MonkeyBusinessBlog

Foul Play in the Bear Stearns Murder? Someone Call Frank Drebbin!

Five months after the fifth largest investment bank in the country was essentially murdered in the first degree, in broad daylight, at noon, in front of millions of witnesses, someone is finally looking into the mysterious bankruptcy puts guys were buying just one week before Bear went down!  Bloomberg has a story this morning titled, "Bringing Down Bear Began as $1.7 million of Unsuspected Options."

Bear Stearns started the week of March 10, 2008 with a stock price of $70.  On March 11, 2008 somebody or somebodies bought enough March puts (expiring on March 20) struck at $30 to have the right to sell 5.7 million shares of BSC.  They paid $1.7 million for the puts.  Later that day, someone requested to have $25 strike March puts to be put on the board and bought the right to sell 165,000 shares of BSC. We all saw this.  It wasn't some secret over-the-counter trade (those took place in the credit default swap market!), it was right up on the Chicago Board.  Bloomberg quoted Thomas Haugh, head of PTI Securities & Futures LP.;

"Even if I were the most bearish man on earth, I can't imagine buying puts 50% below the price with just over a week to expiration.  It's not even on the page of rational behavior, unless you know  something."

This is what we wrote on March 24, 2008 as part of a broader story making fun of Barron's call to get back into the financials;

Wait till the story unfolds about who was buying March puts on Bear struck at 30 when Bear was trading in the 70’s…..essentially betting that the firm was going to go out of business in two weeks! They are going to find that they were the same people buying default protection on Bear, short selling the stock….and……were customers of Bear Stearns!! That’s right…customers! Bear Stearns derived a lot of their liquidity from the cash big hedge funds kept at Bear, with Bear serving as their prime broker. These guys set their shorts, bought their puts and default protection and then essentially took out an advertisement in the paper to say, “We are pulling our billions out of Bear Stearns….you better get yours while you can!!” And the rest is history. You think Joseph Lewis, the proud owner of 8% of now worthless stock isn’t going to demand and get an inquiry on this?? That should all be great news for financials. Lets also not forget that it basically took a very public koom-by-yah (no idea how to spell that and I’m not going to use the spell check) by The Fed, Treasury and Goldman Sachs to turn the wolves back from Lehman Brothers. Essentially the Fed-JPM deal with Bear was a one-timer. Who is going to help next…Citi??? Hah!

Now it appears that the SEC is finally going to look into what happened.  That's great guys.  We have already gone off countless times about our belief that the Fed and Treasury knew much earlier than they are telling us how grave the Bear Stearns situation was, They also had to know of the very public shenanigans that were going on with regard to put buying and short selling because it was going on right in front of everyone.  We wrote a piece on  this May 12 and a follow up May 19 if you want to have a look.  They, at a minimum, let Bear get murdered without lifting a finger and then after the fact, arranged a shot-gun wedding with JPM Chase, with all of us tax-payers paying for the reception!  Here is the advice we gave the SEC a few weeks ago;

First lets map out what Cox should look for:

• Get records of all Prime Brokerage withdrawals from Bear Stearns starting in January 2008 to March 2008.
• Collect the names of hedge funds who removed sizable amounts of cash during that time.
• Investigate if any of those firms subsequently engaged, in short-selling of Bear Stearns stock, purchased March Expiry Puts on Bear struck at $20 when the stock was trading in the mid 70's, and bought Credit Default Swap (CDS) protection on Bear Stearns.
• If such trading did occur, Investigate whether anyone at the fund maliciously used the information that they had pulled significant amounts of cash out of Bear Stearns Prime Brokerage.  This will be hard to prove, but a subpoena of emails and phone calls can yield surprising results.
• Subpoena emails and phone records of prime brokers that the big hedge funds moved their money too.  Did anyone at those firms distribute information that sizable flows of cash were pouring out of Bear Stearns for the purpose of manipulating Bear's stock.  That is going to be real hard to prove too, but that's what the SEC's is set up to do.

