Continue reading Who profited from Bear Stearns' collapse? One insider did, and got away with it

Who profited from Bear Stearns' collapse? One insider did, and got away with it originally appeared on BloggingStocks on Tue, 20 Oct 2009 14:00:00 EST. Please see our terms for use of feeds.

Continue reading What else was Jimmy Cayne doing as Bear Stearns imploded?

What else was Jimmy Cayne doing as Bear Stearns imploded? originally appeared on BloggingStocks on Thu, 30 Apr 2009 15:00:00 EST. Please see our terms for use of feeds.

Continue reading Book Review: House of Cards: A Tale of Hubris and Wretched Excess on Wall Street

Book Review: House of Cards: A Tale of Hubris and Wretched Excess on Wall Street originally appeared on BloggingStocks on Wed, 08 Apr 2009 17:15:00 EST. Please see our terms for use of feeds.

There's been no shortage of heartstring-jerking reports from the current economic crisis -- seniors whose retirement accounts have been wiped clean; families relocating from homes to motels; MBAs forced to wear their resumes on sandwich boards.

However, in my humble opinion, today's news might be the most pathetic: Sesame Workshop, the nonprofit organization that produces the classic Sesame Street TV show, is slashing 20% of its 355-member workforce.

Continue reading Wall Street takes its toll on Sesame Street

Wall Street takes its toll on Sesame Street originally appeared on BloggingStocks on Thu, 12 Mar 2009 11:40:00 EST. Please see our terms for use of feeds.

Continue reading Waiting for the other shoe to drop: The looming credit crisis

Waiting for the other shoe to drop: The looming credit crisis originally appeared on BloggingStocks on Mon, 01 Dec 2008 18:00:00 EST. Please see our terms for use of feeds.

Thanks to what former Enron CEO, Jeff Skilling, called bad "optics", some top Wall Street executives announced that they're foregoing their normal seven figure bonuses. But I think I am being generous in estimating that those potentially symbolic gestures will only shave a few billion off the Wall Street bonus pool for 2008. We could still be paying $20 billion in bonuses this year.

How so? After buying $159 billion worth of preferred stock in 24 banks, I have not seen any evidence that the Treasury required the banks to lend it out. There is nothing stopping the banks from using the money for paying bonuses. And while the original estimate of 2008 bonuses was down 20% from 2007 -- to $26.6 billion -- I am thinking that eliminating executive bonuses could lead to at least a $6 billion lower figure -- particularly if this cut provides bank CEOs leverage to reduce the amount of bonuses paid to lower level people.

So far, top executives from Goldman Sachs (NYSE: GS), UBS AG (NYSE: UBS), Deutsche Bank, and Barclays have said they will skip their bonuses for 2008. Ironically, the ethically challenged UBS has the most interesting idea -- starting in 2009, it will be able to claw back bonuses in the years after their award with a third paid immediately, while the remainder will be put into a participant's account and can be reduced if there is a loss at the division or the whole bank. I started proposing an escrow account along these lines in October 2007.

Continue reading Will our tax dollars pay $20 billion in Wall Street bonuses?

Will our tax dollars pay $20 billion in Wall Street bonuses? originally appeared on BloggingStocks on Tue, 18 Nov 2008 12:12:00 EST. Please see our terms for use of feeds.

Former Bear Stearns chief risk officer joins New York Fed originally appeared on BloggingStocks on Wed, 05 Nov 2008 12:15:00 EST. Please see our terms for use of feeds.

Goldman Sachs (NYSE:GS) has been the premier investment bank in the world for decades. It has been the leader in underwriting fees, M&A, and proprietary trading profits for longer than many bankers can remember. It has also sent senior executive from the company to work in the highest level jobs in Washington.

But, the firm is not immune to the credit crisis. It earnings have been hurt, although less than those of most other financial firms. So, it comes as some surprise that it will cut 10% of its 32,000 person workforce. According to The Wall Street Journal. "The cuts, expected throughout the New York-based company, underscore how much even the mightiest securities firms have been shaken by the 16-month credit crisis."

The news may be bad for Goldman but it is awful for almost every one of the company's competitors, most of which are doing much worse than Goldman is. Some corporation in the industry have already lost people. especially Bear Stearns and Lehman. But, the cutting may have only just begun elsewhere. Several analysts recently put out reports saying Citigroup (NYSE:C) may not make money for over a year.

