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J. P. Morgan Announces Plan To Purchase Bear Stearns

by D. E. Carson (writer), , March 17, 2008

Part of something beats all of nothing.

How many of us remember the great stock market crash? I don’t mean the 1929 crash, I’m talking about the Black Monday crash in October 1987. To this day no one has offered an accepted assertion as to why the stock market crashed that day or why the market has been so volatile over the last 12-14 months.

Because humans are capable of hubris. No other creature on the face of this earth has the capacity for hubris. Humans rationalize everything. We rationalize why we take something from work (“I’m only borrowing it.”). We rationalize why we don’t give back the extra money when a cashier gives us too much change (“Hey, Wal-Mart makes too much money so they can do without this thirty-eight cents.”). We rationalize snacking from the produce aisle at the grocery store (“I’m hungry and they won’t miss it”),running through yellow lights (“I’m late for work”), and playing the numbers on tax forms (“I can make this deduction work”). Problem is, when we rationalize something, we are telling “Rational Lies.” These little rationalizations are how we placate our conscience when it tells us that we are doing something that we know is wrong. It is this habit of rationalization that gives rise to hubris.

Hubris is defined by the Merriam-Webster dictionary as: exaggerated pride or self-confidence [1]. Humans have always believed that they are the top of the mental food chain – that we are all smarter and therefore better than the other animals of the wild. In many ways, we are. We have the ability to rationalize anything both the good and the evil. We can make deductions based on evidence placed before us and we can even extrapolate information that we already have in our possession to plan for most any outcome. While we cannot predict the future, we can certainly plan for it.

Hubris is strictly human. No other animal can display hubris because no other animal can think like humans. Like it or not, ol’ Phydeaux sitting there in the corner doesn’t remember that last week you played fetch with him at the dog park. He just knows that if you pick up the ball, he’s ready to play with it and you. If Phydeaux craps on the carpet at four in the morning, your beating him for it at 6:30 doesn’t connect in his brain. In his mind, here’s poor ol’ Phydeaux getting the snot beat out of him for greeting you in the morning with a smile and wagging tail. Cats are the epitome of apathy. They don’t care regardless. If you catch Snowbell craping on the rug instead of her litter box and you beat the snot out of her, she doesn’t give a rat’s ass. She’ll walk away from you like nothing happened. Of course later on, you’re liable to find your drapes shredded, but hey, it’s not like it’s revenge or anything. Remember clawing things is a natural instinct for cats and at that moment your drapes happened to be something new with which to sharpen her claws.

Humans, though, are a creature unto themselves. They carry grudges and will often as not go out and get revenge. Just look at the stupid street thugs that keep shooting each other because someone “dissed on my sister!”

Investors are no different than street gangs – except on Crenshaw Boulevard they use guns and on Wall Street they use money. Thugs on Crenshaw (sounds like a store where gangs can buy their “colors” – if anyone uses that name, I get royalties dammit!) wear baggy pants that need to be pulled up because their underwear is showing. Investment bankers on Wall Street wear Hugo Boss suits. Both harbor a lot of hubris. The difference is how they use it.

But the thugs of Wall Street are crying a new tune today. It seems that since JPMorgan/Chase has offered to buy out Bear Stearns, many on Wall Street want J.P. Morgan’s head on a platter. Bear Stearns stock closed Friday at $30.85 a share and the JPM/Chase offer made over the weekend is a mere $2 per share. No, that’s not a typo, that’s two dollars a share -- $28.85 less than the closing price. And the share holders are not loving it! In fact, many are considering suing either JPM/Chase or Bear Stearns or both claiming they were mislead.

My one word response to them is: “WA-A-A-A-A-H!” After which I say, “Go sit in the corner, suck on your thumb and whimper you bunch of crybabies!”

Sure Bear Stearns CEO Alan Schwartz went to the public last Wednesday and told everyone that everything is fine and that Bear Stearns has $17 million “in the bank” [2]. But who remembers the crash of 1987? Yeah, remember that? Everything was fine when we all went home that Friday night and on Monday morning October 19, 1987, stock markets all over the world were suddenly losing points – New York was no exception.

Anybody who invests in the stock market has to have some level of hubris in him otherwise, he’s a cheap wimp who’ll never amount to anything. But these fools looking at suing over the Bear Stearns sell out are whining, crying and whimpering because they think that they’re going to lose money. I believe the new term is “feeling Enroned.” When a company buys the one you happen to own, you exchange your stock for stock in the new company and if that company’s new stock is higher than what you had to begin with then guess what? You just made money!!!