Finally, subpoena the following individuals and have them testify what the subject of their meeting in New York Citiy was on March 11, 2008

• Ben Bernanke - Federal Reserve
• Tim Geithner - NY Fed
• Lloyd Blankein - Goldman Sachs
• Dick Fuld - Lehman Brothers
• James Gorman - Morgan Stanley
• John Thain - Merrill Lynch
• Robert Rubin - Citigroup
• Steve Schwarzman - Blackstone
• Ken Griffin - Citadel

Cox should directly ask each of these individuals;

• Was Bear Stearns liquidity situation discussed?
• If so, what was revealed?
• If so, what action did each participants take, with regard to their relationship with Bear Stearns, immediately following the meeting?

The thing that kill me is, with all the red flags and sirens going off that Bear Stearns was being taken down in what has to be termed a criminal conspiracy, the authorities did NOTHING!  Now, maybe in August if it doesn't interfere with summer vacation plans, they are going to get the bad guys.  This reminds me of the great movie, "The Naked Gun".  Frank Drebbin (Leslie Nielson) is going through the evidence room and he says to his partner (I'm quoting from memory), "Hey look, I found the missing piece of evidence that would have exonerated Joe Cook for that murder five years ago!  Too bad they already sent him to the chair!" 

Jimmy Cayne Must be Breathing a Huge Sigh of Relief!

I don't care what anybody says, I got chills down my spine watching Ralph Cioffi doing the perp. walk in handcuffs yesterday.  Now, of course they are going to come down hard on Cioffi because the Feds want him to roll over on guys higher up the food chain, like Jimmy Cayne, Warren Spector or Sam Molinaro.  Jimmy must be thinking, "Thank God I spent the last two years playing golf and going to bridge tournaments!  If I actually did my job, there would probably be something linking me to this mess." 

I have to figure Spector is in the same boat too.  I know he played a lot of bridge, not sure about the golf.  I do know that if Spector was still doing his job in 2007 or 2006 I can't imagine he would have let Ralph run that kind of money in the first place without a seasoned trader with him.  Cioffi's a bright guy but he was a salesman first, structurer second and fundmanager third?  Not really.  The other guy, Matthew Tannin, was a lawyer I believe.  So who was watching the store?  The answer is probably not Warren.    Probably not ANYONE. 

Spector really played this beautifully, whether he meant to or not.  First he gets into a big fight with Cayne over the 2004 presidential election (Warren backed Kerry while Jimmy backed Bush) which results in Cayne getting the board to limit how much Bear Stearns stock Warren held, forcing Warren to sell a big chunk of the stock in 2005 I believe.  Spector angrily sells the stock and nets $382 million.  Best forced-sale ever no?  Then, while Cioffi is blowing up BSAM and doing some bad things, Spector is probably playing golf or raising money for the next presidential election to be bothered.  Hence, I don't think you are going to find his name on anything incriminating either.

This thing probably ends with Cioffi and Tannin carrying all the weight and it's a lot.

The Final Kick in the Privates

So, If you go on to Bloomberg and pull up Bear Stearns, you are told the company has been acquired.  Here are the details as per SEC filing.  I've bolded the "NATURE OF BID" Check it out.  If this was friendly well then.....

Target:Bear Stearns Cos Inc/The       BSC US         Price:        9.33 USD
Industry:Finance-Invest Bnkr/Brkr                   SIC Code: SEC BROKER/DLR
  Country:U.S.

Acquirer:JPMorgan Chase & Co            JPM US         Price:       42.44 USD
Industry:Finance-Invest Bnkr/Brkr                   SIC Code: NATL COML BANK
  Country:U.S.
   Announced Date:  3/16/08                        Deal Amended:  3/24/08
  Completion Date:  6/ 2/08                             % owned:   39.50
           Status: Completed                         % acquired:   60.50
         Currency: USD
  Amnd tot. value: 1286.2430 Mln                   Amended premium: -88.07%
   Final tot. val: 1361.0338 Mln                     Final premium: .25%
      Paym't Type: Stock                          Arbitrage profit:
       Cash Terms:                                      Cash Value:
      Stock Terms: .217530 Aqr sh./Tgt sh.           Comp Bid Prem:
         Net Debt:                                   Comp Bid Date:
    Nature of Bid: Friendly                              Action ID:30704898
        CO AMENDS OFFER FROM .0547 ACQ'R SHRS /TGT SHR (-97% PREMIUM).
        % SOUGHT & OWNED BASED ON ENLARGED SHARE CAPITAL

Jimmy Cayne Shooting Star

Sung to Bad Company’s “Shooting Star”

Jimmy was a young boy when he sold his first muni bond,
'New York Public Water ,' I think it was. From there it didn't take him long.
Got himself a “Learn Bridge” book, used to read it every night,
Got himself into Bear Stearns

And everything's was all right, don't you know?