There had been some hope that the Paulson rescue would improve financials at big banks by enough so that they would not have to take drastic measures, but the capital may not be enough if mortgage markets get worse. If Goldman can cut over 3,000 people, its competitors are probably looking at much larger numbers. There are tens of thousand of Wall St. jobs at risk.

Douglas A. McIntyre is an editor at 247wallst.com.

Goldman Sachs (GS) to cut 10% of workforce, may be worse elsewhere originally appeared on BloggingStocks on Thu, 23 Oct 2008 04:18:00 EST. Please see our terms for use of feeds.

Continue reading The beggars of Wall Street

The beggars of Wall Street originally appeared on BloggingStocks on Mon, 06 Oct 2008 10:58:00 EST. Please see our terms for use of feeds.

Let's just say they did spread the rumors, which I don't believe they did (and, as an aside: if a company can be brought down by the corporate equivalent of 7th grade girls passing notes in class, perhaps it doesn't deserve to be in existence anyway).

SEC focuses on rumors in probe of Bear and Lehman trading originally appeared on BloggingStocks on Thu, 02 Oct 2008 12:20:00 EST. Please see our terms for use of feeds.

• Top 5 Contributors, 2003-2008: Citigroup Inc. $310,294, SAC Capital Partners $282,000, United Technologies $263,400, American International Group 224,678, Bear Stearns $205,600.
• Top 5 Industries, 2003-2008: Securities & Investment $,245,796; Lawyer/Law Firms 1,976, 063; Insurance $1,416,972; Real Estate $1,262,791; Commercial Banks $850, 544.

Continue reading $700 billion reprise: Conservative bankers? Surely you jest!

$700 billion reprise: Conservative bankers? Surely you jest! originally appeared on BloggingStocks on Mon, 22 Sep 2008 11:00:00 EST. Please see our terms for use of feeds.

Late Sunday night it was reported by the Associated Press that the Federal Reserve announced it had approved the request of the two investment banks, Goldman Sachs Group (NYSE: GS) and Morgan Stanley (NYSE: MS), to become commercial banks and to take deposits, bolstering the resources of both institutions.

Since Bear Stearns was acquired in a fire sale by J P.Morgan Chase (NYSE: JPM) in March both firms have been under increased pressure to show their financial strength, but the bankruptcy of Lehman Brothers Holdings (NYSE: LEH) and the buyout of Merrill Lynch (NYSE: MER) by Bank of America (NYSE: BAC) last weekend have changed the playing field too much.

So what does this mean in short? It means the investment banks wanted the comfort and security of mama bear. They wanted the protection of the Federal Reserve, along with the ability to borrow from it at the discount window, and in a worst case scenario, to be bailed out like everyone else.

The Fed, from its perspective, knows this to be true and understands that if the investment banks -- now commercial banks -- can increase their reserves, then maybe a bailout will not be required, which is better for everyone. Along with this change will come additional requirements and regulation.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I owned BSC and now own shares in its acquirer JPM.

Goldman Sachs & Morgan Stanley to become commercial banks originally appeared on BloggingStocks on Mon, 22 Sep 2008 08:29:00 EST. Please see our terms for use of feeds.

Lehman Brothers Holdings Inc. (NYSE: LEH) is likely to file for bankruptcy today. The reason is that the Treasury and White House are smarting from criticism of their $29 billion bailout of Bear Stearns and the $200 billion to $800 billion Fannie and Freddie nationalization. Neither of these moves has stopped the serial sell off in the shares of investment banks and other firms saddled with crumbling real estate assets. So now the powers that be have decided that they'll tighten up their moral standards and refuse to bailout Lehman.

As I posted, the basic problem is that Wall Street thinks the Treasury will cave in and put money into the Lehman bailout. But despite reports of a proposal to hive off the good part of Lehman from the bad part -- financed by other Wall Street banks -- such a resolution does not appear likely. That's because Wall Street does not want to risk its slim capital shoring up Lehman's bad part -- $85 billion worth of commercial real estate and mortgage-backed securities (MBS). These banks rightly fear that they would lose their investments and sink the entire industry in the bargain. In addition, these bad bank financiers don't want to provide the backstop to enable the winner of the bidding on the good bank to surpass them by picking up Lehman's assets cheaply.