Furthermore, these whiners think that by suing they’ll get their money back. Let me tell you something about lawsuits – especially class-action lawsuits. The only people who make money in a class-action lawsuit are the lawyers. Case-in-point: a recent lawsuit filed in Los Angeles County on behalf of home buyers in the Antelope Valley was intended to help the people because of shoddy construction. The average cost of the homes included in the lawsuit: $320,000. The average amount of each person’s cut of the proceeds from the lawsuit: $6,000 – a little over 20%. Oooh, ah, where-can-I-sign-up? If you invest $10,000 in a company’s stock and you sue, you’ll be lucky to see $2000 when it’s over. Your take might be a mere $200.

The stock market is a risk. It is a BIG risk and only people who are good with numbers and business sense should play. The Internet has made day-traders of everyone and actually harmed the market more then it has helped. People buying and selling on the short term is no way to make big money in the stock market. Any investment strategist worth a dime will tell you that if you want to make money in the stock market, you need to buy and hold long term. The day-to-day volatility of the market is bad for the get rich quick mentality of today’s America. Besides, then there is the capital gains tax you have to allow for and it will get you when it comes time to sell your investments assuming you have made money.

I have no sympathy for the stock holders of Bear Stearns. They knew getting into the market would be riddled with risk. If they end up losing almost $29.00 per share, that’s the price you pay for investing in business. There are no guarantees that any business will stay around forever. Ever heard of C. R. Anthony & Co? Go look them up on the Internet and you’ll see that they don’t exist any more. What do you say to the people who owned stock in that company when it filled Chapter 11 in 1997?

To the stock holders of Bear Stears, I say, get over it. You knew what you were getting into when you bought stock in a publicly traded company. You should always read the fine print where it says, “Past performance is no indication of future returns.” Besides, if you get any money at all for your stock, it’s like my grandmother used to say, “Part of something is better than all of nothing.”

[1] http://www.merriam-webster.com/dictionary/hubris

[2] http://news.yahoo.com/s/nm/20080317/us_nm/bearstearns_lawsuits_dc



About the Writer

D. E. Carson is a writer for BrooWaha. For more information, visit the writer's website.
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3 comments on J. P. Morgan Announces Plan To Purchase Bear Stearns

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By D. E. Carson on March 19, 2008 at 12:03 am

Still boils down to greed.  The Federal Reserve kept jacking up the rate they charged banks for money.  Now, they're dumping money into the economy like water into a well.  The problem now is that because lenders have tightened their criteria by which they determine to whom they will loan money, there is a boat load of money just sitting out there and no one can use it because lenders won't give money to just anybody anymore like they were doing.  It's not having the money that's the problem, it's to whom the banks are willing to give it.  They look at private credit reports (or D&B ratings of a company) and because they are so locked in to their new lending criteria they will be refusing loans to people who might be able to pull themselves out of a hole if they were to get that loan.  I guarantee the "Economic Stimulus" plan passed by Congress isn't going to help either -- it's like using a spoon to bail water off the Titanic.

The sad part is the our so-called public education system doesn't teach students about loans, interest, and the like they way it used to do.  People are getting out of school and are seeing carrots dangled in front of them in the form of money for loans on houses they really shouldn't be buying yet.  They get these super-low ARM interest rates and then all of a sudden five years later they get socked with a huge house payment they can't afford.  It's predatory as far as I'm concerned and some of these sub-prime lenders should be put out of business for loan-sharking.  This credit crisis isn't going to end pretty.  You think things are ugly now, just wait. Six months from now the Federal Reserve won't be able to give away money because banks will be forced into bankruptcy because they will have more foreclosures on their rolls than they can get rid of -- they are penalized between 7 and 10 times the value of the loan -- not the property -- for every foreclosure on their rolls.  That means a $500,000 house will cost the bank between 3.5 and 5 million dollars and just 10 of those tops the $50 million mark.  AND THEY ARE CHARGED THIS EVERY MONTH THE PROPERTY IS ON THE ROLL so those 10 foreclosures approach $1 billion in one hell of a hurry.

That's one hell of a delema to find oneself in.  Especially if a lender has 100 or more foreclosures on their roll.  Leads to bankruptcy real fast.  I do have a solution but no one would like it -- especially the IRS.  Did you know that if a lender writes off your loan, the IRS will assess taxes on the loan amount and send you a bill?  They think the write off is a financial "gift" and is therefore subject to taxation.  How would you like to get a bill from the IRS for $150,000 on a $500,000 "gift"?

It's gonna be a long, bumpy ride for a while.  Hopefully we won't suffer another 9/11 in 2009...