Jimmy told his Ace Greenberg, hey, 'Ace, these hedge funds are here to stay’. Lets build a prime broker, gonna be a big earner someday',
Yeah.
Ace came to the door with a teardrop in his eye.
Jimmy said, 'Don't cry, Ace, just smile and pile the money high.

Don't you know, yeah yeah, Don't you know that you are a shooting star,
Don't you know, don't you know. Don't you know that you are a shooting star, And all the world will love you just as long,
As long as you are.

Jimmy found Warren, took him straight up to number one,
Warren Spector knew the mortgage game was the next big one to come along.
Watching Spector make it happen, surprised it scored so fast.
Jimmy looked around him and said, 'Well, I made the big time at last'.

Don't you know, don't you know, Don't you know that you are a shooting star,
Don't you know, oh, yeah, Don't you know that you are
a shooting star, yeah,
And all the world will love you just as long,
As long as you are, a shooting star.

Don't you know that you are a shooting star, Don't you know, yeah,
Don't you know that you are a shooting star, now,
And all the world will love you just as long, As long you are you.

Jimmy’s Bear died one night, subprime bashed its head, finances shredded, his favorite bong by his head. Jimmy’s Bear Stearns passed us by like a warm summer day, If only they had sold at 150 Jimmy would still be able to play

Oh oh oh, Don't you know that you are a shooting star,
Don't you know, yeah, don't you know', Don't you know that
you are a shooting star,
Don't you know, yeah,
Don't you know that you are a shooting star,
Don't you, don't you,
don't you, don't you,
Don't you know, don't you

"What Did Chairman Bernanke Know and When Did He...Hey What's For Lunch?"

In July 1973 our country was embroiled in the greatest and certainly most dramatic political crisis in it's history, Watergate.  White House council John Dean had testified in late June that his president, Richard Nixon, had full knowledge of the Watergate break-in and was an active participant in attempting to cover it up.  The country was now gripped with one question, "What did the President know and when did he know it?"  On one side there was John Dean, claiming that President Nixon was guilty of illegal and impeachable offenses.  On the other side was President Nixon, who denied Mr. Dean's accusations.  It was one man's word against another without any physical proof to back either man's account.  Or was there proof??

On July 16, 1973 Assistant to the President, Alexander Butterfield was called before Congress.  Chief Minority Council Fred Thompson asked, "Mr. Butterfield, are you aware of the installation of any listening devices in the Oval Office of the president?"  Mr. Butterfield answered affirmitavely and the rest was history.  The tapes proved that Mr. Dean's account was accurate.  A little over a year later President Nixon resigned to avoid impeachment.

Now, what if Mr Butterfield had responded to Mr. Thompson's question, "yes I am aware of such a taping system" and Chairman Sam Ervin banged his gavel down and said something dramatic like, "Ok, gentlemen, lets break for lunch...awe hell I've had enough of this investigation, lets shut it down."  Lets further imagine that the press and the American people also said, "Yeah, screw what's on the tapes, who really cares."

Well I feel like something very similar happened last week.  If you remember our little piece last Monday titled, "Hi Fellas, What are Y'all Talking About?", we told you about Bloomberg News obtaining Ben Bernanke's redacted day book through "The Freedom of Information Act".  The day book showed that Bernanke, Federal Reserve President of New York Tim Geithner and every head of every Wall Street firm as well as the heads of many of the biggest hedge funds and private equity groups had lunch on March 11.....WITH BEAR STEARNS BEING THE ONLY FIRM NOT REPRESENTED!

