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Bear Stearns CEO Cayne sells stake
Associated Press
Friday, March 28, 2008

NEW YORK -- Bear Stearns Cos. Chairman James Cayne on Thursday sold his holdings in the embattled investment bank ahead of its expected acquisition by JPMorgan Chase & Co.
     
Cayne sold 5.66 million shares for exactly $10.84 a share for $61.3 million. However, it was not known if those shares were dumped into the open market or if Cayne sold them to another party.
A spokesman for Bear Stearns would not comment on the sale.
JPMorgan has offered about $10 per share in its acquisition of Bear Stearns. That was increased from the original offer of $2 per share amid speculation that major shareholders would not accept the deal on those terms.
Shares of Bear Stearns have traded above the prices offered since the deal was announced as some investors felt a rival bid might be in the offing. There has also been speculation that Cayne might try and muster a competitive offer with Joseph Lewis, a billionaire financier who is Bear Stearns' second-largest shareholder.
Telephone calls to Lewis were not immediately returned.
Bear Stearns shares rose 2 cents to $11.23 in trading Thursday. JPMorgan shares fell $1.25 to $42.86.

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The rats are leaving the sinking ship.

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It's time to tame the greed
First published: Saturday, March 29, 2008

"The new law of evolution in corporate America seems to be the survival of the un-fittest," the fictitious shareholders of the phony corporation Teldar Paper are told.
     
Then Gordon Gekko, the ruthless takeover artist depicted in the 1987 movie "Wall Street," goes on to deliver a memorable soliloquy: "The point is, ladies and gentlemen, that greed -- for lack of a better word -- is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. ... And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA."
That malfunctioning corporation called the USA is still malfunctioning. At the moment, the cause is a surfeit of greed not seen since the 1980s if, in fact, it ever went away. Our corporate culture has been transformed from one based, legitimately, on the profit motive to one that is based, illegitimately, on elaborate paper-pushing. At its essence, this is a practice of making money from transacting and not from transforming a commodity into a product, or a brilliant idea into something so useful that millions rush to buy it.
And when these greedy transactions go bad -- as they have in the incomprehensible subprime mortgage mess and, specifically, in the unfolding Bear Stearns imbroglio, greed again carries the day. If the Bear Stearns catastrophe is opaque to most Americans, it is because the business the giant investment bank was conducting was designed that way.
The shortest, most oversimplified version of the story is that Bear is neck-high in perilous assets stemming from its role in the sketchy mortgage market and appears unable to meet its own creditors' demands. So the Federal Reserve engineered what amounts to a public bailout, a transaction smoothed by J.P. Morgan Chase, originally with an offer of about $2 per share to take over Bear Stearns and save it from bankruptcy.
You would think such a gesture would be welcomed by the very managers and shareholders who'd driven Bear into the tank. But they balked at the $2 price: "Derisory" is what Joseph Lewis, a billionaire investor, called it, according to Bloomberg News. And so these sharp investors threatened to block the takeover by finding another suitor or -- what else? -- by suing to stop it. Now they've gotten J.P. Morgan to up its offer to about $10 per share.
Greed is still good.
Consider those on the other end of the subprime mortgage meltdown, the homeowners who were locked into loans they could not afford, either because of their own misguided financial choices or because these loans were presented to them with predatory and deceptive practices. Those who have not yet been foreclosed have been offered no real way to hold on to the roofs over their heads. They have not had their government bail them out of their bad choices. Indeed, the Bush administration has repeatedly said it will not engineer such a rescue.We are presented with an ugly portrait of ourselves. The misguided investments of billionaires who kept buying stock in Bear Stearns are given a hand up by the Federal Reserve. Then they demand more, and get it. The misguided homeowners are told to pack up and move.
If this picture were just a snapshot of the mortgage implosion, it would be repulsive enough. But it is the same movie we see again and again, as corporate chieftains in search of the cheapest labor move jobs overseas, freeze or eliminate pensions at home and often discard workers who have given their lives to a company. Then the managers, having delivered to shareholders the additional "value" they seek, are rewarded with compensation packages that, in and of themselves, could fund the pensions or the health insurance of more than a few displaced workers.
It is no longer enough to blame lax regulation and a political system that has nurtured it. It is no longer enough to blame "globalization," as if this were some force that we are powerless to tame. We've chosen to do nothing to tame it.
The malfunctioning corporation called the USA is just as Gordon Gekko saw it. But it is a corporation that cannot be saved by greed. It is greed run amok that is bringing it to its knees.
Marie Cocco's e-mail address is mariecocco@washpost.com.

