" "Tough *******".

A huge Wall Street investment firm makes really stupid, bad loans so some fatcat executives can get $100 million bonuses, then falls on its face due to its own mismanagement.

Response of REpugniscum Bushits: "Oh you poor dears, we''re sorry you got hurt, here let us send you billions of other peoples dollars so you can keep on living the fatcat lifestyle and donating to the RNC Bushits! How much do you need, little darlings?"

Might be time to dump the Repugniscum Bushits!

[gkc99]

Sure is funny how the Neoconscum and the Bushits love to pimp for those welfare hos at B.S.

Another example of Repugniscum Welfare for the Wealthy.

Gotta bail out Bushit''s Billionaires. Dik Cheney might have an investment in B.S.

[Latrocinor]

We can complicate the truth and try to lie about the cause, but much of Wall Street is in similar shoes; investment banks are over-leveraged and into very risky bets. And when people lose confidence and want their $ it''''s going to look a lot like 1929!

Posted by gce65 at 11:44 PM : Mar 15, 2008
-----------------------------
Bear gets bought out at a bargain price and stays in business and the people wonder what happened?

[payasyougo]

What we need is a system where people are qualified to buy what they can afford. That qualification should include some savings for a down payment and a debt to cash flow ratio that will not strap the buyer. This would be a system where you don''t get what you want now and have someone else pay for it later.

[tomtomasters]

They need to enact The 2 loan Mortgage policy to separate housing from the work place economy. The work place economy is too volatile to expect a home mortgage banking system to remain stable and secure. When people get loans for a home they get 2 loans. One loan pays for the house; the other loan is used to make payments on the 1st loan and itself, until the money runs out. By that time credit history is established to be able to take out another loan to replace the 2nd used to continue making payments. This process goes on until the house the paid, leaving a secure housing market. The 2nd loan that still has payments left but is a smaller principal is paid via the same process until the loans are paid. It will work because people can then deduct the interest from their taxes each year, not on one loan but from two, providing more liquidity to them to make payments on time.

[tomtomasters]

It is the same principal as borrowing from Peter to pay Paul. The rules of equity holding changes more toward Credit Value Worthiness and Credit Appreciation, meaning homeowners stable pay back earns them the ability to secure higher value loans or increases their Credit Appreciation. Banks are in the Business for loans and having stable paybacks. Equities provide no such leverage, because often equities are false from speculative appraisals. They could be worth more or really less, since age devalues property. Bernake and Paulson need to learn that Banking is about Credit Worthiness and when earned it increases Bank Credit Appreciation. This is what makes Bank more valuable to the people who use the banks instead of the false equities banks think they own. Clearly they are losing in the present scheme, and is the clue that Equity holdings is a false indicator to Bank Stability and Bank worth Appropriations. Get on the stick Bernie and Paul, and Setup the 2 Loan Mortgage Policy Act to secure banks and insure them-selves from the unstable work place environment. If not they become worthless Institutes with incompetent Banking Practices and Policies.

[tomtomasters]

It is the same principal as borrowing from Peter to pay Paul. The rules of equity holding changes more toward Credit Value Worthiness and Credit Appreciation, meaning homeowners stable pay back earns them the ability to secure higher value loans or increases their Credit Appreciation. Banks are in the Business for loans and having stable paybacks. Equities provide no such leverage, because often equities are false from speculative appraisals. They could be worth more or really less, since age devalues property. Bernanke and Paulson need to learn that Banking is about Credit Worthiness and when earned it increases Bank Credit Appreciation. This is what makes Bank more valuable to the people who use the banks instead of the false equities banks think they own. Clearly they are losing in the present scheme, and is the clue that Equity holdings is a false indicator to Bank Stability and Bank Worth Appropriations. Get on the stick Bernie and Paul, and Setup The 2 Loan Mortgage Policy Act to secure banks and insure themselves from the unstable work place environment. If not..they become worthless Institutes with incompetant Banking Practices and Policies.

