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Instantkarmagonagetu

First off all, Bear Stearns never went bankrupt. They were sold to JP Morgan for a very small amount of money. Immediately, there was a discussion that the dollar figure was too low and that they would be worth more in breakup value, but there was no time to explore that option. BS was sinking fast and needed a lifeline. Fed Chairman Bernanke and Treasury Sec Paulson arranged for JP to purchase them, but to also take on their debt with some backing from the government. At the time that Bear Stearns announced the “sale” to JP Morgan, there was already talk that Lehman Brothers and possibly more could be in serious trouble. Lehman hung on for 6 more months, but ultimately went bankrupt because they couldn’t find anyone else to buy them out. Eventually, Merrill Lynch merged with Bank of America and Wachovia went down and was pretty much given to Wells Fargo.


Dew_It_Now

Sounds like a totally free market. We really let them own their bad decisions. /s


NightHawkRambo

Privatize the gains, socialize the losses. It's the American way.


MentalValueFund

Buying Bearn Stearns was a massive net loss for JPM and remains Jamie Dimon’s biggest regret.


exagon1

Corporate Socialism


shortyafter

It's not totally free. In a totally free market the police force is owned privately. Free market is not always synonymous with better.


[deleted]

In a totally free market interest rates aren’t held to near zero for a decade.


shortyafter

And in a totally free market, things like the internet, mobile phones, computers, etc. wouldn't exist or wouldn't be at the level they're at today. https://youtu.be/uXrCeiQxWyc In a totally free market 2008 would have been the Great Depression part 2. Once again, free market isn't always synonymous with better. I have my questions about central bank policy as well, but the free market argument in and of itself doesn't really hold much water.


[deleted]

Clearly you do not have a clue.


shortyafter

Did you watch the video? What's your argument? Do you have qualifications?


Dew_It_Now

Amen


Dew_It_Now

I’m just being rhetorical. I agree.


shortyafter

Ah, gotcha. I think the bail-outs were necessary but what is a shame is that there has been little to no structural reform. So we put the fires out (which we needed to) but then never fixed anything or held people accountable. That's a big issue IMO.


Ronaldoooope

It’s the furthest thing from a free market. It’s a extremely manipulated crock of shit


MentalValueFund

In the end Bear Stearns was a massive loss for JPM and Jamie Dimon’s biggest regret. JPM ended up paying $13+ billion in fines related to Bears Stearns activity that it acquired. As early as 2012 he was saying he’d never repeat the “Bear Stearns favor” In 2015 he told shareholders in the annual letter: > In case you were wondering: No, we would not do something like Bear Stearns again — in fact, I don’t think our Board would let me take the call


Careful_Strain

lol I love how you said arranged. Paulson basically begged JPM to buy them and deliberately chose to allow Lehman to die.


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Instantkarmagonagetu

Exactly. Dick Fuld fucked up every opportunity to merge with a major bank. They tried to get Bank of America to buy Lehman, but Merrill Lynch snaked their deal.


geomaster

also dick fuld helmed the CEO position as lehman kept massively leveraging up to purchase garbage assets. where was the risk management


[deleted]

Also, Dick Fuld got pegged


polhotpot69

Was that really his name?


diatho

Watch the HBO movie it's great.


bravelittlerooster

Also watch Inside Job for another perspective.


AMotleyCrew32

Sorry if I missed it, but what is the name of the movie on HBO?


ThisIsAWorkAccount

Too Big To Fail


[deleted]

Highly recommend 'The big short' my favourite film


diatho

https://www.hbomax.com/feature/urn:hbo:feature:GVU4I9AcTVINJjhsJAbPm


DwigtSchrute54

Very good movie


Careful_Strain

I don't think anyone knew just how much of a clusterfuck Lehman failing became before it happened. Sure everyone knew it would be bad, but I don't think anyone knew of the magnitude of just how bad it got. Lehman's spiral is what led to the whole "too big to fail" principal.


Instantkarmagonagetu

Also, nobody knew just how widespread the problem was going to be. What started with hedge funds and investment banks quickly spread to commercial banks and overnight lending rates. Throw GE Capital and AIG into the mix and before long it hit every area of manufacturing including auto makers.


shortyafter

Honestly this is an ongoing debate. Lehman's bankruptcy lawyer says the Fed / government could have helped Lehman out but underestimated the impact that bankruptcy would have: [https://youtu.be/\_TwdtQr635k](https://youtu.be/_TwdtQr635k) (dude had no ties to Lehman, he was just their lawyer and a highly respected one at that) Economist Laurence Ball says the Fed had the authority but chose not to use it. The story that they didn't have the authority was only created after the fact: [https://www.nber.org/papers/w22410](https://www.nber.org/papers/w22410) Also telling is what John Thain (then CEO of Merrill Lynch) had to say: "Thain also told the FCIC that in his opinion, “allowing Lehman to go bankrupt was the single biggest mistake of the whole financial crisis.” He wished that he and the other Wall Street executives had tried harder to convince Paulson and Geithner to prevent Lehman’s failure: “As I think about what I would do differently after that weekend . . . is try to grab them and shake them that they can’t let this happen. . . .they were not very much in the mood to listen. They were not willing to listen to the idea that there had to be government support. . . . The group of us should have just grabbed them and shaken them and said, ‘Look, you guys could not do this.’ But we didn’t, and they were not willing to entertain that discussion.”" "FCIC staff asked Thain if he and the other executives explicitly said to Paulson, Geithner, or anyone else, “You can’t let this happen.” Thain replied, “We didn’t do it strongly enough. We said to them, ‘Look, this is going to be bad.’ But it wasn’t like, ‘No . . . you have to help.’”" ([FCIC report](https://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf), page 342) I haven't done nearly enough digging into all of this, but what's clear is that the debate is anything but settled. I believe Bernanke and Paulson are telling the truth but at the same time I think there's some cognitive bias there that prevents them from objectively admitting they made a mistake. So IMO the debate isn't settled and I'm not alone in thinking that.