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Administration pushes regulatory changes
By MARTIN CRUTSINGER, AP Economics Writer

The Bush administration is trying to confront the credit crisis that has rattled nerves from Wall Street to Main Street by proposing wholesale changes in how Washington oversees the financial system.

A plan set for release Monday would give new powers to the Federal Reserve so that the central bank serves as the system's overarching protector of stability.

The proposal would abolish agencies such as the Office of Thrift Supervision and the Commodity Futures Trading Commission, shifting their responsibilities to other federal institutions.

When Treasury Secretary Henry Paulson outlines the ideas in a speech, the changes will represent the most sweeping overhaul of financial regulation since the Great Depression of the 1930s.

The Associated Press obtained a 22-page executive summary of the proposal. It seeks to make sense of the mishmash of overlapping oversight in which an alphabet-soup roster of agencies regulates banks, thrifts and credit unions.

Under the current hodgepodge, institutions that take deposits and are federally insured face multiple regulatory bodies. By contrast, hedge funds, private equity firms and investment banks endure substantially less regulation.

The credit crisis that has rocked Wall Street and made credit hard to get on Main Street has highlighted that discrepancy in regulation.

Many financial institutions have declared billions of dollars in losses stemming from soaring mortgage defaults caused by prolonged housing troubles.

In an unprecedented move designed to get credit flowing again, the Fed is allowing investment banks to borrow directly from the Fed, something only commercial banks had the power to do before.

That decision came as part of a rescue effort for Bear Stearns Cos., the nation's fifth largest investment bank. It nearly failed earlier this month before the Fed rushed in with a $30 billion line of credit to facilitate the sale of Bear Stearns to JP Morgan Chase & Co.

The Fed's moves have put public money potentially at risk and increased calls for greater regulation of investment banks and other institutions.

The Paulson plan is expected to generate intense debate in Congress, which would have to approve the changes.

Some top Democrats, including Rep. Barney Frank, the chairman of the House Financial Services Committee, are pushing competing ideas that would streamline oversight but also impose new controls beyond those in Paulson's plan.

Sen. Charles Schumer, a leading voice in the debate, said he did not think Paulson had gone far enough in dealing with some of the new complex types of investments heavily featured in the current financial crisis.

"Very complex financial instruments have evolved in recent years," said Schumer, D-N.Y. "The Treasury Department should address these issues as well."

David Nason, Treasury's assistant secretary for domestic finance, said the administration's primary goal is to get through the current credit crisis with officials understanding that the debate over an overhaul plan this far-reaching could last for years.

"These are very complex issues that require a serious amount of debate," he said in an AP interview Saturday. "It is going to take time to play out."

Business groups on Saturday generally voiced support for Paulson's approach and said there would be significant debate over the details.

"The current crisis just shows in a very stark way that ... you need a regulatory structure that is simple, nimble and modern and ours does not meet that test," said David Hirschmann, president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness.

Tim Ryan, president of the Securities Industry and Financial Markets Association, a big lobbying group for Wall Street, said there was "universal agreement that it is time to modernize and revitalize the current system."

The Paulson plan would:

_designate the Fed as the primary regulator for market stability, greatly expanding its ability to examine any financial institution deemed to pose a risk to the stability of the system.

_shift the functions of the Office of Thrift Supervision to the Office of the Comptroller of the Currency, although ultimately the plan envisions just one banking regulator.

_merge the Securities and Exchange Commission with the Commodity Futures Trading Commission.

_create a national regulator for insurance companies, which now are largely regulated by the states.

_establish a commission to address the abuses exposed in the current tidal wave of mortgage defaults.

