OpEd: Reflections on Bears; On Bear Stearns; On Bear Markets

Yesterday, after listening to the Bloomberg News channel since 5am or so, I had turned the T.V. to "mute" so I could just see the breaking news on the bottom rather than listen to the spin by the pundits. It is a lot quieter that way.

Soon after the markets opened, I saw President Bush speaking, a little stressed it looked like, and after watching him for a while, I tried to guess what he was saying. It looked like he was mouthing that "There really are WMD in Iraq." Or maybe "We are really victorius in Iraq." or maybe that 'I am a compassionate conservative."

What a disappointment to turn on the sound and hear the actual words: "Trust me, the economy is sound. Our markets are resiliant. These are tough times....."

I did recall that these were almost the exact words that Herbert Hoover had mouthed in 1929.

The markets plunged right after President Bush had got done speaking. Nothing could be worse that a President trying to inspire confidence when his approval rating is historically low.

The markets are a matter of FAITH. A confidence Game. Always have been. Bankers rely on their counterparts to ensure that when there is a peak of outflow they can sustain it. No one bank alone has the cash on hand to do so; In fact, cash is probably less than 1% of assets. This is why when the faith of the investment community left Bear Stearns, they sold for $2 per share----the plunge in value is simply stunning for those involved.

The "Big boys" at Bear Stearns walked away with their bonuses from January. The regular employees walked away with nothing. At least bankruptcy would have been a little more equitable.

Now that the Federal Reserve has indicated it can intervene creatively, we will see whether it will intervene directly into the mortgage maket and specifically provide a remedy to homeowners who are in their homes and facing foreclosure. They have the power to do this. So far there has been rhetoric. Treasury Secretary Paulson opposes such a move. President Bush opposes such a move. Such a move may be necessary. Stay tuned.

If you click on the post, you can access the text from my recent book called "The Trader's Litle Black Book"---many of the essays in this book directly relate to the transition of Wall Street from traditional banking to securitization. Many of these essays are relevant to the current situation.