The Bear Stearns Fiasco

Everyone is aware of the current Subprime mortgage crisis leading the US economy into a possible recession (or are we already in a recession). But a lot of people like me were surprised with the Bear Stearns, one of the largest global investment bank taken over by JP Morgan Chase with the help of Federal Reserve backing, couple of weekends back for $2 per share. How can a company being traded for $172 a share in January 2007 or $93 a share in February 2008 be sold out for such an outrages price on 14th March 2008.

With this post I will try to answer the Bear Stearns mess. Before we begin lets have an overview of the company.

Overview

Bear Stearns was founded in 1923 as an equity trading house. The company has headquarters located in Manhattan, NY with a number of offices in US and internationally.

Bear Stearns operates as an investment banking, securities and derivatives trading, and clearing and brokerage company serving governments, corporations, institutions and individuals worldwide. Based on 2006 revenue distributions the company has 80% business in capital markets, under 10% in wealth management and about 12% in clearing services.

In 2005-2007, Bear Stearns was recognized as the "most admired" securities firm in Fortune's "America's Most Admired Companies" survey, and second overall in the security firm section. The company holds this distinction second time in the past three years.

Bear Stearns and subprime mess

The first cracks of subprime mess were seen in Bear Stearns as early as June 2007. The company pledged a collateral loan of $3.2 billion to bail out one of its funds. But when things didn't work out in July 2007 it disclosed that two subprime hedge funds had lost nearly all of their value. And this was just the beginning of the bad news for Bear Stearns. The following are highlights of what followed July 2007.

1. In Aug 2007, investors in the two funds took action against Bear Stearns
2. In Sept 2007, there was a reported 60% drop in net profits of Bear Stearns due to the hedge funds losses
3. The company's credit ration was lowered from AA to A by Standard & Poor's credit rating with AAA being the highest safety rating and D being the lowest with anything lower than BBB considered as junk bond)
4. In Nov 2007, the company reported a $1.2 billion losses related with mortgage-related securities, their first loss in 83 years.

So the writing was on the wall. Further pointers about the mess was seen a week before the purchase.

1. The week before it was sold Bear Stearns shares were trading at $76 a shared on Thursday and $30 on Friday.
2. The talks of the company having liquidity problems were making rounds, making its clients and lenders to withdraw their money from the firm leading to drastic loss in share value.
3. Bear Stearns with its bad investments had in totality $31 in debt per $1 it had.

So if the Federal Reserve wouldn't have stepped in and had make the take over a possibility over the weekend then over the course of the week Bear Stearns would have collapsed under the weight of its own problems and the effects would have been even more devastating.

Bear Stearns would have eventually file for bankruptcy freezing its client assets. Thus leading to taxpayers footing in the bill for assets which the Federal insured in the bailout. And the panic which this would have caused would have spell devastation beyond words.

10 reasons I like Family Guy

1. Stewie Griffin the adult vocabulary blabbering one year old kid.

2. The show explains stories in a mighty hilarious way.
e.g. the "free bare arms" as second amendment. One of the episodes it shows the founding fathers looking at "bear arms" hung on the wall and discussing if it would be ok to include in the second amendment.

3. The Stewie and Brian partner ship. No one understand Stewie better than Brian and they bring down the house when both are drunk.

4. Peter and rooster fight, a random event for no apparent reason.

5. The show being animated nothing is impossible for the characters and the makers make good use of this liberty.

6. The take on celebrities in the show.

7. Peter Griffin's laughter .....eeeehhheeee

8. The evil monkey and Herbert who are always after Chris

9. Peter's friends - always charged up Joe, the gigadi gigadi guy Glenn Quagmire, and Cleveland

10. Last but not the least Peter's amazing flashbacks.

You won't believe what happened one night

Couple of years back when I was in grad school I had one of the weirdest experiences of my life. Now whenever I look back at the incident it cracks me up.

This happened one weekend night, I was working late in my office doing a programming assignment due the following week. Let me just give an idea about my office. Its a big room 40 feet by 40 feet with high ceiling and just rows of cubicles for graduate students. The room has one main door, an emergency exit and no windows. In a way its depressing but good when one has to focus on work without distractions.

It was about one in the morning and I was pretty tired but determined to get the assignment out of my way. When suddenly I heard a strange noise .....zhing zhing .......... I didn't paid much attention to the sound but noticed that the sound became more clearer and louder. I tried to focus all my attention on the computer screen. When suddenly a wet thing popped up between my thighs and hands, it touched my hand. I just frooze, I wanted to scream but just air came out of my mouth. I should have jumped on my desk but I just froze.

Any guesses for what this thing was. It was the nose of a full size black Labrador. After a min or so I gained control over myself got up from my chair and shooed the dog away.

Now how the hell did this dog get into this enclosed building over the weekend. I did my little bit of investigation on this. The following is my conclusion for this.
Some background story, on Friday afternoon we had some air conditioning problem in our office. And the maintenance guys had just postponed the fix till Monday morning. It was quite hot and uneasy in the office over the weekend. One could feel the discomfort initially but got used to it after a while. Someone must have left the exit door open for some air circulation and forgot to close it. The dog must have come in from this exit door.

And if you are still wondering about the zhing zhing sound ........ its the dog collar tag which made the sound. The dog just roamed around the office like a manager who over sees every one is working and left through the exit door after 5-10 minutes it visited my desk.

The Rainmaker

Keeping up with my reading of John Grisham's work, I just completed another interest book by the author "The Rainmaker". Like most of John Grisham's work this book deals with lawyers, law firms and courthouse.

The book is very different from "The Firm", it revolves around a young lawyer, Rudy Baylor just out of law school but one without a job and not much to look up as a bright career as a lawyer. Due to series of events he is forced to work with J. Lyman "Bruiser" Stone, a lawyer whose track record is famous for fighting cases for people on the wrong side of the law. Though Rudy Baylor stumbles on a good case against a big health insurance company, which Bruiser decides to fight while Rudy learns in court. But Bruiser disappears overnight and Rudy is left with "paralawyer", Deck who has not passed the bar exam even after six attempts, to fight the case against the best law firm in Memphis.

The book tracks Rudy's work as a lawyer, character's like Deck who knows how to get and win cases without being a lawyer. A Hollywood movie by the same name with Matt Damon as the lead character and Danny De Vito as Deck was released in 1997. This was one of John Grisham's work where I had seen the movie before I picked the movie. But no complains, the book keeps one engrossed entirely. Another recommended work if you want to read Grisham's work.