Wall Street protesters: We're in for the long haul

[Neil]

I get the impression from this thread we going to toast the poverty protests with California champagne and a meal of organic, hormone-free dog.   

I was reading a discussion about the poverty protests on another board, and people were indeed speaking disparagingly about Champagne drinkers. I refrained from inquiring whether they were using the term to refer to all sparkling wines or only those from Champagne.

I for one would like to know whether they disdain people who drink sparkling wine or whether they reserve a special place in hell for people who drink champagne.

I don't know, people who drink cheap champagnes like Baby Duck are already in a certain kind of hell on earth.

When I was in college, I had a roommate whose thirst for Baby Duck was insatiable.  Just fucking awful stuff, I don't know how he survived.

[citizen k]

Sweet deal for JP Morgan.

Depends how much they paid.

It was $2 per share then upped to $10.

I wonder how ugly it's going to get unwinding those CDOs.

CDO Holders at Risk: New Jersey Bankruptcy Court Declines to Dismiss CDO Issuer's Involuntary Chapter 11 Case

The United States Bankruptcy Court for the District of New Jersey, in In re Zais Investment Grade Ltd. VII,1 recently jolted the structured finance community by declining to dismiss an involuntary chapter 11 case commenced against a Cayman-based collateralized debt obligation ("CDO") issuer. The ruling, which is currently on appeal, broke new ground by permitting the debtor's senior noteholders to use chapter 11 as a means of avoiding express provisions in the indenture that otherwise required each tranche of senior noteholder debt to approve any liquidation of the issuer's assets by a supermajority vote. It is important that participants in the structured finance markets take account of the possible ramifications of the decision in evaluating their current CDO exposure and in structuring finance vehicles in the future.

Among the more notable determinations in Zais was that it is not per se improper for a senior noteholder to use involuntary bankruptcy as a means of avoiding restrictions in an indenture with regard to collateral disposition. This is significant because such restrictions are specifically designed to protect the interests of junior noteholders. It seems, however, that structured finance vehicles that were intended to be bankruptcy-remote are increasingly turning out not to be bankruptcy proof.19 Moreover, the impact of the court's ruling may also extend to debt issuances that do not involve special purpose entities. For example, holders of notes issued by a normal operating company may seek to file an involuntary petition against the debtor if they cannot garner the requisite supermajority support for modifying restrictions on collateral disposition imposed by the notes indenture.

http://www.shearman.com/files/Publicatio...

[Barrister]

I get the impression from this thread we going to toast the poverty protests with California champagne and a meal of organic, hormone-free dog.   

I was reading a discussion about the poverty protests on another board, and people were indeed speaking disparagingly about Champagne drinkers. I refrained from inquiring whether they were using the term to refer to all sparkling wines or only those from Champagne.

I for one would like to know whether they disdain people who drink sparkling wine or whether they reserve a special place in hell for people who drink champagne.

I don't know, people who drink cheap champagnes like Baby Duck are already in a certain kind of hell on earth.

When I was in college, I had a roommate whose thirst for Baby Duck was insatiable.  Just fucking awful stuff, I don't know how he survived.

In the fraternity, we would have a Christmas bottle exchange.  Of course someone would give a bottle of Baby Duck champagne.

[crazy canuck]

In the fraternity, we would have a Christmas bottle exchange.  Of course someone would give a bottle of Baby Duck champagne.

You did go to the U of M.

[Maximus]

Besides it was a frat.

[citizen k]

Sweet deal for JP Morgan.

Depends how much they paid.

from NYTimes:

NEW YORK — JPMorgan Chase on Monday raised its offer to $10 a share for Bear Stearns, the beleaguered investment bank, in an effort to pacify angry shareholders.

The sweetened offer of about $1 billion, which was first reported Sunday night, is intended to win over stockholders who vowed to fight the original fire-sale deal, struck only a week ago at the behest of the U.S. Federal Reserve and Treasury Department.

Shares of Bear Stearns rose as high as $10.06 in electronic trading before the market opened; they closed at $5.96 last week. Bear Stearns rose 103 percent to $12.14 in late Monday trading, while JPMorgan was up 2 percent at $46.90. The overall market climbed sharply, with the Dow Jones industrial average rising 1.7 percent.

Under the new terms, JPMorgan would pay $10 a share in stock for Bear Stearns, up from its initial offer of $2 a share - a figure that represented one-fifteenth of the going market price for Bear Stearns. Each share of Bear Stearns common stock would be exchanged for 0.21753 shares of JPMorgan Chase stock, up from 0.05473 shares.

In addition, JPMorgan Chase will buy 95 million newly issued shares of Bear Stearns common stock, or 39.5 percent of the outstanding Bear Stearns common stock after giving effect to the issuance, at $10 a share.

In the statement, the banks said that the directors of both companies had approved the amended agreement and the purchase agreement. In addition, Bear Stearns's directors have indicated that they intend to vote their shares - worth almost 5 percent of Bear Stearns's shares after the dilution of issuing shares for JPMorgan - giving JPMorgan nearly 45 percent of the vote and a virtual guarantee that the deal will be approved by shareholders. The deal is expected to be completed by April 8.