As you remember, both Chairman Bernanke and President Geithner testified in front of Congress that they did not become aware of Bear Stearns grave situation until Thursday night March 13.  Rumors of Bear Stearns liquidity problems were swirling around the Street on Monday, March 10.  By Tuesday, March 11, the rumors were blowing like a gale force wind.  I know people on bank funding desks that were cutting back on Bear's repo lines and I knew hedge funds yanking their prime brokerage cash out of Bear.  A run on the bank situation was building.  On the same day, Chairman Bernanke and President Geithner came to have lunch with everyone but Bear, and the subject didn't come up?!  Did Bernanke even say, "Say did someone forget to call Schwartz? Cayne? Molinaro??" and then talk about..I don't know...the history of check clearing?  I'm going to vote that they talked a lot about Bear Stearns and I'm going to guess that the Chairman knew all about the grave situation at Bear much earlier than Thursday evening.

Why is that so important?  It's vital because the reason that Chairman Bernanke gave the world for the dramatic and ground breaking (and maybe....unauthorized) actions the Fed took to broker a devastating deal with Bear Stearns and JPM Chase and provide financing on $30 billion of tier three assets was because there was no other choice.  The liquidity situation at Bear had become so bad that the firm would have to either be bailed out, or taken into bankruptcy on the following Monday.  Under this scenario, the Fed had no choice but to step in and save the financial system.  But what if they knew three or four days earlier?  They certainly could have given the major market players some assurance that an orderly merger or take over of Bear Stearns would be accomplished within a relatively short time period (2 weeks, a month at most?).  They could have done this.....AT LUNCH on Tuesday!  After all EVERYBODY WHO MATTERED WAS THERE! 

Regardless, Bloomberg News went out and used the "Freedom of Information Act" to verify that a meeting took place on March 11.  They listed all the attendees and the notable absence of Bear Stearns. Bloomberg reports that Bernanke and Geithner testified that they did not know of Bear's situation until Thursday March 13...and then THEY STOPPED REPORTING THE STORY! Hell, I don't know ONE major news source that even mentioned it.  Just Monkeybusinessblog.com and Dealbreaker.com and two or three other blogs that were kind enough to put our post on their sites.  What the heck is going on?  Isn't this like Watergate's Butterfield telling you there's tapes of what exactly was said and then nobody caring to listen to them?  If they haul Bernanke back in front of Congress and ask him to explain what went on at this lunch what is he going to say?  Honestly, I'm scared if I keep talking about this the brakes on my car are going to mysteriously give out!

Something stinks, and time won't make it "less stinky". 

"Hi Fellas, What Y'all Talking About?!"

You ever have one of those awful social moments when you walk into a group of people you know and they go from busy conversation to uncomfortable silence?  Not that its happened to me (except that time in 6th grade..) mind you!  It seems as if a moment like that may have occurred between Bear Stearns and THE REST OF THE FINANCIAL WORLD on Tuesday March 11, 2008!

Bloomberg News broke a story late today that Federal Reserve Chairman Ben Bernanke, New York Fed President Tim Geithner had a lunch meeting in New York on March 11 with, Jamie Dimon (JPM Chase), Lloyd Blankfein (Goldman Sachs), Richard Fuld (Lehman Brothers), James Gorman (Morgan Stanley), John Thain (Merrill Lynch), Robert Rubin (Citigroup), Steve Schwarzman (Blackstone Group) and Ken Griffin (Citadel Investment Group).  Bloomberg obtained Chairman Bernanke's day book under the Freedom of Information Act. The day book was released and redacted (a fancy word for "cleaned up").  The details of the meeting were not released.

So the Fed, who maintained that they only became aware of Bear Stearns dire liquidity situation Thursday night, March 13, had a meeting with every major commercial and investment bank on March 11....EXCEPT BEAR STEARNS.  Hell, even Blackstone and Citadel were there!  Last I checked they aren't ANY KIND OF BANK!  Everybody but Alan Schwartz of Bear. The question that is now hanging heavily in the air is what exactly did the Fed know about Bear Stearns and when did they know it?  Also, what were all these guys talking about?  Bear Stearns was not insolvent.  Bear Stearns had a huge liquidity problem, as did Lehman and to some extent Morgan Stanley.  Why were they allowed to attend and weigh in and not Bear?  I am going to assume that Blackstone and Citadel were there for two reasons.