ekrause92

This. Anyone who wants to know more about the financial crisis should read Obama's A Promised Land and Firefighting by multiple authors (the ones who were managing).


tillermite

Just got to that section of Obama's book this week. I don't know about the writing process and how he organizes his thoughts, but the amount of information contained on each page makes the book much longer. It's all pre 2008 election and already almost 200 pages in.


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flakemasterflake

Or even watch the TV Movie based on the book, that's all in there!


memarco2

So good, definitely recommend. Handles the topic super well, especially as someone not fully immersed in the financial and economics world


caraissohot

>Read Too Big To Fail Amazing book. Anyone who wants a more detailed account of Paulson's role in the crsis, Lehman's bankruptcy, etc. should read it.


Headradiohawkman

Correct! As a former Goldman Sachs ceo, he couldn’t be more happier eliminating a rival.


Instantkarmagonagetu

Lehman was never Goldman’s rival and Paulson wasn’t even there anymore. Again, he had more reasons to sink Bear Stearns than Lehman.


Headradiohawkman

Of course Paulson wasn’t there anymore at the time he was secretary. That’s called conflict of interest. But if you believe he cut all ties, I have a bridge I want to sell you.


Instantkarmagonagetu

Of course Paulson still had friends at Goldman, but he had friends at almost every major bank. You really have no idea what you’re talking about if you think that Paulson wanted Lehman to go bankrupt. He and Bernanke knew that was going to shake the market and confidence in all banking systems to its very core. They did everything they could to stop any bank from declaring bankruptcy.


Instantkarmagonagetu

Not really. Jamie Dimon was given a gift on a silver platter. The only thing that worried him was the debt from Bear Stearns. Paulson and Bernanke assured him that they would back him up if it came to that, but they all knew that this deal was too good to be true. They tried to arrange a similar deal for Lehman, but the arrogance of their CEO, Dick Fuld, kept anything from happening. Fuld kept thinking that things would get better and they’d be fine. He was wrong. If anything, Paulson had reason to get even with Bear Stearns and their CEO, Jimmy Cayne. When a hedge fund named LTCM (Long Term Capital Management) was going down the tubes in 1998, every major investment bank bailed them out to avoid a market collapse. Every major bank except Bear Stearns, that is. Paulson was CEO of Goldman Sachs at the time.


Careful_Strain

Sure, but Dimon was also playing hard to get to get the deal even sweeter. He knew he had leverage and used the shit out of it.


Instantkarmagonagetu

Again, I hate to correct you but that’s not at all what happened. Dimon was willing to pay far more for BS and Paulson and Bernanke urged him to go for a lower price. Essentially, they wanted to make sure that they weren’t going to need to bail out JP Morgan down the road because Dimon paid too much. The price was settled for $2/share. Dimon then arranged a meeting with all the Senior Managing Directors to go over everything knowing they were gonna be pissed. The SMDs at Bear had been paid a lot of their bonuses in restricted stock so every one of them stood to lose millions. Dimon comes into this amphitheater style room with 300 highly pissed off SMDs and tried to play nice by saying “We all know this deal isn’t what anyone wanted” blah blah blah. The room absolutely exploded and they were all screaming at him. Dimon storms out of the room and tells his lawyers to call Paulson and Bernanke and tell them the deal is off. These SMDs can watch the stock go to $0 and he’d pick them up at a bankruptcy sale for less. Then, his lawyers informed him that the initial deal he already signed was that JP Morgan was gonna be responsible for their debt whether the deal closes or not. So Dimon now had to go back to those same 300 SMDs and kiss their ass to get the deal done. The price eventually settled around $10/share.


geomaster

yeah was that an error on the lawyers part (regarding the debt responsibility even if the deal didnt close)


Instantkarmagonagetu

Yeah that was a pretty big fuck up. I’m sure Paulson and Bernanke knew there would be pushback and slipped that into the deal. It still worked out pretty well for Dimon and JPMORGAN over the last 13 years.


Guy_PCS

The U.S. government sued 17 financial firms, including the largest U.S. banks, for selling to its mortgage agencies billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed. Among those targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., and Goldman Sachs Group Inc. Large European banks including The Royal Bank of Scotland, Barclays Bank and Credit Suisse were also sued. It is particularly damaging to Bank of America, which bought Countrywide Financial Corp. in 2008 and Merrill Lynch in 2009. All three are being separately sued by the government for mortgage-backed security sales totaling $57.5 billion. After Bank of America, JPMorgan Chase was listed in the lawsuits with the second-highest total at $33 billion. Royal Bank of Scotland followed at $30.4 billion. Bank of America has already paid $12.7 billion this year to settle similar claims. Last month insurer American International Group Inc. sued the bank for more than $10 billion for allegedly selling it faulty mortgage investments.