The higher offer - the initial price was $236 million - comes after a tumultuous week on Wall Street and in Washington because of the near collapse of Bear Stearns and the hastily devised deal to save it.

While the initial agreement appeared to have defused the financial crisis of confidence that undid Bear Stearns, the initial terms of the deal - and the government's controversial role in reaching them - drew criticism from those who said the takeover amounted to a government bailout of Bear Stearns, a firm at the center of the mortgage meltdown.

As part of the original deal, the Fed guaranteed to take on $30 billion of Bear Stearns's most toxic assets. Under the revised deal, JPMorgan Chase will bear the first $1 billion of any losses associated with the Bear Stearns assets being financed and the Fed will finance the remaining $29 billion on a non-recourse basis to JPMorgan Chase.

The Federal Reserve Bank of New York, in a statement Monday, confirmed its role in the arrangement.

It said that BlackRock Financial Management would manage the portfolio under guidelines established by the New York Fed that were designed to minimize disruption to financial markets and maximize recovery value

"We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise," the chief executive of JPMorgan, James Dimon, said, "and bring more certainty for our respective shareholders, clients, and the marketplace. We look forward to a prompt closing and being able to operate as one company."

In the same statement, the chief executive of Bear Stearns, Alan Schwartz, said: "Our board of directors believes that the amended terms provide both significantly greater value to our shareholders, many of whom are Bear Stearns employees, and enhanced coverage and certainty for our customers, counterparties, and lenders."

"The substantial share issuance to JPMorgan Chase was a necessary condition to obtain the full set of amended terms, which in turn were essential to maintaining Bear Stearns' financial stability," Schwartz said.

While the rules of the New York Stock Exchange generally require shareholder approval before a company issues securities that are convertible into more than 20 percent of the outstanding shares, an exception is permitted in cases where a delay would jeopardize the viability of the company. Under a Delaware precedent, where the companies are incorporated, a company can sell up to 40 percent without shareholder approval.

The new deal could raise even more questions about the Fed's involvement in the negotiations. The central bank had directed JPMorgan to pay no more than $2 a share for Bear Stearns to assure that it would not appear that the Bear Stearns shareholders were being rescued, people involved in the negotiations said Sunday night.

A spokesman for the Federal Reserve would not comment on the central bank's involvement in the negotiations and denied that it had directed the original sale price.

In television interviews last week, the Treasury secretary, Henry Paulson Jr., who has been closely involved in the negotiations, sought to portray the agreement not as a rescue effort but as a way to provide stability for the entire financial markets.

"Let me say that the Bear Stearns situation has been very painful for the Bear Stearns shareholders," Paulson said on the NBC "Today" show. "So I don't think that they think that they've been bailed out here."

With the price increase, some critics could have more ammunition to complain that taxpayers are helping to bail out a Wall Street firm that should be responsible for its own risky behavior. That is one reason the Fed was hesitant to approve the transaction at $10 a share, people briefed on the talks said.

Inside Bear Stearns, the vitriol over the original bargain-basement price was palpable last week. Bear Stearns employees own more than a third of the firm's stock, and many longtime employees faced the prospect of losing all their savings. Last week, some were seen crying in the hallways of the firm's Midtown Manhattan headquarters.

One employee started a Web site to rally opposition to the deal. Some employees said they talked back to their new supervisors from JPMorgan, which commandeered desks and conference rooms after being given operational control of the firm last week.

The new price would still be a small fraction of what Bear Stearns was worth before its recent meltdown. Its shares were trading at about $67 two weeks ago and as high as $170 a year ago.

Some large shareholders have even considered voting down the deal to send the firm into bankruptcy protection, where they speculate they might get more than $2 a share from creditors.

The British billionaire financier Joe Lewis, the firm's largest shareholder, who had invested $1.26 billion in Bear Stearns over the last year at an average price of about $104, said in a filing with the Securities and Exchange Commission that he would seek to block the deal by taking "whatever action" necessary and would "encourage" the firm and "third parties to consider other strategic transactions."

He and James Cayne, the Bear Stearns chairman, were talking informally to friends and others about finding investors to mount a rival bid. Some shareholders could seek to file lawsuits to block the deal. JPMorgan and Bear Stearns were prompted to renegotiate after shareholders began threatening to block the deal and it emerged that several "mistakes" were included in the original, hastily written contract, according to people involved in the talks.

One sentence was "inadvertently included," according to a person briefed on the talks, which requires JPMorgan to guarantee Bear's trades even if shareholders voted down the deal.

When the error was discovered, Dimon, who was described by one participant as "apoplectic," began calling his lawyers at Wachtell, Lipton, Rosen & Katz to seek a way to have the sentence modified, these people said. Finger pointing over the mistakes in the contracts began as bankers blamed the lawyers and vice versa.

As it began to look more possible late last week that the deal might be struck down, JPMorgan approached Bear Stearns in earnest on Friday about renegotiating the sale price to guarantee its completion and brought the Federal Reserve into the talks as well, people involved in the negotiations said.

