Is Bear Stearns a Bleak Omen of the U.S. Economy?

Bear Stearns Cos. (BSC, Fortune 500), a major Wall Street powerhouse brokerage firm, plummeted from a high of $170 per share in January 2007 to $2 per share on March 17, 2008. The distressed firm lost so much market share that it solicited an "emergency bail-out" from the NY Federal Reserve.1

To prevail upon consumer confidence and curtail the credit crisis aka subprime lending crisis, the Fed made two extraordinarily rare, bold moves to expand its lending power over the weekend. One, it decreased its discount rate to financial institutions from 3.5% to 3.25%. Two, it created another lending facility for big investment banks to secure short-term loans.2

In addition, yesterday (Sunday), JP Morgan Chase & Co. (JPM, Fortune 500) agreed to buy out the troubled Bear Stearns at the discount price of just $2 a share, approximately $236 million.

Is Bear Stearns in a unique quandary? Or does it accurately represent the inchoate beginnings of more astronomical declines in the financial health of the "Big Fives" in Wall Street such as Goldman Sachs (GS, Fortune 500) and Lehman Brothers (LEH, Fortune 500)?

As of early Frankfurt trading on Monday, JP Morgan Chase shares dropped 3%; Citigroup (C, Fortune 500) 5%; Merrill Lynch (MER, Fortune 500) 6.2%; Goldman Sachs 7.8% and Lehman Brothers 20.3%.

After JP Morgan Chase announced its acquisition of Bear Stearns, early Monday Asian stocks took huge tumbles as well. Japan's Nikkei 225 stock index plunged 4.2% to 11,727 while Hong Kong' Hang Seng index fell 5% to 4.4 percent at 21.263.51. The Korea Composite Stock Price Index in Seoul declined more than 3%. Markets in China, Australia, Indonesia, the Philippines and New Zealand also dropped.

Instead of quelling investor fears and stymieing Bear Stearn's bankruptcy, the buyout signaled a heightened credit crisis for investors.3

But who could blame them? The snail-pace of the housing market, the foreclosures and defaults on risky U.S. mortgages, and now the bail-out of Bear Stearns intensify concerns that the financial health of the U.S. markets is at stake. Many are gripping the edges of their pecuniary pockets and chewing their fingernails to see whether this credit crisis spreads to other financial institutions as well.

Many market analysts assert that the financial collapse of Bear Stearns is only an isolated case. Peter Cardillo, chief market economist for Avalon Partners, says that the financial crisis is one of perception. The declines are of investors' "confidence", not a true sign of the economy or the health of the financial sector.

That may be true but the dollar sank below 96 yen, a 13-year low, while oil prices soared to a record high at $112 a barrel. Gold also soared above to $1,009.90 an ounce.


1.http://money.cnn.com/2008/03/16/news/companies/jpmorgan_bear_stearns/index.htm?postversion=2008031704

2. http://southernledger.com/ap/110351/Asian_Stocks_Tumble_on_Bear_Stearns_News

3. http://online.wsj.com/article/SB120574725784241355.html?mod=special_coverage

The Secret: You can Never be Too Rich or Too Thin

My billionaire supervisor once told me, "You can never be too rich or too thin."

I had then replied, "I don't think anorexia is something to sneeze at."

But she's correct about the riches part. We can never be too financially wealthy because money is easily spent and much too easily squandered. Much of our hard-earned money is expended in the due course of the days: food, clothing, mortgage or rent, housekeeping, laundry or dry-cleaning, daycare for our children, entertainment, etc.

Moreover, it is simple to gamble money away in foolish get-rich-quick schemes and bad investments. Today, we have to be extra prudent not to get duped into the latest "Get Rich Quick" schemes in spam e-mails, magazines, employment guides, and even online blogs.