Assuming that plan does not work and that the government refuses to step in to finance the bad bank, this leaves two basic options: Lehman files for bankruptcy or other banks liquidate Lehman in an orderly fashion. Bankruptcy might be a relatively orderly process. According to FOXbusiness, "if Lehman entered into bankruptcy protection, the brokerage units would enter Chapter 7 liquidation and a court-appointed trustee would liquidate the firm's assets and give customers back their money. Generally, securities a customer holds at a brokerage firm are legally the investor's property, and aren't exposed to the claims of the firm's creditors." A bankruptcy would likely wipe out Lehman common shareholders.

Continue reading Let Lehman file for bankruptcy

Let Lehman file for bankruptcy originally appeared on BloggingStocks on Sun, 14 Sep 2008 09:56:00 EST. Please see our terms for use of feeds.

In the last year, Washington has been shoveling our tax dollars out the door to bail out the money mistakes of multi-billionaires.

It cut interest rates from 5.25% to 2% ,which sent inflation soaring, yet mortgage rates remain higher than they were a year ago. It spent $29 billion to finance the merger of Bear Stearns and JPMorgan Chase & Co. (NYSE: JPM). And now it's about to spend as much as $800 billion to bailout a few huge investors who own mortgage-backed securities (MBS) issued by Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).

I find the reasons why this latest bailout shouldn't happen to be far more compelling than the reasons it should. (Here's some background on the mortgage giants.)

Here are five reasons I think this bailout shouldn't happen:

• Punishes the innocent and rewards the guilty. Why does it make sense for taxpayers -- most of whom are paying their mortgages on time and working hard to support their families despite declining real wages and higher costs -- be asked to dig into their pockets to clean up the errors of a few large institutional investors? Why not let the people who made the bad decisions pay for their own mistakes?

Continue reading Five reasons the Fannie/Freddie bailout should not happen -- and some reasons why it is anyway

Five reasons the Fannie/Freddie bailout should not happen -- and some reasons why it is anyway originally appeared on BloggingStocks on Sun, 07 Sep 2008 11:00:00 EST. Please see our terms for use of feeds.

Henry Paulson is maneuvering himself into the history books by forcing Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) into a spiral of doom from which they can't recover. He had plenty of help from the directors and executives who sit atop them. But it's becoming clear that since Saturday's Barron's article, laying out the path to failure, events are spiraling out of Fannie and Freddie's control.

The anonymous senior government source in the Barron's article said that unless Fannie and Freddie could raise at least $10 billion each, the government would bail them out while wiping out common shareholders and eliminating the preferred dividend. This would lead to a sell off of bad loans, a split into smaller pieces, and maybe selling those pieces back to the public. All these activities are a government gift to Wall Street, which will get to do all these deals.

Events are following this predicted pattern as Fannie and Freddie struggle to raise capital. The New York Times reports that investors are not enthusiastic about the most recent efforts to raise capital by Freddie Mac. It reports that on Tuesday, Freddie Mac raised $3 billion in five-year debt but the "1.13 percentage points [premium] over the rate the federal government pays for comparable borrowing" was more than double the "0.6 points" premium it paid earlier in the year.

Continue reading How Fannie and Freddie will fail

How Fannie and Freddie will fail originally appeared on BloggingStocks on Wed, 20 Aug 2008 08:29:00 EST. Please see our terms for use of feeds.

Bloomberg News reports that Wall Street layoffs are putting blood on the streets. But those Wall Street vets have turned those layoffs into new careers -- one Harvard economics grad who formerly worked for Bear Stearns has started a business making cupcakes. That's because, as Bloomberg reports, Michael Maloney, who recruits finance professionals for Maloney Inc. in New York, said, "The job market is in the worst, most chaotic state I've ever seen it in fixed income. I've been doing this for over 30 years and I've never seen anything like this."

