Watch Cramer for Entertainment, Buy Index Funds
Watch the video above from last Tuesday (March 11) of Jim Cramer scolding a viewer for “being silly” by thinking about dumping Bear Stearns stock — at $65.
(HT: Chris Douglas)
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Tuesday, March 18, 2008
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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11 Comments:
What is more interesting is the video from yesterday on CNBC when he tried to explain that he was talking about taking money out of the brokerage firm, not the common stock. Which he said was worthless. Uh huh. Right.
The question in the background is "Should I be worried about Bear Stearns [BSC] in terms of liquidity and get my money out of there"?
Given concerns that Bear Stearns may run out of cash, I took Cramer to be talking about taking money out of the brokerage firm as he stated. I think it is a moot point though. Stating Bear Stearns is fine wasn't accurate no matter how you slice it.
"Stating Bear Stearns is fine wasn't accurate no matter how you slice it."
The CEO of Bear Stearns stated the same thing ... until Friday.
A run on any bank would result in that bank failing. No bank has enough liquid assets to cover a run.
Bottom Line: A major bank failure was averted by using tax payer dollars and sacrificing shareholder interests.
Helicopter Ben will be doing a drug run today for all of his insolvent banking buddies who got us in this mess to begin with along with our corupt goverment today. Nice to see that according to Perry we're not in recession but we are pricing in a 100bps cut. Anything less then that and the crack ho's on Wall Street will have a fit of course 100bps will tank the dollar. Decisions, decisions poor Ben.
That's hilarious
An acquisition of JP Morgan was funded by a $30B loan from a Federal Reserve bank to cover acquisition costs. Remember the Federal Reserve is not the federal government. They are a private bank but act in the interests of the US economy. In addition, these funds must be paid back by JP Morgan.
Taxpayers did not bail out Bear Stearns. It was a loan from the Fed Reserve (not the federal government) to a publicly traded company to acquire Bear. Also, Bear Stearns did fail. Their stock dropped from $70 to $2 in five days at which point they were acquired.
While the Federal Reserve is not technically the Treasury, doesn't the Fed send 100% of it's profits each year TO the Treasury? And if so, any hit that the Fed takes up to $30 billion is money that they don't/won't send to the Treasury? (Last year I think they sent close to $100 billion? )
Can the lemmings who watch Cramer truly believe you can get sensible investment advice in 20 seconds? The show is truly stock entertainment.
As for the Fed, they did what they are supposed to do. They facilitated a deal to prevent panic in the Repo market. A crisis in confidence was averted and the markets are stabilized to avert further damage and a tailspin into economic disaster.
I agree; he was talking about Bear from the perspective of a bank customer, not a stock investor. As such, he was right; as a bank bear was not that bad off, just suffering a run, so it was silly to take your money out. The bank had plenty of illiquid assets to serve creditors.
"While the Federal Reserve is not technically the Treasury, doesn't the Fed send 100% of it's profits each year TO the Treasury"?
Yes technically, but not really.
"And if so, any hit that the Fed takes up to $30 billion is money that they don't/won't send to the Treasury"?
Yes, if JP defaulted, the Fed Bank would be SOL, and they would not send the profit from this loan to the Treasury.
Then again, if they didn't loan JP the money, they would not be able to send the profits from the loan to the Treasury, so that point can be argued both ways.
All in all loaning money and reaping interest is one pretty big way that they profit (as do taxpayers via extension as you point out). So, shouldn't taxpayers be happy that the Fed Bank is making loans it deems are safe, while at the same time avoiding a panic-stricken run at other financial institutions? Are you advocating the Fed Bank stop loaning money, because this is done at the possible detriment of taxpayers if the lendee were to default? When at the very same time, if they did not loan money to those they deem worthy, taxpayers would not reap the benefits of the interest (profits) from these loans.
"(Last year I think they sent close to $100 billion? )"
Good. Then, the loan to JP was probably a sound decision given their history.
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