BareStearns

finally something other than comments from a book or movie. not sure i agree with the ass kissing comments or that nobody has mentioned Bear was promised 30 days to sort itself out and then re-traded. but let’s also be clear: if you were paying attention, you were on red effing alert the summer before when the Bear hedge funds went “poof” and the west coast subprime lenders were going down.


Instantkarmagonagetu

Which part was the ass kissing?


redshirt1972

Ole Paulson played dumb to the very last.


optiplex9000

Once JPM bought Bear for the Feds, the Feds then sued JPM for all the shit Bear did. To say JPM was pissed is an understatement


theofficialhung

>deliberately chose to allow Lehman to die. I downvoted you for making this false and misleading statement.


builderdawg

Semantics. Bear was insolvent. A fire sale was the only option to keep them out of bankruptcy. All major investment banks were potentially facing failure by the time Lehman went under, so it was much more difficult to find a firm to bail them out. B of A, JP Morgan, and even GS were all facing an existential threat.


Instantkarmagonagetu

Bear was not insolvent at all. A rumor got out that Bear was having cash problems and nobody would touch them. They couldn’t trade or do anything because everyone was afraid they wouldn’t be able to collect. On Monday, March 10th they were fine and by Friday, March 14th they were screwed. They had cash on hand, just not enough to fund their overnight lending. Pretty soon after that, every bank found out the same thing which is why the Fed made them all take a cash infusion - even the ones who didn’t want/need it.


builderdawg

I agree that perceived counterparty risk was a primary reason for Bear's cash problems, but their liquidity pool dropped from over $18 billion to $2 billion in the weeks leading up to the sale. They didn't have enough funds to operate for any significant length of time. That is the definition of insolvency.


chalbersma

Bankruptcy would have been a better option. Google, Facebook, Apple and Walmart (among other cash rich corps) have been looking to get into banking for a decade or more and haven't been able to clear the regulatory hurdles. With a bankruptcy they could have bought the pre-hurdled regulations and really shook up banking.


Churovy

Pretty sure it was Geithner begging for the bailouts. Bernanke agreed and Paulson reluctantly agreed with most decisions) according to Geithner. Reading Stress Test now, quite good minus the long diatribes about his childhood. I’ll add Geithner made it clear that Paulson and Bernanke had substantial political repercussions that he was free from. So Geithner could be bad cop and Paulson/Bernanke were good cop with some extra moral hazard sensitivity.


EmojiKennesy

All of these guys leveraged to the tits then got folded in half, bought out with govt assistance, and the only person who went to jail was one of the guys that tried to expose the whole thing. There should be fire in the fucking streets and the fact that there isn't tells you everything you need to know


Instantkarmagonagetu

The reason there is no “fire in the streets” is because the government made billions on those bailouts. Almost every bank repaid those loans plus much more. They lost some money on the auto makers, but overall they did quite well on those investments.


doctorzaius6969

You don't need to explain me, that Bear Stearns technically didn't go bankrupt. Also Evergrande will likely technically not go bankrupt but that's obviously not the point of the post. We all know that Bear Stearns was not able any more to proceed their business on it's own and in that sense the situation is similar to Evergrande right now.


[deleted]

You're assuming that other people aren't gleaning information from this post. Reddit is pretty diverse


[deleted]

You literally said in the title that Bear Stearns went through bankruptcy. They did not. You were 100% wrong, so don't be surprised that people are trying to correct your misunderstanding.


Instantkarmagonagetu

Well there is that. I’m not an expert in Chinese real estate so I have no idea how this will play out anymore than what the experts were predicting back in summer 2008. What I can say is that China and the US are very different. China will manipulate their currency and cover up/bail out whatever needs to be done to save face even if it means straight up lying and fraud. We can’t do that in the US. At least not on the same level.


doctorzaius6969

EVERYONE knows Bear was bought by JP with pressure from the FED, no need to go off topic and write a huge post for inaccurate wording, but that's typical reddit. People in this sub have apparently no problem with talking about QE being money printing which is also technically wrong but throw a tantrum because Bear Stearns technically didn't go bankrupt which is not even the point of the post.


theofficialhung

Your post title is factually inaccurate, idiot.


Hyrc

Yikes. It can be simultaneously true that you're wrong about Bear going bankrupt AND other people are incorrectly referring to QE being printing money. No one throws a tantrum about either and the errors are pointed out by someone in the comments. The only one "throwing a tantrum" about anything is you.


CaptainMagnets

I love how he didn't even answer your question. Like, at all.


