FED's folly and Beggar's delight

FED's folly, Beggar's delight, employees' nightmare

Announced today, that JP Morgan Chase (JPMC) will dismiss almost 9000 to 10,000 employees of Bears Stearns.

So FED who doled out $ 30 Billions to JPMC at 2.5% interest rate, to create more employment, more growth, finds it money going down the drain almost within a month.

So by giving JPMC - non-Recourse funding, that is JPMC does not have obligation to repay, FED created unemployment of 9000 people, and FED will have to pay unemployment allowance for next 6 months.

So FED's folly in giving beggar JPMC $ 30 Billions has become the nightmare of employees of Bear Stearns.

The Senators and even President Bush should ask FED - are you there to create employment or unemployment? The total wage bill of dismissible employees will be just $ 36 Millions per month. FED has to ask JPMC where you are going to spend $ 30 Billions when you are firing 9000 employees and send them over to FED to claim the "unemployment allowance" for next 6 months?

FED will also lose Tax @ 30% or $ 130 Million by letting tax paying employees of Bear stearns to go.

A question arises, why did then FED helped $30 Billions to save Bear Stearns? If bear stearns was saved, why do their employees to go - why not from JPMC itself?

Okay, you are not going to pay any interest, you are also under no obligations to pay even the principal, then why the hell are you firing BS employees and deprive FED of tax income from them? (BS Employees). It is more like "someone's dewali others' holi"

The real news is that FED did not save Bear Stearns BUT saved JP Morgan instead from complete disaster, using defamed Bear Stearns as cover. Why?

JP Morgan and Chase have highest number of derivative exposres compared to any bank. When I left stockbroking 5 years ago, JPMC reportedly had derivative exposure of over $ 30 Trillions.

The merger of JPMC and BS is similar to merger of UBS and SBC (Swiss Banking Corporation) when LTCM failed. Both UBS and SBC had derivative contracts outstanding against each other. If they did not merge, both would have become bankrupt. So they merged with each other, so that cross contracts could be cancelled against each other. It is more like Branch and Head Office accounting, where upon integration, cross entries of branch and HO gets cancelled out.

Same thing appear to have happened in merger with JPMC and BS. It is more than likely, and I am almost 100% certain, that both institutions have had cross derivative contracts outstanding against each other. By merging them, those cross contracts could be cancelled out, leaving only net postion to the outsiders.

It was FED who saved JPMC from disaster, not JPMC saved BS

Stupid FED - they lost $ 30 Billions, then it created unemployjment of 9000 employees, then it will pay them "unemployment allowance of $ 18 Millions per month or $108 Millions for 6 months (maximum period of unemployment allowance) and it also lost Tax revenue of $129 Millions (30% of annual salary of $ 48000 of BS employees x 9000 - that is number of employees fired)

Besides, it will also lose extra interest income of 3.5% (market rate 6% - FED loan rate on $ 30 Billions), that is $ 30 Billions x 3.5% = $ 1 Billlion per year or $ 30 Billions over 30 years (30 x $ 1 Billions)

In short, FED has written of entire $ 30 Billions by creative accounting or called fraudulant accounting. On one hand it gave $ 30 Billions, on the other it gave license to JPMC not to pay by way of obligations, and defintively lost extra interest income of 3.5% per year.

King does no wrong - so do the FED - the most venerable institution of United States.

And Americans go on believing that FED saved Bears Stearns. They do not know that FED has defrauded American tax payers by not disclosing the truth. Americans should throw rotten eggs and tomatoes on FED building to vent their anger.

Kalidas, Hong Kong
16-04-2008 Ref: 09-018

11)
My answer is still NO

It is always tempting to invest immediately when you know that your neighbor is making money, and that is what he tells you. No one tells how much they lost. When Merrill Lynch says that they provided for $6.5 Billions again this quarter, and that their revenues have fallen by 69%, that indicates that their customers are departing, and much larger is ahead. I have written elsewhere - Dying flames always shine at its brightest when little oil is left. Read last two days rally in this context.

Do not forget that Oil prices have reached record again at $ 114 and are still rising. All eatables are still rising at their fastest pace - wheat, soyabin, sugar, cotton, orange juice, milk etc. These are all signs of hyper inflation. When these commodities start rising, they are first leading indicators of major fall in market and speedy rise of interest rate in the market - which is the stock market's biggest ememy.

However, take your own decision whether you should re-enter it. I am still 100% cash, and I am not at all perturbed.

Kalidas, Hong Kong
17-04-2008