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$400M CON JOB
ROGUE TRADERS RIPPED OFF LEHMAN
By RICHARD WILNER

March 30, 2008 -- Troubled investment bank Lehman Brothers may have been taken for as much as $400 million in a swindle in which con artists used forged documents from one of Japan's largest trading firms.
That loss could amount to more than 80 percent of the $489 million in net income Lehman reported in the three months ending Feb. 29.
The deal began when Lehman, led by CEO Richard Fuld, issued a loan last year to a medical consulting firm owned by a Tokyo-based biotechnology firm called LTT Bio-Pharma, according to sources familiar with the situation.
The loan was to be used to provide financing for hospitals buying medical equipment and was underwritten with certificates from Marubeni Corp., one of Japan's biggest trading firms.
By the end of February, Lehman grew worried when the loan was not being repaid, according to a source close to the case. On March 19, the consulting firm, Asclepius Ltd., filed for bankruptcy.
When Lehman officials pressed Marubeni to repay, the company claimed the documents guaranteeing the loan were forged and that they were a victim as well.
But Lehman says they met with Marubeni representatives - apparently rogue traders inside the securities giant - several times at Marubeni's Tokyo headquarters and that Marubeni employees were intimately involved in the deal, a source told The Post.
What appears to have happened is that rogue traders working within Marubeni used the forged documents to run the scam - which amounted to a type of large-scale Ponzi scheme that had roped in several US investment banks including Goldman Sachs, sources said.
They then used the cash given to pay off debts to other banks, but by the time it got to Lehman, the scheme collapsed.
Lehman has since filed a criminal complaint with the Japanese police.
In a statement, the investment bank said it was "working closely with the authorities to seek full recovery of funds it believes to have been fraudulently misappropriated."
"We are confident in our legal claim, which we will pursue until we receive repayment from Marubeni," Matthew Russell, head of corporate communications for the Asia-Pacific region at Lehman in Hong Kong.
Officials at Marubeni deny responsibility and say their company was the victim of identity theft, and fired two employees in the alleged swindle.
"We fired two contract employees for their involvement in using false documents with Marubeni's name on them to illegally collect money from investors and we have verbally reported the case to the police," said a Marubeni spokesman.
He said there was "no involvement by Marubeni as a company."
Officials at both Goldman Sachs and LTT Bio-Pharma were not available for comment. Word of the suspected fraud comes as Lehman has been rocked by uncertainty with speculation the firm could collapse in the credit crisis that just sunk Bear Stearns.
Lehman shares have toppled 34 percent in the last month to $37.87.
Like many investment banks, Lehman has been on shaky footing in the wake of the credit crisis that has swept through the US banking system.
Just 12 days ago, the bank reported first quarter net earnings at $489 million, down from $886 million in the fourth quarter last year.
Bloomberg News reported last week that the Securities and Exchange Commission is probing whether Wall Streeters spread false rumors about Lehman's financial strength to profit from the stock drop.

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Mar 30, 5:14 PM EDT
WALL STREET AWAITS GOVERNMENT PLAN
By JOE BEL BRUNO
AP Business Writer

NEW YORK (AP) -- While Wall Street faces the biggest overhaul of its regulatory structure since the Great Depression, analysts are already wondering if the plan to be announced by Treasury Secretary Henry Paulson on Monday would help prevent the kind of risky investments that led to the near-collapse of Bear Stearns Cos.

The plan maps out a course for broader oversight of the nation's financial markets by consolidating power into the Federal Reserve. It will eliminate overlapping state and federal regulators and give the central bank an expanded role in looking at the books of investment banks and brokerages.

What remains unclear is exactly how much the Fed would be able to control Wall Street's freewheeling investment banks - the banks including Bear Stearns that have lost billions of dollars over the past six months from buying risky mortgage-backed securities. While the proposal will for the first time impose regulation of hedge funds and private equity firms, some say it is lacking the kind of muscle to curb the Street's appetite for risk.

"This is a good start for the basis of discussion," said Peter Morici, a business professor at the University of Maryland and former chief economist of the U.S. Trade Commission. "But, this is bank reform written by an investment banker. ... There's nothing so far to improve the conduct of business on Wall Street to avoid another crisis."

Paulson, the former chairman of the investment bank Goldman Sachs Group Inc., wants to streamline the regulatory system through steps such as merging the Securities and Exchange Commission and the Commodity Futures Trading Commission and incorporating the functions of the Office of Thrift Supervision into the office of the Comptroller of the Currency. But while the regulatory structure would be overhauled, there is little detail about how much actual power the Fed would have to force investment banks out of risky positions and prevent financial companies from failing.

The investment banks have been criticized not only for investing in risky mortgage-backed assets - including loans to people with poor credit - they've also been reproached for dealing in complex and often speculative products like structured investment vehicles and collateralized debt obligations.

"I think it is important to look at the Paulson plan as the beginning of the discussion, not necessarily its end," said Harvey Pitt, a former chairman of the Securities and Exchange Commission. "The critical ingredient in any plan, however, is total transparency, something that was sorely lacking in our markets and caused the current crisis."

The plan, already backed by several financial industry trade organizations, would give the Fed some say over how much liquidity and capital that investment banks have on their books. But, as currently presented, action would be limited to instances "where overall financial market stability was threatened," according to a 22-page executive summary of the proposal obtained by The Associated Press.

