Filed under: Deals, Management, Rants and raves, JPMorgan Chase (JPM), Serious Money, Headline news, Bear Stearns Cos (BSC)

For me, I just find it unfathomable that management would either bet the farm on some very high risk investments, or equally bad bet the farm on investments they didn’t fully understand. This is such an extreme case of mismanagement that investors the world over can not believe it was possible. As a matter of fact it seems so impossible that it is probably what kept many of us faithfully invested. Many of us take investment risks, some more than others, but to bet the whole farm? To bet your future existence? This is financial insanity.

Is this just a case of greed causing blindness? If so why was it so contagious among some firms and not others?

It seems to me that the reported $2 per share buy price that JP Morgan Chase (NYSE: JPM) is paying for Bear Stearns (NYSE: BSC) would not have been enough to purchase the brand name last year, never mind the whole company. What we’re witnessing is the strong (until JPM reports some surprise) taking advantage of the weak. It also exemplifies how bad the market is, that no other buyer has stepped in at these fire sale prices.

I also don’t understand why management was so slow to act over the course of the last year as the picture became more clear as to how bad things were getting in the credit markets. Perhaps they were in denial. Do we give them the benefit of the doubt as to why they kept telling the market they did not have a liquidity problem until last Friday morning when we all woke up to hear they did? Did they actually believe all the trash they were telling us?

It looks like the strong will become even stronger after the market shake-out —or even more appropriately, the market shake-down. We should not forget that the assets that Chase is buying are impaired now, but likely will be worth some number of billions of dollars more as the credit and liquidity problems work themselves out over the next few years.

Even though this might make JP Morgan Chase look like a good purchase right now, since the stock is down and there is so much possible potential, we all have thought this about other institutions, including Bear Stearns, only to watch things fall apart as we are taken by surprise, as new disclosures of mismanagement and untimely decisions are made public.

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I am a shareholder in BSC.

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Filed under: Deals, Management, Rants and raves, JPMorgan Chase (JPM), Serious Money, Headline news, Bear Stearns Cos (BSC)

For me, I just find it unfathomable that management would either bet the farm on some very high risk investments, or equally bad bet the farm on investments they did not fully understand. This is such an extreme case of mismanagement that investors the world over can not believe it was possible. As a matter of fact it seems so impossible that it is probably what kept many of us faithfully invested. Many of us take investment risks, some more than others, but to bet the whole farm? To bet your future existence? This is financial insanity.

Is this just a case of greed causing blindness? If so why was it so contagious among some firms and not others?

It seems to me that the reported $2 per share purchase price that JP Morgan Chase (NYSE: JPM) is paying for Bear Stearns (NYSE: BSC) wouldn’t have been enough to purchase the brand name last year, never mind the whole company. What we are witnessing is the strong (until JPM reports some surprise) taking advantage of the weak. It also exemplifies how bad the market is, that no other buyer has stepped in at these fire sale prices.

I also do not understand why management was so slow to act over the course of the last year as the picture became more clear as to how bad things were getting in the credit markets. Perhaps they were in denial. Do we give them the benefit of the doubt as to why they kept telling the market they didn’t have a liquidity problem until last Friday morning when we all woke up to hear they did? Did they actually believe all the trash they were telling us?

It looks like the strong will become even stronger after the market shake-out —or even more appropriately, the market shake-down. We should not forget that the assets that Chase is buying are impaired now, but likely will be worth some number of billions of dollars more as the credit and liquidity problems work themselves out over the next few years.

Even though this might make JP Morgan Chase look like a good purchase right now, since the stock is down and there’s so much possible potential, we all have thought this about other institutions, including Bear Stearns, only to watch things fall apart as we are taken by surprise, as new disclosures of mismanagement and untimely decisions are made public.

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I’m a shareholder in BSC.

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Filed under: Major movement, Bad news, Market matters, JPMorgan Chase (JPM), Headline news, Bear Stearns Cos (BSC), Federal Reserve

Bear Stearns (NYSE:BSC)was sold to J.P. Morgan Chase (NYSE:JPM)over the weekend for $2 per share in stock. The Federal Reserve also provided substantial financing to J.P. Morgan Chase to facilitate the transaction. This is quite amazing since Bear Stearns stock traded over $60 per share last week and over $100 per share late last year.

The Federal Reserve also announced additional measures to provide liquidity to the market. It lowered the discount rate by 0.25% to 3.25%, reducing the discount window penalty to 0.25% from 0.50%. It also established a lending facility for primary dealers directly as opposed to through banks.

What do we make of all this? The Fed has established that it won’t grant the system to fail. It understands the danger that a bankruptcy from a major bank or brokerage firm would cause and won’t allow this to occur. This could cause a breakdown of the financial system on a global scale. A similar credit crisis occurred after the Crash of 1987.

On the other hand, this seems to indicate that shareholders will not receive a bailout. The Fed is essentially saying to a non-bank player, such as Bear Stearns, if you get into trouble which endangers the financial system, we’ll arrange for an orderly pre-packaged bankruptcy. Our concern is the financial system, not your survival. In essence, if you come to us, we are concerned that death occurs in an orderly manner.

This is very similar to the Fed takeover of Continental Illinois in the mid 1980’s. This bank was considered too large to fail. The Fed took over, and shareholder value was eliminated.