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By D. E. Carson on March 20, 2008 at 12:53 am

Thing is, the FBI is too busy chasing its tail under the so-called Department of Homeland Security -- another cabinet post that should never have been created.  Our Fearless Band of Idiots is being kept busy chasing down terrorists that it doesn't have the time or the resources to go after predatory lenders.  And the banking lobby sure won't go for changes in the credit reporting regulations.  A foreclosure only rolls off your credit report after 10 years from last reporting not a simple ten years.  If your lender updates automatically every five years, then that foreclosure will never leave your report.  If you manage to make it to 9 years, 11 months and 28 days and the lender decides to update on the 29th day, you go back to zero and start over and have to wait another 10 years.  This creates a death spiral that will take changes in laws to correct.  People buy a house and fall into foreclosure.  The foreclosure goes on their credit report and automatically, you lose 100 points on your FICO score.  Additionally, a foreclosure is almost a 100% guarantee of a loan refusal regardless of how long ago it happened.  So, with 65% of the population carrying a foreclosure on their credit report, they won't be able to buy a house with a decent interest rate assuming they can get one.  This puts more empty houses into the housing inventory forcing prices lower.  With fewer eligible buyers in the market, other defaults will begin to come into play (the builder defaults you mentioned in your article).  Banks will be forced to charge higher interest rates (and other fees) just to maintain their reserves required by the Federal Reserve System.  The Fed -- not realizing its contribution to the problem will then lower their rates hoping to stimulate the economy -- but in reality it is cutting the banks' profit margin because the banks will have too much money and no where to get rid of it -- which will then cause the Fed to start calling in its own loans to banks.  Banks will have to raise interest rates again and people who are one major catastrophe away from losing everything will find themselves hit with a higher mortgage payment and BOOM! -- down goes another house to foreclosure.  The bank is stuck with another property on its rolls that it can't afford to take the hit on -- but has to.  Sure housing prices are lower, but the unfair credit reporting system we have is keeping people from qualifying to buy these homes.  Empty properties on bank rolls eat away at profits forcing increases in interest rates and more houses go down to foreclosure.  It doesn't end until banks literally go bankrupt and collapse.  The FDIC won't be able to handle the payouts it is required to make and people -- even the very rich -- will begin losing vast sums of money.

When all is said and done the Mortgage Bankers Association president and the former CEO of Countrywide will both be sitting pretty on some island somewhere while the rest of America burns.  While it is said, "The love of money is the root of all evil."  When one man's love of money causes another man to be without money at all it causes all sorts of tension and I think that people like the president of the MBA and the CEO of Countrywide just happen to love money a little too much.  I'm not advocating wealth redistribution but I would be in favor of some serious regulation of compensation packages offered to corporate executives.

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By D. E. Carson on March 21, 2008 at 07:05 pm

Morgana:  I checked out the link and true to form it's one of those GRQ schemes where the guy sells you a system and not much else.  You have to go all the way to the bottom to see that he'll sell you his "million dollar system" for $39.95 plus S&H.  Yeah, you're getting a money back guarantee but you have to work your tail off and dot every "i" and cross every "t" to prove that you worked his system and it failed.  Then you play hell getting the refund because it will take you the whole 30 days to gather your proof, then you're stuck with everything.  Been there...done that.  There's a guy named Robert G. Allen doing the same thing, only he ropes you into a whole weekend training seminar.  These guys are not selling a business idea, they're snake oil salesmen.  If you want to know how to make real money in real estate, you read books by Donald Trump and go from there.

I'm not opposed to making and having money.  I believe that if you earned it, you deserve to do with it what you wish, but like you mentioned Kenneth Lay, if you hurt someone in the process of getting it, then you deserve the calamity that follows.  Dead or not, Lay's conviction should never have been vacated.  He got to go to his grave with a clean name and that's a bigger slap in the face to the people he screwed than if he had been aquitted in the first place.

My attraction to Donald Trump is that he went from poor to rich to bankrupt and back to rich in a relatively short period of time and he did it without hurting anyone.  I read his book How to Get Rich and in it he talks about how he was several million dollars in debt and instead of declaring bankruptcy (which is a chicken exit if you ask me) he negotiated his debt and he paid them all back -- every penny and he is now one of the richest men in New York.  I do not deny the use of bankruptcy in the even of a real tragedy like medical expenses, but if you are a business person and you don't know how to manage a business and you run it in the ground and don't even try to clean up the mess, declaring bankruptcy is a chicken exit.

As for Ken Lay's wife, I have no sympathy for her.  She should have to liquidate everything and the proceeds go to a reparation fund for the people her husband swindled and she can live "in squalor" as she put it.

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