1. They were probably questioned as to whether each had the desire or the ability to buy Bear.

2. In the case of Citadel, who used Bear as one of their main prime brokers, just how much money was being yanked out of Bear by its prime brokerage clients?  I believe Citadel had taken out a considerable amount a week or two earlier.

Something just doesn't add up.  It doesn't seem credible that just about every major financial institution in the United States, except Bear Stearns, had a meeting about the most pressing issue of the day, bank liquidity, and the subject wasn't about Bear Stearns, who had rumors swirling about them since Monday.  Somebody is not telling the truth.  According to both Chairman Bernanke and President Geithner, they did not know of the gravity of Bear Stearns situation until Thursday night March 13.  By then the liquidity crisis was out of control and Bear had no choice but either take a horrendous deal or declare bankruptcy.

Bear took the deal Sunday night March 16 and that was that.  Immediately afterwards, the Fed opened the discount window to investment banks, saving Lehman and maybe Morgan Stanley too.  If the Fed knew on Tuesday afternoon, (and I think they knew earlier than that because this doesn't seem like some hastily prepared night meeting) why did they not open the discount window to investment banks that day March 11 and float Bear for a month or two so a suitable deal could have been achieved?  Was it because somebody had to get torched so as not to make it look like a bailout of "the fat cats"?  I don't know the answer but I think there's a lot more questions that need to be asked and a lot of conflicting stories that need to be straightened out.

Schwartz Got Stuck to the Pole!!

Did you watch any of the Senate hearings on Bear Stearns today? I thought the morning session with Bernanke and Geithner was interesting and perhaps necessary. But the afternoon session with Schwartz and Dimon? Unless The Senate wanted to try to create a classy version of Judge Judy, what was the purpose of having those two testify? It’s not like either of them pulled a Enron or a WorldCom. Dimon’s firm bought Bear and poor Schwartz was left holding the bag by his obnoxious, pompous and now incompetent boss Jimmy Cayne! Was it really necessary to have Dimon and Schwartz sit together while they ask Dimon how he came up with $2 a share (“ummm, because it was less than $3 and $1 would have been insulting?”) or ask Schwartz if it would have been a good idea if the Fed had opened up the discount window to investment banks a little earlier? To that question what did Schwartz have to lose if he said, “I don’t know, what do you think genius?” Instead, he handled it gracefully, even when Chris Dodd reminisced about how he and Bear management talked about such a thing, as a matter of policy, six months ago! I don’t have the transcript in front of me, but I could have sworn Dodd scratched his head and said something like, “You know, I remember that being a pretty good idea but I’m not sure if I did anything further about it…I’ll check and get back to you.” Just like my favorite holiday movie, “A Christmas Story” poor Schwartz, like his namesake from the movie (the kid who gets double dog dared to stick his tongue on a frozen flag pole), got stuck on the pole and was abandoned!

Watching all this got me thinking. Has a reviled Wall Street non-commercial banking firm (reviled by its competitors anyway) ever got into a tough spot and got all their funding lines pulled by the whole Street? Hmm, you know I think this happened before….I got it! Drexel Burnham Lambert in February 1990!! Did Drexel have some big problems? Sure they did. Were they insolvent? No they weren’t. However, they relied almost exclusively on the big banks to fund them everyday. One day, everybody pulled their funding lines and poof…..no more Drexel!

So now it’s 2008. We have Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear Stearns. All non commercial banks, all without access to the Federal Reserve discount window (until the day after Bear went down!). The size of each one of these investment banks is bigger than any commercial bank in 1990. And with the spread of derivatives and counter-party risk….sweet tunad! Any one of these guys could take the whole system down all if the other kids decided not to play with them anymore. Now, out of the 4 houses I just named, which one made a practice of pissing off the other 3….and every big commercial bank? Which one told everyone to go pound sand in 1998 with LTCM? Which one had two funds go down in June 2007, where the Street had massive exposure…..and really didn’t seem to care because they only had $35mm invested? The answer, as you know, is Bear Stearns.

