Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Dimon's Bear Stearns Sticky Bombs Are Worse Than Geithner's

Politics / Credit Crisis 2010 Feb 18, 2010 - 09:14 AM GMT

By: Janet_Tavakoli


The Financial Times recently reported more losses on the $30 billion in Bear Stearns's mortgage assets that the Fed took off of Jamie Dimon's hands, when JPMorgan Chase's CEO bought Bear in the spring of 2008. The assets languish in Maiden Lane I, a purchasing vehicle created on the watch of then President of the New York Fed and current Treasury Secretary, Timothy Geithner. At the outset, it looked like a bad deal for taxpayers, and it continues to look lousy.

In Dear Mr. Buffett, my book on the global meltdown, I wrote that Bear Stearns's stock was not worth one penny, even though JPMorgan bid $2 per share at the time and ended up paying $10 per share after the original deal went sideways. I recapped Jamie Dimon's April 2008 testimony to the Senate banking committee:

"We could not and would not have assumed the substantial risks of acquiring Bear Stearns without the $30 billion facility provided by the Fed....We are acquiring some $360 billion of Bear Stearns assets and liabilities. The notion that Bear Stearns' riskiest assets have been placed in the $30 billion Fed facility is simply not true. And if there is ever a loss on the assets pledged to the Fed, the first $1 billion of that loss will be borne by JPMorgan alone."

As part of the deal, the Federal Reserve agreed to take $30 billion of Bear Stearns's securities, and JPMorgan Chase put up only $1 billion as security (less than the margin for the Term Securities Lending Facility), but if the price of the assets declined, JPMorgan Chase could walk away.

So what happened to those assets?

From March to June 2008, [the Fed's assets] lost more than more than $1.1 billion in value; it has already eaten through JPMorgan's $1 billion "cushion" and is now eating into taxpayer dollars. It is a sticky bomb, as dangerous as the makeshift explosives stuck to tanks during World War II. In June 2008, the Fed admitted that it priced the assets as if we were in an "orderly market." But we are not in an orderly market, so the price should be lower, meaning we do not know how much taxpayer money is at risk. Who is helping the Fed price these securities since it cannot price the sticky bomb itself? Blackrock. Blackrock lost money when it invested in the Peloton fund (named after the vee-like bird formation adopted by endurance bicycle riders that lead the pack by taking advantage of drafting to reduce wind friction) that bought overrated and overpriced mortgage backed securities. They should know all about getting taken for a ride.

The assets included financing in the process of being restructured for Hilton Hotels and financing for Extended Stay, a hotel operator that is in bankruptcy. Since June 2008, the Maiden Lane I portfolio deteriorated further, and the Fed's reported value had fallen from the original $30 billion (including JPMorgan's $1 billion "cushion") to $27.1 billion at the end of 2009. If Jamie Dimon didn't give the Fed his riskiest assets, then he must have taken on some interesting risk in that original $360 billion from Bear Stearns.

Taxpayer subsidized cheap funding and looser accounting standards have allowed our largest banks to keep their Dorian Gray financial pictures behind a curtain and out of public sight.

Paul Volcker, Chairman of the President's Economic Advisory Board, urges we break up the big banks and separate risk-based trading from traditional banking, the opposite of the JPMorgan Chase / Bear Stearns merger and the opposite of JPMorgan Chase's brand new deal to purchase RBS's Sempra's metals and energy trading units. So far all the Fed has done is to enable JPMorgan Chase and the country's largest banks to become riskier and larger while providing them with an enormous slush fund. As for the intent of the Volcker Rule, JPMorgan Chase seems to already have found a way around it.

By Janet Tavakoli

web site:

Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct associate professor of derivatives at the University of Chicago's Graduate School of Business. Author of: Credit Derivatives & Synthetic Structures (1998, 2001), Collateralized Debt Obligations & Structured Finance (2003), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, September 2008). Tavakoli’s book on the causes of the global financial meltdown and how to fix it is: Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street (Wiley, 2009).

© 2010 Copyright Janet Tavakoli- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules