

The Week That Shook Wall Street: Inside the Demise of Bear Stearns - prakash
http://online.wsj.com/article/SB120580966534444395.html?mod=MKTW

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maximilian
The stuff going down on wall street is pretty unreal. The numbers they talk
about are mind-boggling and I wish I knew more of what exactly everything
meant - securities, bonds, etc. I have a vague idea of what they all are, but
not a really concrete, i'll explain it to you, sort of knowledge.

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brentr
Do you have any specific questions? I would be happy to answer them.

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maximilian
Hmm.. I do. Lemme look through some of the articles again and think about my
questions more. They talk a lot about loans backed by securities and bonds and
whatnot. I'm reading Greenspan's new book and I'm a little confused about what
securities and bonds. I think a bond is something I can buy (from the fed)
that says, "If you buy this now, I will pay you it back with 5% interest in x
years" - But are there more examples of bonds? Can I buy them from companies?
(I can be me, or a company)

I'm also confused as to why exactly bear-sterns tanked. If I'm reading
correctly they basically had a lot of loans that people called in that they
couldn't pay. But why did all these loans all get called in at once?

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brentr
A bond is a form of debt. A simple example of how a bond works is as follows:
Company X needs to raise $1 million for whatever reason. Company X decides to
borrow the money instead of accepting new equity holders. For mathematical
simplicity, let's assume that there is only one person willing to lend the
money. The terms of the bond are five years, 10% coupon, paid semi-annually,
and no other provisions. What this means is in five years time, the company
will pay back the $1 million they borrowed. In the intervening years, Company
X will pay $50,000 ($1 million X 10% / 2) twice a year to the investor; this
is the interest owed on the money borrowed.

There are many other provisions that the bond could carry. Some bonds are
convertible. This means that the person who lent the money could choose to
convert the bond to Company X's stock at a specified price or ratio. Some
bonds are callable. This means that Company X can choose to buy back the bonds
before the five years are up. Some bonds have no intervening interest payments
at all. The investor gets the equivalent of interest by buying the bond at a
discount based upon prevailing market rates.

The main reason given for the final breaking of Bear was a sudden loss of
confidence among its hedge fund clients. The clients were afraid Bear would
not be able to cover the amount the clients had invested with the fund should
they choose to withdraw their money. It was the equivalent of a run on a
retail bank but in the investing world instead.

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jgamman
FFS - those financial guys are really taking this seriously. screwed up the
global finance system? maybe but look how hard we're working: <quote>Sleep
deprivation set in, with some of the hundreds of attorneys and bankers
sleeping only a few hours during a 72-hour sprint. Dress was casual, with
neckties quickly shorn. </quote> you see that? quickly shorn!! who says we're
not dealing with this crisis? we took our @£$%£$% ties off!! what more do you
people want?!

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bumbledraven
Spot the grammatical error: "By 7:30 p.m., hunger pangs had taken hold.
Someone ordered Chinese food. A security guard lay out a buffet spread."

