Curious rumours

[fpb]

I wonder if notebuyer, or anyone else who knows about finance and stock exchange practices - I don't - has any opinion about the rumour I placed behind the cut. I am serious. You and I may disagree on a number of things, but I always like to hear an expert's view. And this is both so curious and (if at all true) so significant, that I really would

Comments

[rfachir]

It doesn't sound too far-fetched to me. In fact, the only shady sounding thing is that anyone wants it covered-up. (After Iraq, no one trusts what the government says anyway.) It's no secret the Treasury is involved in the Bear-Sterns bailout. And it's no secret that the hedging activity collapsed and brought down the company when no one could be found to buy the options they needed to sell to create the hedge.
(But I'm not an expert, I'm just an old cynic who works for them. It's all magic to me - smoke and mirrors. They might as well pay me in knuts.)

[fpb]

Thanks. And as a whatever-it-is in insurance, you certainly know a lot more about finance than I do, so this is the sort of opinion I was looking for. So thanks again.

No liquidity = No financial system.

[notebuyer]

http://www.forbes.com/markets/feeds/afx/2008/04/20/afx4910392.html

We dodged a bullet. Bear Stearns was countertrade partner on a very large number of swap facilities: and those liabilities had to be handled very carefully. Morgan had the reputation to prevent their collapsing, and Bear Stearns, after their involvement in subprime mortgages, did not. One of the key functions of the Fed is to supply liquidity in the system to keep it from collapsing, and this was an injection that effectively put most of the risk on the shareholders (who, after all, take it by investing in shares). Insider trading has other penalties, and they should be enforced. Deals of this size do need some negotiation and drafting, and that is usually the source of the leaks that lead to insider trading charges.

Greenberg dodged a liability that would have wiped him out. I'd be excited, too.

Re: No liquidity = No financial system.

[fpb]

So your opinion is "nothing in it". OK, thanks. I did notice the point about the Fed supplying liquidity to keep the system from collapsing - it is, after all, what the British state has done in the case of Northern Rock and, before the Brown reforms, the Bank of England did several times for various banks in trouble.