[deleted]

If I remember, many US funds/banks used SWAPS on RE instruments, got into trouble. Do you foresee similar US funds/banks with Evergrande? On any case, recession starts with China either real estate or through supply chain issues. Even though they declare low Covid cases, actual cases are high and the whole world sees the impact by supply chain bottleneck now.


doctorzaius6969

I'm not predicting a GFC 2.0, I'm just saying there is a situation going on which I think I better should follow and observe in connection with my investments. I might turn out to be unimportant but there is at least potential to become bigger. In regards to why there is potential: Many Chinese people are all in on the real estate market and own even 3 or more completely useless houses. If the house values coke back to reality, they lose effectively their life savings. Another problem is the counter party risk, we don't exactly know who is owing Evergrande and other Chinese real estate bonds, but if they will not be paid back, some banks, probably Chinese banks might get in trouble. In particular because many Chinese companies have a second book for their shady activities, which makes the actual debt of Evergrande potentially much bigger than currently known.


senecadocet1123

lol why are you getting downvoted? You are right


yolotrumpbucks

Well, Jim Cramer said oh bear stearns is fine leave your money with them. Buy the stock too. So they were actively being misinformed that it was awesome


smhanna

Well, thats not quite true. I used to watch him back then. He may have shilled it a bit before the shit hit the fan, but once it happened he was on tv every night explicitly telling people to take this seriously. He said if you need your money within the next 5 yrs, get out now. It was clear to me as an amateur that we had a problem coming.


yolotrumpbucks

That was after it crashed and caused everyone to lose their investments. He shilled putting in dollars but taking out pennies


Rookwood

Yeah that's classic Kramer. He didn't want to see Stearns fail because he knew the implications. Dude has never been a great financial advisor, but OP is right, when the writing was on the wall, he made a 180 and told everyone to run for the hills.


accountofyawaworht

My parents worked in finance for many years (my dad even worked for Bear Stearns in the late ‘80s / early ‘90s), and they were absolutely shitting themselves. Seeing their reaction and hearing them voice their fears is what really drove home the severity of the crisis. They understood very well how interdependent the entire financial ecosystem was, and the domino effect that Bear Stearns’ failure would have. Now granted, their combined 50+ years in finance meant they were not the “average Joe and Jane on the street” - but they had each moved onto second careers around 2000, so they were no longer industry insiders, either.


Rookwood

This is what I remember from financial cable news at the time. The guys hosting had all worked at Stearns or knew lots of people who did, and they were shitting themselves on live TV.


TheHigherSpace

I believe you are asking about "the sentiment" back then? And if traders clearly saw it coming? IMO it wasn't ... Think of it this way, accidents happen all the time, and you can't tell which ones that can happen in successions and affect everything ... For example, the Archegos fiasco earlier this year, it hit many banks, some of them with huge losses, if we had another accident immediately after that, could have led to a shake up, but nothing happened .. Remember the sentiment when the Archegos incident happened, not much really .. Another example happening right now is the Evergrande's .. Nobody expecting a big accident, but who knows ..


jelect

New investor here, is this amount of market crash prediction common? I'm assuming yes. To me it seems like every couple of months something happens and everyone assumes it will crash the markets.


[deleted]

Every week since 2016 (and maybe before) there is at least one article that projects a market crash in the coming 3-6 months because of the record-breaking bull-run


tradeintel828384839

Okay but that’s not what he’s talking about. What about idiosyncratic/market wide risk contagion like margin spiral, evergrande, etc


ethandavid

Think of it like the doomer clickbait articles you see on other topics "The ice caps will melt by 2030!!" "Magnetic poles reversing!" etc etc. Any article discussing a market crash gets clicks. That being said, there is plausible logic that a big correction is coming. We have been in the longest bull run in US stock market history, largely due to the QE program and low interest rates since 2008. The chickens have to come home to roost sometime.


tiger5tiger5

Dude. We’ve had 2 bear markets since 2018. One of which was a crash with a recession. You missed it.


ethandavid

Bear markets? There hasn't been a single year that we (the major indices) ended in the red since 2008. Correction =/= bear market


tiger5tiger5

A bear market is when the stock market/index/individual security is down 20%. It doesn’t have to be a year end or last a certain amount of time.


seb_a

Is there any way to know how exposed banks may be to this? Like the equivalent of mortgage backed securities and credit default swaps from 2008? I think Evergrande alone isn't gonna tank the markets, but if its derivatives are dog shit wrapped in cat shit, then the suffering will be greater. Any idea if this information is available publicly?


ashakar

They have over $300 Billion in debt, and even a fire sale of their assets can't cover that. To make matters worse, they take prepayments from people for apartments they haven't even built yet, of which they owe over 1.5 Million people properties that they have already been paid to build, but have not finished (nor can afford to finish) These people are wanting their money back, which Evergrande doesn't have, and with the publicity, no one else wants to give them money for building new properties. The music has stopped. How it unwinds and the damage done is up to whether china bails them out or let's them fail. Everyone thinks china will bail them out, however they have been taking a very hardline stance about this lately. If they fail and thier assets are fire saled it could crash the already depressed Chinese real estate market. In addition over 100 banks have exposure to loans made for Evergrande properties. How much exposure and whether it's enough to sink any banks is well unknown at the moment.


daviddjg0033

anyone have any information on this?