While Paulson's proposal looks to shore up the nation's financial industry, it will also try to avoid putting investment banks at a competitive disadvantage with overseas investment firms. Still, analysts noted, this is an election year, and therefore Wall Street can expect to see regulation it hasn't had to comply with in the past.

Richard X. Bove, a bank analyst at Punk Ziegler & Co., questioned whether investment banks being forced to maintain more capital and higher reserves would limit their attempts to achieve high returns. Wall Street firms, unlike more regulated commercial banks, tend to use large amounts of leverage, or borrowed money, to magnify profit margins; while higher capital requirements would stem losses during economic downturns, they would also prevent investment banks from making the kind of profits they did during the recent bull run.

But ultimately, Bove said, Wall Street put itself in the position it now finds itself in.

"The financial industry blew it, did not exercise any restraint, and now the financial system is at risk," he said. "It is evident that there must be some kind of re-regulation."

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"The financial industry blew it, did not exercise any restraint, and now the financial system is at risk," he said. "It is evident that there must be some kind of re-regulation."

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US officials defend Bear Stearns actions

By MARTIN CRUTSINGER, Associated Press
Thursday, April 3, 2008

WASHINGTON -- The unprecedented actions to prevent the collapse of Bear Stearns were taken to preserve the viability of the U.S. financial system and do not represent any kind of federal bailout, Federal Reserve Chairman Ben Bernanke says.
     
Bernanke said Wednesday that even though the central bank is on the hook for $29 billion in the fire sale of Bear Stearns, the nation's fifth-largest investment bank, to JP Morgan Chase & Co., the Fed may end up making money.
The issue of whether the central bank has exposed taxpayers to a possible bailout and how Bear Stearns could tumble so quickly to near insolvency were to be explored Thursday with Senate testimony from Bernanke as well as officials from the Treasury Department, the Securities and Exchange Commission and the Fed's New York regional bank.
"When $30 billion of taxpayer money is placed at risk, it is our paramount responsibility to ensure that these actions were necessary and judicious," said Sen. Christopher Dodd, chairman of the Senate Banking Committee.
In addition, the panel was to hear from the heads of Bear Stearns Cos. and JP Morgan. Bear Stearns is the most high-profile victim of a severe credit crunch that began in August and has forced some of America's largest financial institutions to declares billions of dollars in losses because of bad investments, many in the area of subprime mortgages.
Many economists believe all the credit and housing problems have pushed the country into a recession. Bernanke, testifying before the congressional Joint Economic Committee on Wednesday, raised the prospect of a recession for the first time since the current slowdown began. He said it was possible that the overall economy may not grow at all during the first half of this year. However, he continued to predict that growth will resume in the second half of 2008.
Dodd's panel planned to question administration officials over how much pressure was placed on the Fed to put up the money for the Bear Stearns sale.
SEC Chairman Christopher Cox was expected to be asked whether his agency, which is the primary regulator of investment houses like Bear Stearns, missed warning signs that could have averted the meltdown, which roiled financial markets around the globe.
Bear Stearns was one of five major Wall Street banks whose cash positions and balance sheets were monitored closely by SEC examiners after the mortgage crisis erupted last year.
"The fate of Bear Stearns was the result of a lack of confidence, not a lack of capital," Cox said in a March 20 letter to international banking regulators.
In his testimony Wednesday, Bernanke said the Fed and other government agencies were informed on March 13 that without help Bear Stearns would have to file for bankruptcy the next day.
He said that "the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain."
As part of marathon negotiations over the weekend of March 15-16, the Fed originally agreed to take $30 billion in securities off the books of Bear Stearns to facilitate the acquisition of the firm by JP Morgan Chase & Co. for an original price of around $2 a share. A year ago, Bear Stearns was trading at around $150 a share.After an uproar over the terms of the sale, the share price was boosted to around $10 and JP Morgan agreed to assume the risks for the first $1 billion in losses that might occur, lowering the Fed's potential risk to $29 billion.
Bernanke said he did not believe the central bank would lose money on the deal and could in fact make money. He said he did not consider the transaction a bailout because of the losses sustained by Bear Stearns shareholders.
"We did what we did because we felt it was necessary to preserve the integrity and viability of the American financial system, which in turn is critical for the health of the economy," Bernanke said.
The Fed's regional bank in New York hired BlackRock Financial Management Inc. to manage the $30 billion portfolio of securities the Fed obtained from Bear Stearns. Bernanke said BlackRock was "reasonably confident that we will be able to recover the full amount if we dispose of these assets on a measured basis, rather than sell them all at once."

