Monday, March 17, 2008
Back on My Feet
Was on my back sick for a few days. Been a long time since I had a 103 degree fever, and I hope it's a longer time before it happens again.
Sicker than me, it turns out, was Bear Stearns. Bear Stearns, which 1 year ago traded at $170 per share, was sold last night to JP Morgan for $2 per share. It gets more interesting- the FED basically GAVE JPM $30 Billion to buy Bear for $250 Million. (A $30 billion non-recourse loan to JPM secured by crap mortgages on BSC's books)
Why? Because Bear Stearns was bankrupt. Insolvent. Broke. And why? Because at bottom, they facilitated the housing bubble, where mortgage brokers lent money to people who couldn't pay it back to buy houses they couldn't afford. The mortgage brokers and investment banks didn't care, because they were shuttling the repayment risk off to the bond and CDO investors, and huge fees were made at every step of the process. Except when the music stopped, Bear was left with heaping armloads of crap, and no one was left that would take them away. They lost a giant game of Old Maid . . . only in this game, it seems, the Fed is willing to hold the Old Maid card . . . in a couple of years, we'll be able to figure out just how much this bailout cost. (It IS a bailout . . . because JPM would not have paid a nickel for BSC without that $30 billion from the Fed. And they're getting a $1.25 Billion office building in the deal. Peel that out, and they're valuing BSC's business not at $250 million, but at -$1 billion.)
Because of the mortgage mess that was enabled by BSC and it's peers, prices on houses and condos went through the roof the past few years, while incomes for the average guy stayed the same or even dipped slightly. This is George W. Bush's "ownership society", brought to you by "Easy Al" Greenspan.
Our economy, if you haven't guessed already, is in a lot of trouble. And the real estate market is in for a rough patch for the next couple of years. And that most certainly includes NYC.