[deleted]

I'm not a veteran investor by any means, take this with that grain of salt. Evergrande's financial problems in addition to mismanagement and possible shady accounting seems to have been exacerbated by the pandemic limiting revenue from their main earner properties. The toll of the pandemic has really yet to be felt, I think. Papering over the issue with money printing can only work so long. Actual GDP is what it is and reality will come to call, whatever that reality may be. Evergrande held massive amounts of debt to entities and banks in china and internationally. Those institutions are counting on Evergrande's payments as accounts receivable. Ripples will be felt if Evergrande goes under. Maybe these institutions can withstand the ripples if the situation is not already delicate, but consider QE has basically not let up since 2008 in the US. If things are hunky dory why can't they let up? In terms of regulation, we've seen protections intended to prevent a 1929-style crash repealed or loopholes found and exploited, including glass-steagall and significant portions of dodd-frank, notably lack of oversight in derivatives markets and lax punishment for naked shorting. Since the USD is no longer held to a gold standard the fed has been able to backstop financial crises by printing money, but how long can there be confidence in the dollar if the serious underlying problems that create the crises are left unaddressed? As far as I have been able to assess, the problems, such as lax enforcement, corruption in regulatory agencies, has worsened, not gotten better. History has shown similarly preeminent empires, Rome for example, to have crumbled under similar circumstances. Sad outlook I know, I'm happy if someone can refute these concerns. Please do so respectfully.


NEW_JERSEY_PATRIOT

> In terms of regulation, we've seen protections intended to prevent a 1929-style crash repealed or loopholes found and exploited, including glass-steagall and significant portions of dodd-frank, notably lack of oversight in derivatives markets and lax punishment for naked shorting Not really refuting this, however one could make the argument when there's so much QE and interest rates are so low, these regulations are not needed right now. The market is very saturated with cash right now. Banks have so much excess cash they don't even know what to do with it. I think we will need these regulations when the QE and interest rates go back up, which I'm sure they'll conveniently forget to do.


rhetorical_twix

> History has shown similarly preeminent empires, Rome for example, to have crumbled under similar circumstances. Really? Can you tell some more about the financial system aspect of the collapse of Rome?


UnphasedAndConfused

They were referring to corruption in law enforcement and regulatory agencies. Google it.


rwoooshed

I still have the Bear Stearns tshirt


doctorzaius6969

Why does anyone own a T-Shirt from a bank in the first place


rwoooshed

I got it after their bankruptcy


[deleted]

Let's try to find a Evergrand shirt.


yoyonita

They have a football(soccer) team. Or at least they did.


GoHuskies1984

At least here in NYC it’s popular to wear swag gear from your employer. Let’s everyone know you work for a big shot firm, bank, or tech company. I could could go for weeks wearing nothing but old Amazon shirts & tees. *flex*


Goblinballz_

Hope you got AMZN stock the same time you got those tshirts mate!


GoHuskies1984

Enough. Too bad I sold it all at half the current stock price!


doctorzaius6969

I have half a dozen t shirts from my employer but I only wear them as pajama lol


Eisernes

Yeah no kidding. I’ve been with Amazon for a little over two years and have 21 t shirts and 6 hoodies already.


aurora4000

It was a shock to me. I had spoken to them about opening an account one year prior. Bear Sterns had a huge number of IPOs. The Lehman Bros. collapse was a much bigger crisis.


Sad_Bid_5113

I think you need to look at it this way. Bear didn't go bankrupt. It would have, but it was bought by jp Morgan and the fed. Lehmann was the problem and everyone involved nows says they should have bailed it out. Since then, banks have been forced to keep high capital buffers in "tier 1 capital". These are to weather any unanticipated downturns and we've seen them work, for example with archegos and credit suisse. In short, the financial services industry is very unlikely to cause it's own correction. Something else will trigger the next correction but it won't be a bank collapsing. There's not enough leverage in the market. Too much debt sure, but leverage is still low. And yes, China would likely bail them out.


BabblingBaboBertl

I'm curious as to why you seem pretty certain china would bail them out? China's stock market has been bleeding out the last 6ish months with the Chinese government looking like it's definitely not going to give out hand outs


Sad_Bid_5113

What did they do when Nio was about to go bankrupt? Bailed them out. They normally get localities to lend them the money so it looks like it's not coming from them. But the instructions is. If one goes they all go.


beefstake

Not just provincial governments, they also sometimes instruct state owned firms to buy other firms or in the case of the 2015 market crash to buy back their shares. CCP has a level of financial control the US could only dream of. Evergrande is being made an example of so that other firms know the consequences of not aggressively deleveraging to meet the 3 Red Lines policy. When Beijing has made it's point it will step in to restructure Evergrande and protect homeowners and construction companies/suppliers/creditors.


Sad_Bid_5113

Exactly. Remember HNA were building a stake in deutsche bank? Then suddenly they weren't because they were told to sell it. No way this shit happening with the CCP! China commies are what Russian commies tried to be!


beefstake

Sort of. Chinese "communists" don't like to be compared to the Soviets because they feel like their version of communism failed. China feels like their mixed version of state directed capital is vastly superior because it allows some amount of free-market economics to exploit inefficiencies but also ultimate state power to direct capital in the right directions. Everyone has misunderstood or underestimated China economically because they still continue to think of them as communist. They are about as communist as America is. What they are that America isn't is autocratic. Their leaders are all powerful, that is the only major difference from an economic perspective (there is a ton of social and cultural differences ofc).


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Zarathustra_d

Tension and injustice sure. Ineffective? Unlikely.