Any actual bailout will probably be limited to banks that are regulated by the Fed. However, there will be no free lunch. The Fed is concerned with market stabilization now. In the future since these institutions are under the regulation of the Fed, the costs of this bailout will then be accessed on them. If you want to look at precedent for such a situation, the early Chrysler bailout is a good example.

The Fed has indicated that it will not allow the system to fail. However, the penalty for those who put the system in danger will be severe, quite possibly fatal.

Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, an independent research firm focusing on investment strategies using the Federal Reserve’s impact on the stock prices. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.

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Filed under: Ripoffs and Scams, Technology, Transportation, Travel

The nation is blossoming red light cameras that shoot photos of drivers that disregard the law while passing through the intersections. For many cities, the technology is a god-send, and not just for the traffic control. The fines collected from drivers who are mailed a snapshot of their transgression along with a ticket are like almost- free money.

Unfortunately, for the city of Dallas, the cameras are working too well. It budgeted for revenues of $14.8 million from these cameras in 2007-08, but compliant drivers have resulted in an estimated $4 million plus shortfall. According to the Dallas Morning News, the city pays the vendor that supplies this technology $3,799 per working camera per month. Ironically, one of the cost-saving measures under consideration is turning the cameras off at least part of the time, since the monthly fee for idle cameras is less.

One solution to this dilemma I’ve recommended, that could solve many city and state’s budget problems, is to sell green light privileges. Drivers could bid on the right to control the light at approaching intersections — the high bidder gets the green, the rest wait. This could be done on a monthly basis, or, if the technology was sophisticated enough, in real time. Imagine you are driving down Main Street, in a bidding war with other automobiles approaching the intersection ahead for the green light. Envision the revenue that would bring!

It would made the red light camera look like chump change. And those intersections would be quite an adventure, one that we’d be glad to have cameras to record.

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Filed under: Extracurriculars, Ripoffs and Scams, Fraud

Probably the worst part about pursuing a legal remedy to a problem is hiring a lawyer. It’s not that they’re not good. It’s not that they don’t help you win your case. It’s that they’re so darn high-priced for the average person. With billing rates in the hundreds of dollars per hour, the cost to have an attorney go to court for you can rise quickly.

But companies with deep pockets find attorneys high-priced too. Just as Sun-Times Media Group (formerly Hollinger International), the parent company of the Chicago Sun-Times and several smaller newspapers. The company reported numbers for 2007, and they weren’t good.Contributing to the company’s pain were legal fees and liabilities of almost $200 million related to related to former CEO Conrad Black, the man who is now in prison for a fraud that caused shareholders of Hollinger International to lose millions of dollars. Does that make you feel any better about the lawyer bill you recently paid? Probably not, because even larger lawyer bills paid by your neighbors probably don’t ease the pain when you’re writing out a check to your attorney.

If lawyer fees have you down, don’t look toward an “insurance” plan like Pre-Paid Legal. Those plans are more fluff than substance, and they play right into your fears of attorney bills that you can’t afford. Unfortunately, the plans pay for very little real legal help when you need it most. So don’t purchase one of these bogus plans. You’re much better off saving the money you would have spent on the plan and starting a rainy day fund to help you out if you ever do need to hire a lawyer.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Bookkeeping, and is the author of Essentials of Corporate Fraud.

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Filed under: Entrepreneurship, Ripoffs and Scams

The last thing you want to discover is that one of your employees is stealing from your small business. Not only is it a total violation of your trust, but internal fraud also has the potential to put you out of business. According to the Association of Certified Fraud Examiners, businesses lose an average of 5% of revenues each year to fraud. Could your company survive if an employee stole 5% of your revenues?

My new book, Essentials of Corporate Fraud, details many of the red flags that might point to fraud in your company. There are literally hundreds of warning signs that might indicate an employee is engaged in a fraud scheme. Here I’ll just mention a few:

Is an employee struggling with personal problems? Employees with financial troubles, addictions, chronic legal problems, instability in their personal lives, or uncommon work habits might be more prone to commit the fraud.

Are record-keeping errors popping up? A company’s accounting process and financial records might also point to an ongoing fraud. Some of the ideal business software will alert you if accounting entries don’t line up the way they should.

Are you putting too much pressure on employees to meet sales targets? When financial goals loom huge, industry conditions are difficult, or employee bonuses are on the line, fraud may help ease the burden.

Are you too loose with company keys and passwords? Companies that have lax policies and procures are more prone to be defrauded. Allowing employees too much autonomy can also create an environment in which fraud goes unchecked.

Do you actively encourage honest, straightforward business dealings? Management must model ethical behavior and enforce the code of ethics in order to prevent fraud.

This post just scratches the surface of a complex topic. But if you want to know more about fraud risks and indicators check out my new book. In Essentials of Corporate Fraud I go into a lot more detail about how the most common frauds are perpetrated and the ways small businesses can stop fraud in its tracks.

You wouldn’t leave the company’s doors unlocked overnight, would you? Don’t leave the company’s assets, information, and money exposed for your employees to steal. Learn about fraud and begin preventing it in your company.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Record-keeping, and is the author of Essentials of Corporate Fraud.

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