Dimon became increasingly desperate in recent days. He offered certain employees cash and stock incentives to stay on and made calls to his rival chief executives on Wall Street - John Mack at Morgan Stanley and John Thain at Merrill Lynch, among them - pleading with them not to recruit Bear Stearns employees during the transition.

Dimon had became convinced that the deal was in jeopardy after spending much of last week taking angry calls from Bear Stearns's largest shareholders, including Lewis, these people said. Moreover, Dimon, who had indignantly told associates that he would "send Bear back into bankruptcy" if the deal was struck down, was persuaded by his advisers that he had less leverage than he thought, according to people briefed on the conversation. Such vindictive behavior, they told him, would turn into a legal and public relations nightmare.

Last week, in an impassioned speech to Bear Stearns employees seeking their support, Dimon said: "No one on Wall Street could have anticipated this. I feel terrible sometimes when people think we took advantage. I don't think we could possibly know what you all are feeling, but I hope that you give JPMorgan a chance."

[Ed Anger]

Nerds....

http://nwn.blogs.com/nwn/2011/10/occupy-wall-street-second-life.html

They should virtually machine gun them.

[Neil]

Last week, in an impassioned speech to Bear Stearns employees seeking their support, Dimon said: "No one on Wall Street could have anticipated this. I feel terrible sometimes when people think we took advantage."

I don't know how he can say that with a straight face.  Of course they anticipated this.  They made it happen deliberately, and they knew that their scheme couldn't last forever.

[The Minsky Moment]

I don't understand your use of the word potential to describe AIG counterparty risk.  Presumably all the CDS they wrote has wound down by now?

I don't think it has but that is besides the point -- the issue here is that absent the government eating this portfolio, the counterparties on these trades would have been left holding empty bags, and that probably would have triggered a cascade of failures.

I don't grant the Fed discount rate as a subsidy.  You have to run a monetary policy somehow, and low Fed rates (collaterized by otherwise useless Treasury paper) pass through eventually to borrowers.  Banks don't make any return by borrowing money (even at very low rates) then sitting on it. 

The Fed has many roles, of which monetary policy is only one.  Others are acting as bank regulator, holder of bank reserves and lender of last resort -- these are what I am referring to.  There is nothing re running a monetary policy that requires a central bank to pay interests on reserves, particularly excess reserves, and indeed for many years the Fed didn't.  That alone amounts to a straight transfer of billions of dollars from the government to the banks.  As for lender of last resort, the canonical formulation of that task involves lending at penalty rates (eg Bagehot) and only on good collateral and the Fed did the opposite.

Freddie and Fannie's function was to lower borrowing costs for home buyers, which they performed.  A subsidy that passes through banks to consumers should not be considered a subsidy to banks.

Whatever the intent of Freddie/Franny was, what they actually did was different.  They didn't really lower total borrowing costs, because while they allowed home owners to borrow at lower rates, they also helped drive up housing prices.  But what Franny and Freddie did do was provide a lucrative market for securitized housing debt, thus fueling the originate and distribute model that brought in a steady stream of origination fees to commercial banks and fat underwriting fees to the investment banks.  The effect of Freddie/Franny was (and still is) to transfer default risk en masse from private institutions and their investors to the public fisc, while still allowing the private institutions the reap the benefits of originating, packaging, destributing, re-packing, re-distributing, etc, etc, those loans.

I'll grant you that TARP was a subsidy for the weaker recipients of funds if you'll agree that it was forced on other banks against their will (not the usual definition of a subsidy).

That banks that said they didn't want the money said that because of the fear that the market would view acceptance as a sign of weakness (and refusal as a sign of strength).  It was basically a commons problem that the government solved by making all the systemically important banks take the money.  What remains is true is that: (1) some institutions needed the money to survive, and (2) if the government had let those institutions fall, other dominoes would have been at grave risk.

Was unaware that the US insured Bear Stearn's liabilities.

It was the only way they could get JPM to do the deal.

[garbon]

So I'll admit this - I went to the same place where I'd ordered that medium well steak and ordered a medium rare one today.  Without Psellus or Timmiesque behavior - I'll admit that it was way better once I got over the whole pink aspect. Not all chewy like it was before but instead juicy and succulent.

[Habbaku]

 

[crazy canuck]

So I'll admit this - I went to the same place where I'd ordered that medium well steak and ordered a medium rare one today.  Without Psellus or Timmiesque behavior - I'll admit that it was way better once I got over the whole pink aspect. Not all chewy like it was before but instead juicy and succulent.

[Sheilbh]

Wine snobs hate mongers, because of his love for cider as opposed to wine.

That you think the wine snobs just shows you've never been exposed to the cider snobs

[garbon]

Wine snobs hate mongers, because of his love for cider as opposed to wine.

That you think the wine snobs just shows you've never been exposed to the cider snobs

Civilized places don't serve cider.

[garbon]

So I'll admit this - I went to the same place where I'd ordered that medium well steak and ordered a medium rare one today.  Without Psellus or Timmiesque behavior - I'll admit that it was way better once I got over the whole pink aspect. Not all chewy like it was before but instead juicy and succulent.