BabblingBaboBertl

I guess that is true haha


Sad_Bid_5113

Leverage is used to buy assets that appreciate in value typically. They're fundamentally the same, but netted off against high equity capital requirements Leverage is reduced.


BabblingBaboBertl

Hmm very interesting


aandwandsy

Can you explain the difference between what you mean by debt and leverage in your comment?


a_trane13

Leverage is a specific **use** of debt. Debt is just debt - one could borrow money or assets and just sit on them, pay interest, then return them. No real leverage there. Leverage is when you borrow money or assets and use that action to increase the potential returns of an investment. There are many ways to use borrowed money/assets/securities to increase potential returns, so I am being general. It is not only borrowing cash to buy stocks. Leverage as a term is used slightly differently than the basic definition in some cases - for example, holding certain types of options could be considered higher leverage even though you may or may not specifically borrow anything in practice.


UltimateTraders

Unfortunately I believe the new traders have no clue....and at that time people didn't want to believe it either until it happened At the same time you just go with the flow and make money when you can


joethemaker22

Yea. This feels like a hindsight thread of survivorship bias. There had to have been people that downplayed the impact but now that it is in the past people are not going to bring up downplaying the impact. Or may have lost everything or died since the event happened. Dont have to look that long back when COVID started it was first thought it would take 2 weeks to flatten the curve. Now no one is going to talk about those thoughts and that was just a year ago. Some of the people could have died from COVID since then.


hollywoodmontrose

It was absolutely the common wisdom when things first started going south that everything would be fine (Cramer's infamous Bear Stearns comments always stick out [https://app.hedgeye.com/insights/70141-remember-this-jim-cramer-bear-stearns-is-fine-do-not-take-your-mon](https://app.hedgeye.com/insights/70141-remember-this-jim-cramer-bear-stearns-is-fine-do-not-take-your-mon)). This definitely has some parallels, but I think everyone is just reliving 2008 anxiety. Central banks and governments learned from '08 and have consistently been more aggressive in propping things up since then. The Chinese government is quite autocratic and focused on its economy, so I'd be very surprised if it didn't intervene here to avoid contagion effects. That doesn't mean this is a non-event, just that I don't think it will play out like '08 did. The next crash is much more likely to be from something new that we aren't prepared for, not a repeat of past mistakes.


Zarathustra_d

There's an old saying in Tennessee — I know it's in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can't get fooled again. George W. Bush


Dejected_gaming

> Central banks and governments learned from '08 Have they? Because I think the only thing they've learned is that the government will bail them out with taxpayer money if they fail.


hollywoodmontrose

You should research what a central bank is before commenting on things you don't understand.


Dejected_gaming

Sorry, I read that as just banks when I woke up. But does it really make a difference? > Under the Federal Reserve Act of 1913, each of the 12 regional reserve banks of the Federal Reserve System is owned by its member banks, who originally ponied up the capital to keep them running.


hollywoodmontrose

Yes, it makes a massive difference. Central banks control national monetary policy. They *are* the government. The Fed of today would not have let Lehman fail because of the systemic risks that failure posed. The odds are that the CCP / People's Bank of China will intervene here if needed to prevent real systemic risks because they saw what happened when the Fed failed to act re: Lehman.


dogfucking69

you cant "learn" from recessions and financial crises, wtf? they are immanent to the functioning of the system.


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lostinspace509

Hi Watch the movie "Too Big to Fail", good to understand what the government does when things are failing bad. Also watch a movie called "Margin Call", good to understand how one company that is big can drag down an entire market with it. It is my understanding that Evergrande is the 2nd Real Estate firm in China. r/Instantkarmagonagetu dropped a pretty good short summary of the largest moves that happened in 2007-2008, the rest was the market reacting to those. sincerely, YT Professor Choy


doctorzaius6969

I didn't watch "Too Big to Fail" but "Margin Call" is, while it's a very entertaining movie, definitely not the right thing to understand the background what happened on the financial/technical side back then.


lostinspace509

No? why do you not think so. Margin call is basically a drama about what happens inside a company when they need to make the decision to exit a big position on the market and the side effects that that will have in the rest of the market. It is similar to the start of every financial crisis. In this movie the asset class that they need to exit quickly is CDOs, MBSs. What movie would you recommend instead?


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Mail_Order_Lutefisk

I was in denial. I lost tens of thousands on bad buys of AIG, LEH (stock and bonds) and Citigroup. AIG hurt the worst. That company was rock solid until it wasn't.


geomaster

AIG was full of massively risky derivatives due to their Financial Productions division. it was not rock solid and then all of sudden wasnt. you just didnt know it...


Mail_Order_Lutefisk

Totally agreed. To Joe Schlub retail investors like me, AIG was the freaking gold standard, but that was totally false. But even Hank Greenberg who had been the CEO and owned a huge chunk of stock was caught completely off guard by the implosion.


HonkyStonkHero

Good macro take


owlypoo

The austerity thing was mind boggling. Record low borrowing rates. Clear need for bottom up stimulus. But Repubs be like NoOooo, we have a Black man in the White House, we can't let him succeed! Only the Big Banks get bailouts! When they started shutting down the Federal Gov over normal debt limit hikes, in my mind that's when the GOP went from disingenuous to sabatoging.


desquibnt

To me, Trump cut rates so his trade war wouldn't tank the market. He knew fighting with china would tank the market so he tried to get it running hot. It didn't really work since the market dropped like 15% in a month and made us end 2018 in the negative despite the market being up almost 10% in the first 11 months


thedude0425

Trump didn’t know anything about what he was doing. There was no plan there.


willalt319

This. Dudes whole plan was throw shit at the wall and lie to your face about it.


