Greed and Fear So Accentuated...
The fifth largest brokerage and Securities firm, a firm that was 87 years old, a firm whose market value was close to $20 billion last year was sold out for a measly $240 million. Its share value which was $30 on March 14 reduced overnight to $2. Yes, I am talking about the much hounded topic the meltdown of Bear, Stearns & Co. Inc.
How do such things happen? Last year the CEO James Cayne received a salary of $40 million and this year the whole company is sold out for $240 million. What does all this mean? What does money mean? The bigger question is what does Security mean?
The cause of whole of this imbroglio is spelt out in the words of Gail Fosler, the President and chief economist of The Conference Board, independent non-profit organization doing research on management and market place economics, when she said "I have never seen the tension between greed and fear to be so accentuated…”.
On one side people were driven by greed to make the quick buck without prudent and virtuous investing principles. It was greed that was the driving force starting from the CEO of big corporations to the mortgage agencies and to the person who buys the house entirely on debt.
The financial world wanted to churn in the numbers within a year, whether practices that were undertaken to do it would make it worthwhile in the long term was never given consideration. And when their practices started working against them, fear gripped them.
All unrealized profits were going down the drain, to realize profits one had to sell out quickly even if the markets were going down so that they end up booking profits before the markets go down further more. Here the drive is fear that the market would soon go into a tail spin.
Suddenly, gripped by inexorable fear the investors had a run on Bear Stearns & Co for the tune of about $17 billion when the market value of Bear Stearns & Co was just a fraction of that amount. All investors who wanted Bear Stearns to make more money for them wanted what was left of their money, fearing that if they did not do that that even what is left out would be lost.
It was too much for Bear Stearns & Co, it had to go under. JP Morgan came to rescue, agreeing to by it for $2 a share when the previous day’s close was $30 a share down from $160 a share a year ago.
That is the story of greed and fear so accentuated… so far. Many more may follow... :(
Will this cycle of greed and fear ever end. Unfortunately, it may not, until capitilism holds sway because in the capitalistic system greed is a virtue that keeps the machine running. Fear is the natural result of unfettered greed. As we live this life in the capitalistic system we shall continue to witness many more cycles of collective greed and collective fear accentuating each other creating much havoc.
How do such things happen? Last year the CEO James Cayne received a salary of $40 million and this year the whole company is sold out for $240 million. What does all this mean? What does money mean? The bigger question is what does Security mean?
The cause of whole of this imbroglio is spelt out in the words of Gail Fosler, the President and chief economist of The Conference Board, independent non-profit organization doing research on management and market place economics, when she said "I have never seen the tension between greed and fear to be so accentuated…”.
On one side people were driven by greed to make the quick buck without prudent and virtuous investing principles. It was greed that was the driving force starting from the CEO of big corporations to the mortgage agencies and to the person who buys the house entirely on debt.
The financial world wanted to churn in the numbers within a year, whether practices that were undertaken to do it would make it worthwhile in the long term was never given consideration. And when their practices started working against them, fear gripped them.
All unrealized profits were going down the drain, to realize profits one had to sell out quickly even if the markets were going down so that they end up booking profits before the markets go down further more. Here the drive is fear that the market would soon go into a tail spin.
Suddenly, gripped by inexorable fear the investors had a run on Bear Stearns & Co for the tune of about $17 billion when the market value of Bear Stearns & Co was just a fraction of that amount. All investors who wanted Bear Stearns to make more money for them wanted what was left of their money, fearing that if they did not do that that even what is left out would be lost.
It was too much for Bear Stearns & Co, it had to go under. JP Morgan came to rescue, agreeing to by it for $2 a share when the previous day’s close was $30 a share down from $160 a share a year ago.
That is the story of greed and fear so accentuated… so far. Many more may follow... :(
Will this cycle of greed and fear ever end. Unfortunately, it may not, until capitilism holds sway because in the capitalistic system greed is a virtue that keeps the machine running. Fear is the natural result of unfettered greed. As we live this life in the capitalistic system we shall continue to witness many more cycles of collective greed and collective fear accentuating each other creating much havoc.