PDA

View Full Version : question for y'all - re: real bailout target was JPMorgan



Spartacus
04-13-08, 04:00 PM
I've read this a bunch of times and it still does not make sense to me.

JPMorgan is on the other side of a bunch of trades with Bear Stearns, so the BS bailout is actually a JPM bailout.

But if BS lost on the trades, JPM gained -

what possible reasoning transmutes this into a "JPM bailout" ?

zoog
04-14-08, 01:18 PM
I've read this a bunch of times and it still does not make sense to me.

JPMorgan is on the other side of a bunch of trades with Bear Stearns, so the BS bailout is actually a JPM bailout.

But if BS lost on the trades, JPM gained -

what possible reasoning transmutes this into a "JPM bailout" ?

I don't think I really understand this stuff but... in order to make their money on the trades, wouldn't JPM need Bear Stearns to still exist on the other side of the trades, so that JPM could take Bear Stearns' money? If Bear Stearns went down, might JPM lose the money they put into the trades because there's no one on the other side to take money from? If you buy stock in a company and the company goes broke, stock goes to zero, and is no longer traded, you lose all the money you put in.

But then the question becomes, how does JPM buying Bear Stearns solve the problem? I guess by "owning" both sides of the trade, they eliminate the trading positions without losing the money put into them on each side. Or something like that.:confused:

Spartacus
04-14-08, 02:33 PM
by "owning" both sides of the trade, they eliminate the trading positions without losing the money put into them on each side. Or something like that.:confused:

If BS goes under JPM loses the value of the trades.

But the way it is now, JPM loses the value of the trades plus loses the cash to buy BS plus any liabilities that come with BS. The buyout IMHO will cost JPM dear, which is why the FED had to offer JPM incentives to do the deed.

My point is - the BS buyout is a general bailout, intended to hide the current fair market value of some derivatives across the entire financial world.

But some commentators have been writing that it's specifically a JPM bailout, not a general systemic whitewash/hoodwinking.

GRG55
04-20-08, 01:22 PM
If BS goes under JPM loses the value of the trades.

But the way it is now, JPM loses the value of the trades plus loses the cash to buy BS plus any liabilities that come with BS. The buyout IMHO will cost JPM dear, which is why the FED had to offer JPM incentives to do the deed.

My point is - the BS buyout is a general bailout, intended to hide the current fair market value of some derivatives across the entire financial world.

But some commentators have been writing that it's specifically a JPM bailout, not a general systemic whitewash/hoodwinking.

Couple of observations:
1. You seem to be assuming that every JPM-BSC paired trade was in a gain for JPM and a loss for BSC. I doubt that JPM's traders were that good and BSC's prop desk that bad. It could be that on the whole portfolio it was closer to a wash than appears at first glance.

2. I agree with your view that the commentators are wrong to state it was purely a BSC or JPM bailout. The Fed and Treasury opened the taxpayer's wallet to every single [unregulated!] investment bank out there, and indirectly to much of the hedge fund community as well. How anyone can say this was not a systemic bailout makes no sense to me.