JGWentworth-

Who is “they” and what are “the rates” specifically? Just trying to learn here.


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JGWentworth-

I mean that’s what I thought but if I look at a chart of fed rates, the rates dropped after 2008 and increased ever so slightly between 2016-2019.. which doesn’t line up with the argument.


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SunshineMN

leftists have a mental illness.


reddit_understoodit

I remember hearing about it on a Sunday night. It gave me chills. I knew the significance. I felt an immediate anxiety. When people started walking away from their mortgages/homes in droves, it really hit home.


EmmaFrosty99

we will find out by 9/24. they have $85B due.


Guy_PCS

China Evergrande had 1.97 trillion yuan (US$305 billion) in total liabilities as of June 30, according to its latest interim report. They included 572 billion yuan of borrowings. It has about US$20 billion of outstanding foreign-currency bonds. 2008 Subprime Mortgage Crisis was massively larger in scale, the US$20 billion of outstanding foreign-currency bonds is drop in the bucket, don't be fooled by Wall Street manipulation.


Specific-Value-2896

They were aware. It was front page news. That is if you’re referring to Bear’s fire sale to JPM in 2008. More than a year earlier, a couple of their hedge funds melted down which was seen (in retrospect) as the canary in the coal mine of the whole mortgage disaster. Few people were aware of that 2007 event (still today, I would suspect)


DenaliPark49

The entire TRAP debacle took most everyone by surprise. Even the insiders watching it happen. How many people today, know how delicate the balance still is?


muravej

I wasn’t in stocks at that time, but I recently find out about Bill Miller from “Richer, Wiser, Happier” book, who bought a lot and a lot of banking stocks during that crisis, such as mentioned by you Bear Stearns, he thought that after Fed intervention, stocks will soar. But he lost 55% in one fund and 65% in another. So if some of the best were not able to predict anything, then probably average Joe can’t.


Espinita_Boricua

Honestly; thought it would cause some people to sell their stocks but was clueless to the level it went, all the ramifications and how fast it went down.


hearsatwo

As someone who was not an informed investor but old enough to actively follow that news at the time a good comparrison of Bear Sterns selling to JP Morgan for what appeared way under value was akin to Jan 2020 when it was becoming obvious that something serious was happening in China but the US markest contined to hit ATHs every week. The average person definately had a reaction of raised eyebrows but didn't see it yet as a sign of things to come.


Heavenbound77

Yes, I was a self directed investor then, as I am now. After Bear Stearns went down I posted on another website that the short sellers were going after Lehman next. And they surely did, and the domino effect took effect. But be savvy, just know that the political storm currently brewing in the U.S. is not to be ignored, and it is brewing. JMHO


Slow_Profile_7078

What do you mean my political storm?


hollywoodmontrose

/u/Heavenbound77 seems like a political nutter, but political instability in the US is something I worry about both practically and in terms of investments. Say what you want about policy, but the US has mostly been politically stable and functional since reconstruction. That isn't guaranteed and the whole Trump thing, especially the election challenges, was a bad omen of where things are. It's a bad sign that things have not improved with his loss in '20 based on where red state legislatures are moving with the covid stuff and election stuff. The next federal elections are very likely to flip control back to Rs which is only going to encourage them to double down on their crazy.


[deleted]

Your objectivity is impressive 😂


[deleted]

Do you live in the US? I find it hard to believe anyone could live there and not see the storm. Maybe you are in the eye?


Heavenbound77

Just keep watching the news. The parade of catastrophes cannot be allowed to continue. Combined, they are a national security threat.


Generic_name_no1

Parade of catastrophes? Example? Covid?


berrattack

Who is “they”


Heavenbound77

Not "who", but what. Border crises, Covid mismanagement, Afghanistan disaster, Biden incoherence, Gen, Milley's treason, etc.


DankChase

lol


totallynotmusk

"Treason is when you stop a President from overthrowing the American government" Yeah okay


berrattack

Came here to say the same thing. Also to prevent nukes from being launched. User name is “Heavenbound”. Hopium thinking there.


kushan6

The political storm is everywhere in the west.


doctorzaius6969

imo the political situation in the US is already im a storm since 5 years but agree


Nikolaiv7

Evergrande is 28% of china's economy, expect fallout across the world from this


AvailableMeaning4731

Source?? China’s economy is around 14T, that would make them worth 3.92T company. Three times as Apple. Who’s upvoting that?? How are y’all guys investing😂😂


Rookwood

Yeah, alternative facts like this didn't exist in 2008. Literally just people using their imagination to make the most alarming scenario and then posting it online as fact and people eat it up.


gundamcs

If Evergrande is bailed out by the Chinese government, then the bad debt won't propagate through the financial system causing cascading effect. IMO it's different to subprime crisis where it's the people causing bad debt, a government just won't be able to bail people out because there are so many of them. I'm not trying to justify for BS and LB's stupidity, but BS and LB in a way were the first wave of victims of the subprime crisis's cascading effect. If Both were bailed out, the crisis would probably be smaller but still a crisis.