The statistics Bloomberg cites are stunning. 76,670 investment jobs "in the Americas" have gone up in smoke "following the global credit crunch that started a year ago." And 33,300 finance jobs in New York City, or "7.1% of the 2007 peak, will be cut by June 2009." And those who lose their jobs will be giving up big money. Wall Street workers averaged $399,360 in 2007 -- six times the $62,390 for New York City jobs outside the securities industry.

So the tough are turning to making cupcakes. Jessica Walter, who studied economics at Harvard, was vice president in credit strategy at Bear Stearns. Bloomberg quotes Walter as saying, "I want to teach kids to cook. The goal is to have this be my full-time job and make enough to live.'' To that end, she founded Cupcake Kids! in New York to provide birthday parties and cooking classes for children.

Continue reading When Wall Street gets bloody, the tough make cupcakes

When Wall Street gets bloody, the tough make cupcakes originally appeared on BloggingStocks on Fri, 15 Aug 2008 13:05:00 EST. Please see our terms for use of feeds.

Wall Street has a habit of riding its booms a bit too long. And that leads to collapse, layoffs, and hand wringing about the future. But it looks like Wall Street is already moving forward. And that means exporting its future by taking its finance franchise to cash rich countries and out of the canyons of Wall Street.

Wall Street's boom and bust cycles tend to eclipse a decade. In the 1980s, junk-bond fueled takeovers created massive amounts of wealth -- and also led to the collapse of junk-bond issuer Drexel Burnham. Wall Street licked its wounds for a few years and by the mid-1990s it had reinvented itself as the headquarters for Internet initial public offerings. That bubble burst in 2000. Then the Fed cut rates to 1% and Wall Street reemerged as a packager of mortgages -- along with servicing hedge funds and private equity moguls.

That all ended last August and the collapse of that bubble led to the demise of Bear Stearns and Countrywide and the loss of about $8 trillion worth of wealth. The New York Times reports that the latest collapse has cost 80,000 finance jobs as well. But Wall Street is already mapping out its future by following the money. And the Times pinpoints where Wall Street thinks that money resides -- based on the growth in the number of Wall Street people moving to various global money centers.

Continue reading Wall Street exports its future

Wall Street exports its future originally appeared on BloggingStocks on Tue, 12 Aug 2008 10:45:00 EST. Please see our terms for use of feeds.

Suspicious options activity raises questions about Bear Stearns collapse originally appeared on BloggingStocks on Mon, 11 Aug 2008 09:28:00 EST. Please see our terms for use of feeds.

My brother William Cohan's Fortune cover story on Bear Stearns' former CEO Jimmy Cayne has many fascinating tales. (Fortune and BloggingStocks share the same parent -- Time Warner (NYSE: TWX)). I found three to be most interesting.

• Bear was brought down by Fidelity and Federated Investors - Fortune argues that Bear depended on the market for 'overnight repos' -- loans of a one-day term collateralized by securities -- for $50 billion of its working capital. Bear used 71% of its mortgages as its collateral and according to Fortune, "Bear's reliance on overnight Rep effectively gave the overnight lenders -- such as Fidelity and Federated Investors -- a vote on the firm's viability every night. And during that fateful week in mid-March, those overnight lenders voted a collective no. The result? Bear Stearns did not have enough cash on hand to meet customers' demands during the run on the bank."
• Cayne nearly died of sepsis 11 months ago - The article begins, "In the early morning hours last Sept. 11, a black Town Car pulled up to the entrance of New York-Presbyterian Hospital in Manhattan. Inside the sedan Jimmy Cayne, the CEO of Bear Stearns, was close to death."
• Ace Greenberg planned to ask Barbara Walters to marry him the day before she wed Merv Adelson - Fortune says that Bear's Ace Greenberg told Cayne that he was was dating Walters and was planning to marry her. According to Fortune Greenberg told Cayne, 'I've decided I'm going to marry Barbara Walters.' The very next day in the papers she's engaged to Merv Adelson."

For the full story, read the article.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Time Warner securities.

Fortune gets the scoop on Bear's Cayne originally appeared on BloggingStocks on Mon, 04 Aug 2008 10:45:00 EST. Please see our terms for use of feeds.

Continue reading Lone Star loves toxic mortgages

Lone Star loves toxic mortgages originally appeared on BloggingStocks on Wed, 30 Jul 2008 10:10:00 EST. Please see our terms for use of feeds.