If you read the book, "The Secret" by Rhonda Byrne, it portrays confidence and positive thinking as a way to attract positivity (love, happiness, prosperity) into your life. I do think that if you possess confidence and smile and are an energetic, happy person, more of the same will flow back towards you. I am extrapolating from the book and adding my own "two cents" here, but I also believe that the path to financial success is analogous to that dictated by this "Law of Attraction".

The real secret to getting rich is to think rich. To think rich, you have to find something you are passionate about, identify ways to captivate the market's interest with your product (invention), know your market audience, and then promote and sell your product. But you must be persistent and truly knowledgeable about what it is you are selling, and you have to understand the market niche that you are selling to. If you can't identify potential buyers of your product, and don't know what it is that they find desirable or essential, then you have lost the game of business before you even started.

In many ways, you have to treat business like a fun, strategic game. The pawn pieces are the market variables to be taken into account such as the stock market, the national interest rate, and economies of scale as well as other natural and artificial variables such as seasonal changes in the market. You need to have foresight over the possible scenarios and pathways the market will take. You have to make forecasts, "think ahead", and be a visionary (have particular step-by-step goals you want to achieve and work towards meeting each ones).

As "The Secret" emphasizes, you have to have positive outlooks and live and breathe the words that "I will be successful." I would also add the contrapositive as a self-motivating mantra: "Failure is not an option". Along with anticipating potential fluctuating movements of the market to optimize your pricing schemes and knowing when and where to employ which scheme, you also have to assess the international playing field. No man and no product exists within a vacuum. E.g., a downturn in the Asian economy may be a key indicator of an impending decline market in the Dow Jones, Nasdaq, and S&P500.

Your opponent are your competitors who may already be selling modified versions of similar products to yours in the marketplace. You have to weigh the risk and benefits involved with each of our moves (your marketing strategies), and make alliances with helpful partners. For instance, if you know advertising honchos who are ready and willing to help commercialize your product in the media (television, radio, magazines, etc.) for a nominal fee, you would have saved yourself monetary bundles in the process. Thus like any game of strategy, you have to implement your winning combinations so that you will come out a financial winner in the conclusion of the game. Again, to be rich, you must think rich.

Lord of the Flies: Today's Reality?

When we see images of U.S. soldiers dying in Iraq, or innocent children abused at the hands of their own parents, or even a bullied teenager who goes into a shooting rampage on a college campus, we wonder at the immeasurable cruelty and injustices caused by human beings upon one another. Such evilness is reminiscent of that vividly portrayed in William Golding's novel, "The Lord of the Flies". Further, we ask whether what Mr. Golding described is true: Without the institutions of law and order (the legal system and the police), would human beings in fact become savages and end up killing one another? Is evilness and selfishness the true nature of human beings?

Are we inately good or evil?

Despite the fact that we must recognize how truly vulnerable we are without the law, and without the establishment of entities that maintain and uphold peace and order, there is still a large part of me that believes the majority of people want to do what is good, what is right, and what is just.

Is it blind faith that compels me to believe thusly? Or simply the result of observations and experiences of the enormous compassion and cooperative efforts (minus the few who took advantage of the less fortunate during those tragedies) that often are demonstrated in times of great crises, as when Hurricane Katrina hit New Orleans, or the tsunami in Thailand, or in the aftermath of 9-11?

I come to this optimistic conclusion about human nature because if we believe the alternative, that the majority of us are evil, then the world would be overrun with massive chaos and the human population would have rapidly dwindled into nothingness. If we are predominantly evil, people would be abusing, raping, murdering, stealing -- engaging in all sorts of unspeakable crimes against nature and life itself, and against one another.

However, since there remains an overpopulation of people, animals, and living things in the world, we can infer that there must be more good people in society than bad.

Q.E.D.

Undergoing MyBlogLog Verification

Status = Power = Wealth + Beauty - Education?

We judge people according to their social status and power, their socioeconomic "class", if you will, everyday. These are the very first things we evaluate and critique when we are introduced to a new person.

What is their status, their power in society? What is their level of wealth and physical appeal? How much are they worth? Are they beautiful and handsome?