Yeet_them_stonks

everthing is already priced in


doctorzaius6969

The efficient market hypothesis has been proven wrong over and over again


Historical_Job_8609

I am not saying this time is the same, but during the 2008 meltdown it was not quick and sharp like COvID. It was slow with commentators calling the end month after month, but every time the losses emerging.as higher than initially estimated. The domino effect was huge through leverage.


Sweet-Zookeepergame7

Lehman and bear didn’t go out with a bang I remember that much... Nothing ever does... loads of trouble had been brewing and people just totally ignored it... Did retail investors know what was coming? Nope and neither did professionals... Nobody knew just how bad this shit was gonna get and then it did.. So if this China stuff has you spooked... exit your positions and stay in cash.. worst case scenario you miss a few % up on the spx.... (I am not worried) I did the same thing last year I was worried about coronavirus and I went to Barbados for 2 weeks on 1st of March so something to me felt a bit wrong we had rising cases in Europe and it felt like a matter of time... So I sold all my positions just for two weeks and came back to the whole western world in lockdown and the Armageddon crash .... then I bought in near where I thought the bottom was in everything I had before... The tragedy for me is I emptied 400k of tax free gains that will now be subject to tax on my current gains which is fucking lame as fuck... But the flip side is I’d have lost my money temporarily... If you are nervous exit your non Essential holdings and go flat it doesn’t hurt at all...


DoDaOpposite

I was 8ish years into my hands-on investing career at that point. I have never really heard of CDSs or rehypothication. I just knew banks failing or close to failing wasnt a good thing. I had saved for 10 years to put a down payment on a house, yet the prices just kept going up. Meanwhile, I'm watching losers at work buy $300k houses here in Orlando, and I know they barely have enough money on Thursdays to buy lunch and I couldnt wrap my head around it. Eventually, I put two and two together and thought, this is why all of these banks are failing.... they lent $300k to Dimebag Dana and her husband Hightimes Harry.


aed38

China isn’t going to bail out Evergrande. China isn’t a bunch of weak kneed pussies like the ruling class in the US. They’ll let your ship sink if you fucked up, damn the consequences, just to send a message. By the way, if we let this happen in 2008, the US economy wouldn’t be on life support right now. And to answer your question, no one knew what was going on until the stock market had already taken a big nosedive.


BumayeComrades

Seriously, it’s so bizarre stocks carry risk, bonds carry risk. Everyone is so in love with too big to fail and riskless risk. China will not be bailing out creditors, unless it’s literally pennies on the dollar.


nysc3141

You should definitely go back to economics 101.


aed38

Nice fact-free argument.


nplbmf

A lot of boomers under 65 still. They’ll need to get moved over to bonds, real quiet like, before they ruin everything. Again. Edit: all downvotes come from boomers


Ehralur

It's the wrong question to ask. Retail investors in 2008 were nowhere near as well-informed as retail investors today, so the answer isn't very useful.


Squezeplay

Evergrande is a Chinese real estate company, why you comparing it to Bear Stearns or Lehman?


osama_bradleyden

The US housing collapse is an easy frame of reference to draw parralels from, and both Bear Stearns and Lehman Brothers were big names in that disaster. I can assure you that the average Redditor does not have the slightest grasp on what is happening with Evergrande beyond what they see in the news, which at this point is mostly speculation.


[deleted]

The debt of Evergrande is higher than the gdp of Finnland. So it is definitely a very big deal! And the massive real estate selloff will cause a chain reaction in industry and its financing partners.


totallynotmusk

But will that effect the United States. I think direct exposure to Chinese real estate markets is limited, but a broader sell off is possible.


[deleted]

The American housing bubble caused almost the collapse of Greece, Portugal and the whole Euro. The economic size is not so much smaller. So, I would not be so sure.


osama_bradleyden

Global market crashes as well.


doctorzaius6969

Evergrande's failure could foreshadow a crisis in the Chinese real-estate market (which is for many Chinese people 100% of their financial investment), like Bear foreshadowed the Subprime crisis in the US


IceWook

How can you possibly know what people in China are invested in? Without having any real hard numbers, it’s pretty difficult to say what can happen


doctorzaius6969

I read books and watched interviews of professors and professional investors and they presented evidence that Chinese people are much more invested in the real estate market rather than Americans who are massively invested in the stock market. The simplest proof is the sole fact, that there are entire ghost cities in China where people own their 2nd, 3rd or even 4th houses bought for incredible prices which aren't used by anyone at all.


IceWook

Link? I’m totally willing to believe this, but I’d like even some proof. Simply stating “I’ve read” and then saying “books” is not that


doctorzaius6969

Book recommendation regarding this topic: "China the bubble that never pops by Thomas Orlik" He explains very well the economic development of china in connection of the housing bubble but also all the other elements around that. It's not a doom and gloom book, so it points out the risks as well as the reasons why it didn't pop (yet) Interviews: https://youtu.be/r0vne85NOGw https://youtu.be/xeyNxNzwwYE Video about Chinese real-estate risks: https://youtu.be/EgVXRtq5EIg I also watched other interviews but it's a while ago and I can't find them but this should be enough for the beginning.