So I’m thinking….none of this is new news. Bear did what they did and acted how they acted. It was a conscious method of behavior. Therefore, if they were going to act that way, and at some point had to know that they had some very big concentrated risk, just like Drexel, how the hell could they have operated, certainly since summer 2007, without a emergency liquidity plan?? Cayne, Spector (although he got booted in August), Molinaro….what were these guys doing? Fuld, over at Lehman…a shop that plays nice in the sandbox with the other children, was running around like a madman all through 2007 making sure he could fight off a loss of confidence run. Cayne? Whatever he was doing, it wasn’t banking. CFO Molinaro? Also AWOL. I used to always believe that Bear senior management, while obnoxious, was very smart and above all clever. I thought they knew everybody else hated their guts and would love a chance to kick them in the bejooobees! Now I’m afraid to say that I was wrong. They went onto the field without a jockstrap and cup! They either weren’t very smart or they didn’t care….and given how much net worth they all lost when the stock went to $10….they had to care. Therefore we are left with option A. Not very smart.

I also have to find fault with the Fed (I lost faith in Hank Paulson’s Treasury at “hello”). They knew how important these investment banks had become with regard to systematic risk. Right now the media is making a point of highlighting what a genius Federal Reserve Bank of New York President Tim (I swear Maria Bartaroma referred to him as “Tim” when talking to “Jamie” after the hearing) Geithner. Ok genius, you’re supposed to be monitoring liquidity everyday in New York, where were you? Shouldn’t you have been talking to Bear and Lehman and Goldman and Stanley everyday since the fall of 2007? You were in the room when Jimmy Cayne told the other guys that he wasn’t kicking in as much as a cigar band for LTCM, back in 1998. If Chris Dodd could have seen it important to make the discount window available to investment banks (even though he forgot to follow up!) why didn’t you?

Anyway, that’s enough for now. I can’t wait until someone important does something right because frankly I cant remember the last time it happened!

The March of the Morons

Today a group of protesters, about 200 of them, barged into the lobby of Bear Stearns with signs and bullhorns protesting the government bailout of the “fat cat Wall Street Guys.” The group said they were a bunch of citizens who had been duped by subprime mortgages and lost their homes. Apparently their lost homes and money was, in their opinion, at 383 Madison Avenue. Now mind you that at Bear Stearns headquarters there are a few thousand hard working people who have been financially wiped out. Many of these hard working Americans will, after a few more weeks of indignity reporting to work for their new masters from JPM Chase, be sent home for good. They lost their savings and their jobs in the span of a week. I have two points to make here.

1. One has to question the common sense of the demonstrators to come to Bear Stearns to have their protest. There are a lot of justifiably angry people at Bear and the demonstrators are lucky they didn’t catch a serious beating. This may have been the lack of common sense that allowed these people to borrow and spend money they didn’t have, and not realize that at some point the bill was going to come due.

2. We are sick about all these bloggers out there ripping into Bear Stearns and celebrating their downfall. Is Jimmy Cayne a huge, gaping a-hole? Yes he is. Are there some jerks there? Sure. Odds are that the ratio of good people to jerks is about the same at everybody’s place of business. There is an awful lot of good, hardworking people at Bear Stearns going through a brutal time. So to all you little bloggers and pundits out there that are having a good old time…….order yourself a nice hot cup of Shut the F**k up!

Anyway, here’s a song (I know the dates aren’t right but it works) to be sung to the Temptations “Papa Was a Rolling Stone."

It was the third of September
That day I'll always remember, yes I will
Cause that was the day, my career died
I never got a chance to cash in
Never heard nothin' but how we were winnin’
Managing Director I'm depending on you, to tell me the truth
MD just hung his head and said, son

We just couldn’t roll our loan, (my son)
Whoever we called wouldn’t answer the phone
and when the firm died, all they gave us was the bone

We just couldn’t roll our loan, (my son)
Whoever we called wouldn’t answer the phone
and when the firm died, all they gave us was the bone

Hey MD!
Is it true what they say that the CEO never worked a day, in his life?
And MD, some bad talk goin' round town sayin' that the boss had three daily tee times
And two wives, and that ain't right
Heard them talking about CEO doing some holier than thou preachin'
Talked about sacrifice and all the time reaching
Dealing in debt, and stealing in the name of the law
MD just hung his head and said...