Status and power are synonymous. They are the all-important symbols in society. They are the quintessential defining factors for how we treat people.

Status and power also form the bases from which we make social comparisons. We want to know not only who earns more money, which mansions, how many swimming pools, how many and which vehicle, is it a name brand, is it a newer model, and are they physically attractive? But we also want to know whether we measure up (or down) with respect to them. E.g., does s/he earn more than me? Is s/he more attractive than me?

Why is status so important? Why do we treat people who have higher status with more respect, deference, and concern than we treat others?

E.g., when a person of wealth like Donald Trump complains, we all listen. We attribute more significance and weight to his words than say, an average run-of-the-mill working class fellow.

Is it because we are intimidated by the power of those with higher status?

Certainly, there is a power differential when it comes to those possessing high social status and those who do not. Someone with high social status has more clout, standing, and power to provoke action because s/he can afford monetarily to do so. For instance, s/he can threaten people with legal action. S/he can take that "little guy" to the cleaners.

Interestingly, if you consider the people of high status in society today, you will notice that the level of education has dropped in priority when we assess a person's status.

Rich Karlgaard even wrote in Forbes that a college degree might be a poor investment because tuition keeps rising while the credentials for high-paying jobs decreases. He asserted, "My prediction is that parents who risk their own financial security shelling out $100,000 to $175,000 for a four-year degree will lose, too."1

No longer do they have to earn a 4-year college degree from a prestigious university. Take Bill Gates for example. He dropped out of Harvard, yet became a phenomenomal success. Michael Dell and Larry Ellison are other examples within the technology field.

In fact, many don't attend college. E.g., oil billionaire John D. Rockefeller, NBC mogul David Sarnoff, and Ted Turner.

Some don't even finish high school. For instance, countless celebrities like Tom Cruise, Nicole Kidman, and Paris Hilton drop out. Paris Hilton is often quoted about college, "I don't feel it's necessary for me, for what I want to do. I just think me wasting four years. I'm just pulling myself back."2 Yet all of these people command power and deference in society, and are equated with high status.

Today, being well-educated is no longer a requirement for a higher social status. Wealth and beauty far supercede education in the "Must-Have" list to the boys and girls Gold Club of high socioeconomic status and power.

1. http://www.forbes.com/forbes/2006/0327/039.html

2. http://www.usatoday.com/life/2003-12-01-paris-interview_x.htm

Handsome is as Handsome does

Remember when you read "Billy Budd" by Hermann Melville? Craggart had a sexual attraction towards Billy and was so envious of Billy's good looks and easy-come-by good fortunes that he asserted, "Handsome is as handsome does."

Well, it is still true today.

If you are a good-looking person (male or female), consistently society will treat you with the utmost respect and admiration. Often you will even receive things for free, and you will be more easily forgiven for misdeeds, and in some cases, even excused from physical labor and other monotonous, harsh duties such as housechores so you can maintain your level of beauty.

For example, those who possess physical beauty are frequently granted promotions in the workplace over those less physically endowed. People are more polite towards those who are pretty or handsome. Doors are held opened for, and chairs are pulled out to seat them. They are sent invites to parties and clubs even if they don't belong to them.

Attractiveness becomes a type of gold card entry into the good ol' boys and girls clubs of affluence and class. It automatically grants the "beautiful or handsome one" power over those who are deemed less attractive, and those considered "ugly".

It is no wonder society has become so look-obsessed that eating disorders are on the rise astronomically, cosmetic surgeries and dermatologic procedures such as lunchtime in-office facelifts, dermabrasions, and botox have increased a million-fold since the 1980's.

Where and when do one's character and moral fiber come into play these days?

Here are two blogs which also address the (misplaced) emphasis of physical beauty in society:

Kennedy James' "Hey! I Want To Be Miss America..."

Sweetrose1962's "So I Am Not Beautiful and Powerful..."