[tomtomasters]

They need to enact The 2 loan Mortgage policy to separate housing from the work place econony. The work place economy is too volatile to expect a home mortgage banking system to remain stable and secure. When people get loans for a home they get 2 loans. One loan pays for the house, the other loan is used to make payments on the 1st loan and itself, until the money runs out. By that time credit history is established to be be able to take out another loan to replace the 2nd used to to continue making payments. This processs goes on until the house the paid, leaving a secure housing market. The 2nd loan that still has payments left but is a smaller principal is paid via the same process until the loans are paid. It will work because people can then deduct the interest from their taxes each year, not on one loan but from two, providing more liquidity to them to make payments on time.

[toxictom1]

hmmm george the 1st has the s&l bailout that cost
us billions now george the 2nd has the sub-prime
fiasco does anyone out there see a trend or does
anyone really care anymore. the dollar is worth nothing
gas is going to 4 bucks a gallon people are losing there homes by the millions and bear sterns gets a bailout what a country if you are one of the good ol boys the deck is stacked and you can''t lose except
if you are middle class then you get %$#!!@#$

[gce65]

Obama and his pastor have nothing to do with this comments section.

This is about Bear Stearns and Wall Street greed.

Repeat after me: NINETEEN-TWENTY-NINE.

[gce65]

This should make for a very entertaining Monday. Regardless of the emergency weekend meetings and old-boys-club fixes that JP Morgan or the Fed try, there''s still going to be A HUGE RUN ON BEAR STEARNS.

We can complicate the truth and try to lie about the cause, but much of Wall Street is in similar shoes; investment banks are over-leveraged and into very risky bets. And when people lose confidence and want their $ it''s going to look a lot like 1929!

[sara48909]

1) I am condemning Obama for lying. He, his campaign, and his supporters have made it a point to condemn Clinton for saying and doing anything to win, however I think it is obvious now that this "knight in shining armor" is just as willing to do "anything" to win. Anyone who had been attending the same church for 20 years and claims he NEVER heard his pastor say ANY of these things is a LIAR, but St. Obama just COULDN''T lie, could he?
2) I have NEVER been a Bush supporter. I worked the Gore campaign, the Wesley Clark campaign, and then the Kerry campaign. Bush''s whole presidency has been nothing but lies, and anyone with even half a brain knew what a liar he was from his first campaign.
3) Those of you who speak of supporting McCain need to go back and re-read your history books. Google "Keating 5" and the "savings and loan crisis". And then look at what is happening with Bear Sterns.

[ubrew12]

sara48909 said: "Following is the message from the church''s website: We are a congregation which is Unashamedly Black and Unapologetically Christian.." Yeah, wow. And if Wright were running for President, I''d be afraid of his fundamentalism. But, compared to Bush, Obama strikes me as a typical Democrat, going to church as a sign of community solidarity rather than deep-seated, Armageddon-like, belief. Bush has been positively SCARY in that regard in the last 8 years. And Rev Wright himself, while ''thunderously'' mad at the treatment of blacks over the years, doesn''t seem a ''Farakkhan-like'' threat. I mean, you seem to be condemning Obama for being Christian, for God''s sake. Last week, you were probably claiming that Obama was a Muslim. It''s flavor of the week with you people.

[element51]

sara...Thank you for pointing what a liar Obama is. Oh, what will we do if he ends up in the White House? I''ll bet the first thing he will do is to appoint his minister as Secetary of State. Then will come a presidential order to close all "white" churches. Come on, are you really that afraid of him? Oh, that''s right...he is nothing but a liar. I''m glad that for the last 8 years we have had nothing but the golden truth from the present administration. And the fact that our present leader performed brilliantly when he was in college. That poor stupid Obama had to have his daddy make sure he had passing grades. And of course, Obama never did anything to help anybody after he lied his way through school. I don''t know who will end up in the White House but I know for dam sure that I don''t want four more years of what we have now. It may be true that Obama and Clinton aren''t the best choices but it''s either them or McCain and I,for one, have had all the republican rule I can handle. If McCain is elected I will support him until he gives me good reason not to. Can you say that if Obama or Clinton is elected? I hope you can because it''s your country too.