We just couldn’t roll our loan (my son)
Whoever we called wouldn’t answer the phone
and when firm died, all they gave us was the bone

We just couldn’t roll our loan (my son)
Whoever we called wouldn’t answer the phone
and when firm died, all they gave us was the bone

The Toaster is Now in the Pool

Round trip to Detroit - $645.
4 days at the renaissance center for bridge - $1,200.
Losing a $1bb fortune while ignoring the wipeout of the nations 6th largest securities firm - Priceless!

Oh and we noticed that former heir apparent to the CEO job at Bear Stearns a Mr. Warren Spector, who by the way was ousted by Jimmy Cayne in July, was FORCED to sell $382mm of his Bear Stearns stock a few years ago when Cayne had the executive compensation plan changed. It has also been reported that both Mr. Cayne and Mr. Spector (avid bridge players they are) were in the same bridge tournament in Detroit this week while Bear was collapsing. Now Mr. Spector has no known responsibilities that we know of, however Mr. Cayne was still supposedly running Bear Stearns! Nice going Jimmy. That ought to win you a lot of awards with your soon to be fired employees who have worthless stock. It also appears that Mr. Cayne finished very well in the tournament even ahead of Mr. Spector. That's nice too. But considering Bear was sold for $236mm on Sunday night we wonder if Mr. Spector tried to bid for Bear by himself with some of that $382mm that Bridgemaster Cayne made him sell! You might've beat Spector in the bridge pally, but Jim, he almost owned you and your whole firm! It'd be kind of funny if Jamie Dimon asked Spector to come back and help in the transition now wouldn't it? In bridge language I think that's called a "trump" for Mr. Spector.

Bear Stearns Rhapsody Queen

Here is a song written by one of the best guys ever to work on Wall Street, Mr. Russell Middleton.

Please sing along to the tune of Queen's "Bohemian Rhapsody":

Is this the real price?
Or is this just bankruptcy?
Financial landslide!
No escape from CNBC.

Open your eyes
and look at BSC highs and see
I'm now a poor guy.
Mortgage Backed casualty

Because I bought the high, watched it blow.
Ratings high...value low.

Any way the Fed goes
does it really matter...to me.

A Toute Salute Don Dimon

Having a full day to reflect on the deal that was struck to take out Bear Stearns, I am filled with many emotions. Sadness over the fact that an awful lot of good people have lost a lot of their financial security. Anger over how the media portrays the deal as some “bailout” for Wall Street fat cats. (The last I checked, the equity holders of Bear Stearns were essentially wiped out). Fear over what happens next, and who does it happen too?

Through it all however, I am mostly filled with awe over what Jamie Dimon was able to pull off. Not since Michael Corleone wiped out the heads of all the 5 New York families as well as Moe Green, has such a brilliant death blow been struck. The clincher was this bit of news late in the day from Bloomberg:

“JPMorgan Chase & Company plan to move its investment banking division into the Bear Stearns Building and is reviewing its plan to build a tower at the World Trade Center site.”

Amazing! I have a feeling this final move with the building had to be revenge for when Bear’s funds went down last June. JPM, among many others, complained at how the collapse of the Bear managed funds was sticking them with billions of losses and Warren Spector told them that they just didn’t understand mortgages! Hah! Anyway, JPM manages to get the building (and it is a sweet building), the prime brokerage, free funding from the Fed and, unless anyone tells me different, all the upside on the $30bb of tier 3 assets. Hell, they have to be worth something north of zero! All for next to nothing.

Now, JPM is doing a big service stepping in to Bears positions on all fixed income, credit, foreign exchange, commodities and equity derivative positions…(as well as any future settled trades like Agency Mortgage Backed Securities for April, May or June). Also Bear has lots of duties that it performs with regard to derivative contracts (like being the calculation agent on default swaps, etc..) that will now be done by JPM. This is huge. For this service JPM has probably stored away plenty of “get out of jail” free cards the next time there’s an auction bid rigging scandal or some sort of financial shenanigans. You can’t put a high enough price on that.

