‘Special Day’ Remembrance

June 22, 2023

Another gorgeous, sunshine-filled, low-temp episode shortly after the noon hour Thursday here in California’s Central Valley. Reportedly, another 10 days or so of this chilled-type weather (abnormal for the time) and summer is then expected to start kicking in with triple-digit air temperatures, so enjoy while you can.

We all take notice of ‘special days‘ like birthdays, anniversaries, and the like, plus holidays like Christmas and New Year’s, and whatnot. We also remember ‘special’ personal days, and this post reflects on one of my ‘special‘ days — June 22, 2007.

This day 16 years ago was a Friday. Not only a ‘special‘ day for me but in the short, and long run, also for a shitload of people. Then I’d just recently relocated to Humboldt County in northern California and I was searching for a job when I was hired at this liquor store (I’ve much retail experience) today 16 years ago — read about the hiring encounter here. It’s really, quite amusing. Further posts on the subject here, and here, and even my retirement post here.
I was made manager of the store a couple of years later. My last actual, tax-paying job as I retired from there in 2014 — I think the fastest nine years on record it seems like.

So much for the ‘personal‘ side, now for all the rest of the civilized world side — June 22, 2007, was also most likely (none to contest) the start of the ‘Great Recession,’  which thundered onto the scene less than a year later.

However, unbeknownst to me at the time (it would be at least three years before time/event were correlated), that day was ‘special‘,’ too, in the financial universe.

Wikipedia: ‘On June 22, 2007, Bear Stearns pledged a collateralized loan of up to $3.2 billion to “bail out” one of its funds, the Bear Stearns High-Grade Structured Credit Fund, while negotiating with other banks to loan money against collateral to another fund, the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund.

Further from CNN Money, Aug. 21, 2007, in a quick nutshell:

The hedge funds’ troubles started in April, worsened in May, and by mid-June had become a full-blown crisis. Even Bear’s injection of $1.6 billion couldn’t save them. By mid-July both were next to worthless. Less than three weeks later, the stock was way down, Spector was gone, and Bear was selling more than $2 billion in debt — both to shore up its balance sheet and to demonstrate that its assets were still valued.

And a time-like flow chart of sorts — again CNN Money, from March 31, 2008:

Ten days later Bear Stearns (BSC, Fortune 500) was swallowed by J.P. Morgan Chase (JPM, Fortune 500). But all the brouhaha over the deal – were the shares worth $2 or $10? should the Federal Reserve have intervened? – has obscured how astonishing Bear’s collapse is. It’s a reminder that in a business based on confidence, when that confidence evaporates, so does the business. A reconstruction of the week before Bear Stearns agreed to be funded, and then acquired, by J.P. Morgan Chase, reveals the speed at which Bear’s longtime customers and counterparties lost their faith in the investment bank and undermined its ability to continue.

It also reveals a psychological gap. Bear had survived one liquidity challenge, in the summer of 2007, when two of its hedge funds cratered after the subprime mortgage collapse. The firm had labored to repair its balance sheet and improve its financing. “Our capital position is strong,” said Bear’s CFO, Sam Molinaro, at an investors’ conference in February. “Balance-sheet liquidity has continued to improve throughout the course of the year. We spent an awful lot of time trying to reduce our higher-risk asset categories.”

Fours days and it was all over:

AT 9 A.M., Bear announced $30 billion in funding provided by J.P. Morgan and backstopped by the government. In a conference call Schwartz sounded as if he was still fighting reality. “Bear Stearns has been subject to a significant amount of rumor,” he explained. “We attempted to try to provide some facts to the situation, but … the rumors intensified.” He said customer requests to cash out “accelerated yesterday … [and] at the pace things were going, there could be continued liquidity demands that would outstrip our liquidity resources.” The new loan facility, he said, would restore calm.

Of course, that didn’t pan out. Bear’s stock dropped nearly 40% in the first half-hour of trading. Within days, Bear’s 85 years as an independent entity were at an end.

At Maggie’s bar that Friday evening, directly across from Bear headquarters on 47th Street, the sense of shock was complete. A crowd of frazzled Bear employees thronged the bar. Some traders, clearly well past their first round at 6 P.M., expressed amazement at having to navigate camera crews to cross the street to the bar.

Soon after, I happened to sit next to a Bear Stearns managing director on the 6:35 express from Grand Central Station to Greenwich, Conn. “I worked eight years at a firm that promoted me from the back office to investment banking,” he told me as he sipped a Budweiser tall boy. “I had thousands of shares and thought I could afford to send my kids to private schools and college. It’s all gone now. I think I’ll probably move to Pittsburgh, see if the Federal Home Loan Bank needs anybody.”

Sixteen years and counting. One ‘special‘ day and it all goes to shit.

Way too late to scream, or cry, or would they even try?:

Stocks, hedge funds, or shit, yet once again here we are…

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