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Homeowners deserve bailout, not mortgage bankers

    I’m writing this letter in such frustration over how the federal government is always so willing to bail out the big corporations and let the actual tax-paying people fall straight on their faces [March 27 Gazette].
    How can the federal government continue to bail out the big corporations, with all the tax breaks that they are already receiving.
    This mortgage crisis is not a new situation. I’m in the real estate business, and have watched (for the past 18 months) this whole problem unfold. Real estate agents setting prices, the appraiser giving the prices, the lender giving out the mortgages and the homeowners — who trusted all those professionals — paying those prices. Well every one of those people made their money on the process.
    Now the homeowners can’t even refi - nance those homes. The market values are too low for the homeowners to even get a mortgage.
    We have all heard that people are top-heavy on their loans. Imagine not being able to afford the payment of your home, trying to refinance and not being able to. It’s a sad day!
    I feel that instead of bailing out the banks and/or the mortgage companies, the federal government should pay the foreclosing homeowner’s mortgage off and give back a mortgage to that homeowner at the interest rate that the banks are charging each other. This is a better way to help actual taxpayers; and by doing so, the mortgage companies and/or banks are getting their bad debt off their books as well. I believe it is a win-win situation.
    By the time the people in Washington decide how to help everyone out, there will be more homeless people out on the streets.
    The federal government should have seen this coming and should have put a stop to it long before now.
    KAREN KNUTH
    Scotia

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Bear Stearns CEO Cayne sells stake
Associated Press
Friday, March 28, 2008

NEW YORK -- Bear Stearns Cos. Chairman James Cayne on Thursday sold his holdings in the embattled investment bank ahead of its expected acquisition by JPMorgan Chase & Co.
      
Cayne sold 5.66 million shares for exactly $10.84 a share for $61.3 million. However, it was not known if those shares were dumped into the open market or if Cayne sold them to another party.
A spokesman for Bear Stearns would not comment on the sale.
JPMorgan has offered about $10 per share in its acquisition of Bear Stearns. That was increased from the original offer of $2 per share amid speculation that major shareholders would not accept the deal on those terms.
Shares of Bear Stearns have traded above the prices offered since the deal was announced as some investors felt a rival bid might be in the offing. There has also been speculation that Cayne might try and muster a competitive offer with Joseph Lewis, a billionaire financier who is Bear Stearns' second-largest shareholder.
Telephone calls to Lewis were not immediately returned.
Bear Stearns shares rose 2 cents to $11.23 in trading Thursday. JPMorgan shares fell $1.25 to $42.86.

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Pols like Sen. Farley are beholden to banking lobby

    I recently read an interesting editorial that addressed the inequities in bank lending policies [Jan. 22 Gazette]. It asked why low-income individuals are charged the highest interest rates. Also, credit card interest rates are as high as 20 percent.
    It occurred to me that the reason is obvious. Politicians, who should be serving their constituents, are instead beholden to the banking interests that finance their campaigns. The current subprime mortgage crisis is just one more example. The bankers are given free rein, and when they overstep, the government bails them out. Granted, the government has good reasons to intercede to protect the banking system. However, if this responsibility is ultimately going to rest with taxpayers, why isn’t substantive action taken before there is a colossal mess? Where is the necessary oversight?
    The truth is that our government has been derelict. Here in New York, we can see a perfect example of this folly. Sen. Hugh Farley, chairman of the Senate Banking Committee, has been in the legislature for 32 years. His prime accomplishment has been to spend this time using his “member items” to create a cadre of indebted people, so he can be repeatedly re-elected.
    It’s no wonder that the senator’s view of oversight has been to allow the fi - nanciers to write the banking laws. The exorbitant interest rates that constituents have to pay has been a low priority for his committee. Even worse, Farley appears to have learned of the current mortgage foreclosure crisis at the same time as everyone else. Shouldn’t the Banking Committee chairman show some foresight or be expected to be proactive on behalf of consumers? Does anyone really believe that Farley’s job performance is even mediocre?
    If we want government to protect our interests, our first step must be to hold politicians, like Hugh Farley, accountable.
    ALBERT ORMSBY
    Saratoga Springs

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The truth is that our government has been derelict. Here in New York, we can see a perfect example of this folly. Sen. Hugh Farley, chairman of the Senate Banking Committee, has been in the legislature for 32 years. His prime accomplishment has been to spend this time using his “member items” to create a cadre of indebted people, so he can be repeatedly re-elected.