I know all the politicians are running around talking about how the government is bailing out Wall Street while leaving the little guy to go it on his own. Let me tell Harry Reid and all the other dopes in both parties, you don’t want Bear Stearns going down. Just shut your pie holes and be thankful that Chairman Ben has finally figured out how to make things work. You think the little guy has it bad now? Bear Stearns goes Chapter 11? You might as well save the drama and just have Lehman and a whole bunch of other smaller guys throw themselves on the funeral pyre with Bear. Then the little guy might as well just go to the local ‘pay-day’ bank or “Fat Angie” on the corner for his credit…because their won’t be a bank that will touch him with a barge pole.

Anyway, kudos to Jamie Dimon. Just remember Jamie, if you have an older brother named Fredo (or any reasonable facsimile) …get rid of him now because he will only break your heart later on!

Lastly, my favorite Bloomberg headers of the day (the cute little greeting we put on our Bloomberg Instant Message Page):

“Who is this guy Margin, and why does he keep calling?”

“Don’t be sore, sell some more”

“I hope there are no bridge tournaments in Hell”

“I want my two dollars!”

“Tilt Tilt Tilt Tilt Tilt!!!!!!”

“A-Rod contract is now worth more than Bear Stearns”

“You can have my answer now Alan………Nothing.”

And finally

“Sanguine..........................Uncertain..........................Terrified”

Shooting Star

It is a sad day for us here at Monkey Biz. Richie and I both worked for the Bear at different times of our careers. We both have a lot of friends there as well as a lot of great memories.

It looks like this is the beginning of the real bailout. JPM buys Bear for $2 a share, they mark all the bad assets to zero and the Fed finances the bad assets. I would imagine that a couple of other investment banks that operate with the same funding structure as Bear are going to be next. These places have better investment banking franchises than Bear, and more global presence, so maybe they don’t get sold for nothing but I imagine they are going to have their own funding crisis as early as this week and the result will be the same.

I also imagine that if JPM effectively valued Bears bad assets (read illiquid mortgage product) at zero, banks that still have this stuff on the books are going to have some tough times with this new market value paradigm. Get ready for a whole lot more writedowns from the usual big global bank suspects. Anyway, here is a song sung to Bad Company’s “Shooting Star” to try for a little humor on a dark day:

Jimmy was a young boy when he sold his first muni bond,
'New York Public Water ,' I think it was. From there it didn't take him long.
Got himself a “Learn Bridge” book, used to read it every night,
Got himself into Bear Stearns

And everything's was all right, don't you know?

Jimmy told his Ace Greenberg, hey, 'Ace, these hedge funds are here to stay’. Lets build a prime broker, gonna be a big earner someday',
Yeah.
Ace came to the door with a teardrop in his eye.
Jimmy said, 'Don't cry, Ace, just smile and pile the money high.

Don't you know, yeah yeah, Don't you know that you are a shooting star,
Don't you know, don't you know. Don't you know that you are a shooting star, And all the world will love you just as long,
As long as you are.

Jimmy found Warren, took him straight up to number one,
Warren Spector knew the mortgage game was the next big one to come along.
Watching Spector make it happen, surprised it scored so fast.
Jimmy looked around him and said, 'Well, I made the big time at last'.

Don't you know, don't you know, Don't you know that you are a shooting star,
Don't you know, oh, yeah, Don't you know that you are
a shooting star, yeah,
And all the world will love you just as long,
As long as you are, a shooting star.

Don't you know that you are a shooting star, Don't you know, yeah,
Don't you know that you are a shooting star, now,
And all the world will love you just as long, As long you are you.

Jimmy’s Bear died one night, subprime bashed its head, finances shredded, his favorite bong by his head. Jimmy’s Bear Stearns passed us by like a warm summer day, If only they had sold at 150 Jimmy would still be able to play

Oh oh oh, Don't you know that you are a shooting star,
Don't you know, yeah, don't you know', Don't you know that
you are a shooting star,
Don't you know, yeah,
Don't you know that you are a shooting star,
Don't you, don't you,
don't you, don't you,
Don't you know, don't you