[sara48909]

In addition, while he is now claiming that Wright is someone of no importance. His first book claims Wright is as a second father to him. See the following article:
http://www.latimes.com/news/opinion/la-oe-rutten15mar15,0,3919594.column

The Illinois senator sought the church out and made a personal profession of faith in response to Wright''s preaching. Obama has said he consults Wright before making important political decisions.

This is a direct quote from the article. Earlier in Obama''s campaign he spoke of how important Wright was to him and his family. I think its pretty obvious that this "knight in shining armor" has gotten himself a bit muddy with his lies.

[sara48909]

Obama speaks and writes directly, fortrightly, and with considerable clarity.


Can you truly believe that after his comments about Pastor Wright? He claimed in an interview that he NEVER heard Wright spew his anti-American racist hatred. Yet Obama has been a member of his church for 20 years. Following is the message from the church''s website:
We are a congregation which is Unashamedly Black and Unapologetically Christian... Our roots in the Black religious experience and tradition are deep, lasting and permanent. We are an African people, and remain "true to our native land," the mother continent, the cradle of civilization. God has superintended our pilgrimage through the days of slavery, the days of segregation, and the long night of racism. It is God who gives us the strength and courage to continuously address injustice as a people, and as a congregation. We constantly affirm our trust in God through cultural expression of a Black worship service and ministries which address the Black Community.

[ubrew12]

TheStranger said: "The people see this knight as their hope. They point to the other knight who is in charge for now and say this is the reason why we need a knight with shinny armor (with no experience). The knight who is there now had no experience either and we want another one like Him!"

So Obama should pay for Bush''s crimes? Great plan ya got there. How about charging the middle class for tax cuts to the rich, while you''re at it?

Obama speaks and writes directly, fortrightly, and with considerable clarity. Can you honestly say the same of Bush? Thats not just shiny armor he''s wearing, its intelligence, the kind thats been missing from the White House for 8 years. But, perhaps you prefer your strategy to be ''strategery'' and your armor ''shinny'', rather than shiny.

[middleman8]

The amount of dollars the Reserve is handing out without backing, they should give the job to the wall-paper companies, as that is what the dollar will end up as.

[thestranger_]

In America today we have this knight in shinny armor coming towards us promising us deliverance! He never fought a battle, He was present when the other knights fought the battles, and keeps His armor very shinny. When He is with the other knights He speaks as one who fought battles, remember now He never did He was only present, that He can conquer lions and dragons and bring this land America to tranquility. The other knights ask Him of His experience and He just points to the fact that He has shinny armor. These other knights see His shinny armor and wonder why this so called knight calls Himself a knight. This knight in shinny armor states %u201CI can bring CHANGE%u201D. The people without experience in fighting the real battles on issues are transfix on His shinny armor that they do not bother with the issue that He has no experience. The people see this knight as their hope. They point to the other knight who is in charge for now and say this is the reason why we need a knight with shinny armor (with no experience) the knight who is there now had no experience either and we want another one like Him!!!!!!!!!!!

[caramia_]

Dare we trust Obama with the helm of the country with all its problems when he cannot even know what%u2019s going on in his own church? For twenty years his pastor
Jeremiah Wright has been shouting racial epitaphs, America and Israel cause of 911 etc. etc., and now just yesterday Obama wakes up and washes his hands of him? Will it take twenty years for him to bring about change that America needs? Obama must either be very naive to the things around him or he is two faced.
I can no longer support him.
I cannot have faith in his leadership!
I cannot have faith in his vision, seeing that he could not realize the racial bigotry earlier on and he appears dumbfounded of finding all of this out now.
I cannot have faith in his understanding of people, world leaders!
With this said I question his motives for running for president!