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 welcome an opinion.

from a recent American Thinker blog entry.

April 25, 2008
Bailout suspicions
Christopher Alleva
There is some Interesting circumstantial evidence circulating on the web suggesting the Bear Stearns liquidation and takeover was actually to disguise the federal bailout of JP Morgan. Posing this hypothesis is John Olagues, owner of Truth In Options and a recognized authority on listed and employee stock options.


He argues that there are far too many coincidences and oddities with this deal that don't add up, although odd coincidences are certainly not uncommon occurrences in the halls of high finance. Why would the Federal Reserve Bank, the S.E.C, the Treasury Department, and Congress participate much less cooperate in such a massive intervention- i.e. to the tune of $55 billion? The reason they all so readily agreed is because you can't have the leading bank of the leading economic power be insolvent, and that's that! This explains why there have been so little fireworks over this deal. After all, who wants to take the blame for triggering the collapse of the global financial system? Congress, the Fed, Treasury-oh no- no way.


Olagues supports his theory detailing unusual and massive buying of puts and shorting of Bear Stearns stock just days before the announcement of the JP Morgan takeover. He cites the highly irregular request made to open a new April series of puts with strike prices of 20 and 22.5 when the stock was trading at 70. I surmise the insiders were Bear shareholders and employees tipped off to what was afoot to gain their cooperation in the bailout. How else to the muted protests of the employees and shareholders in the days after the takeover was announced. Bloomberg and others are reporting that JP Morgan is signing up most of the Bear executives.


Former Bear Chairman, Alan "Ace" Greenberg agreed to stay on- for a handsome sum- saying in an interview "I'm very excited.' Bear employees reputedly owned 1/3rd of the company, the JP Morgan deal hands them a loss of 85% of their share value, and Ace says "he's very excited." Really, he just lost 85% of his share value and he's excited. Come off it, this is simply not believable.


Olagues lays out his case: The official assurances of Bear Stearns liquidity in the media on Monday, the 11th Tuesday, the 12th and Wednesday the13th followed by the collapse on Friday the 14th. The obvious insider trading during the period. This followed by the ridiculous show hearings in the Senate on April 4th all leading to the inescapable conclusion that this was really a government funded $55 billion recapitalization of JP Morgan.


Don't worry, there'll never be investigation, there is far too much at stake to risk that.


h/t Reggie Middleton's Boombustblog

Comments

[rfachir.livejournal.com]

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.livejournal.com]

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.livejournal.com]

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.livejournal.com]

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.