DID BEAR STEARNS FALL OR WAS IT PUSHED?
HOW INSIDER TRADING SAVED JPMORGAN
AND LOOTED THE AMERICAN TAXPAYER
 
 Ellen Brown, May 12, 2008          Don Stacey  From: don.stacey 
 
www.webofdebt.com/articles
>
> The mother of all insider trades was pulled off in 1815, when London
> financier Nathan Rothschild led British investors to believe that the
> Duke of Wellington had lost to Napoleon at the Battle of Waterloo. In a
> matter of hours, British government bond prices plummeted. Rothschild,
> who had advance information, then swiftly bought up the entire market in
> government bonds, acquiring a dominant holding in England's debt for
> pennies on the pound. Over the course of the nineteenth century, N. M.
> Rothschild would become the biggest bank in the world, and the five
> brothers would come to control most of the foreign-loan business of
> Europe. "Let me issue and control a nation's money," Rothschild boasted
> in 1838, "and I care not who writes its laws."
>
> In the United States a century later, John Pierpont Morgan again used
> rumor and innuendo to create a panic that would change the course of
> history. The panic of 1907 was triggered by rumors that two major banks
> were about to become insolvent. Later evidence pointed to the House of
> Morgan as the source of the rumors. The public, believing the rumors,
> proceeded to make them come true by staging a run on the banks. Morgan
> then nobly stepped in to avert the panic by importing $100 million in
> gold from his European sources. The public thus became convinced that
> the country needed a central banking system to stop future panics,
> overcoming strong congressional opposition to any bill allowing the
> nation's money to be issued by a private central bank controlled by Wall
> Street; and the Federal Reserve Act was passed in 1913. Morgan created
> the conditions for the Act's passage, but it was Paul Warburg who pulled
> it off. An immigrant from Germany, Warburg was a partner of Kuhn, Loeb,
> the Rothschilds' main American banking operation since the Civil War.
> Elisha Garrison, an agent of Brown Brothers bankers, wrote in his 1931
> book Roosevelt, Wilson and the Federal Reserve Law that "Paul Warburg is
> the man who got the Federal Reserve Act together after the Aldrich Plan
> aroused such nationwide resentment and opposition. The mastermind of
> both plans was Baron Alfred Rothschild of London." Morgan, too, is now
> widely believed to have been Rothschild's agent in the United States. 1
>
> Robert Owens, a co-author of the Federal Reserve Act, later testified
> before Congress that the banking industry had conspired to create a
> series of financial panics in order to rouse the people to demand
> "reforms" that served the interests of the financiers. A century later,
> JPMorgan Chase & Co. (now one of the two largest banks in the United
> States) may have pulled this ruse off again, again changing the course
> of history. "Remember Friday March 14, 2008," wrote Martin Wolf in The
> Financial Times; "it was the day the dream of global free-market
> capitalism died."
>
> The Rumors that Sank Bear Stearns
>
> Mergers, buyouts and leveraged acquisitions have been the modus operandi
> of the Morgan empire ever since John Pierpont Morgan took over
> Carnegie's steel mills to form U.S. Steel in 1901. The elder Morgan is
> said to have hated competition, the hallmark of "free-market
> capitalism." He did not compete, he bought; and he bought with money
> created by his own bank, using the leveraged system perfected by the
> Rothschild bankers known as "fractional reserve" lending. On March 16,
> 2008, this long tradition of takeovers and acquisitions culminated in
> JPMorgan's buyout of rival investment bank Bear Stearns with a $55
> billion loan from the Federal Reserve. Although called "federal," the
> U.S. central bank is privately owned by a consortium of banks, and it
> was set up to protect their interests.2 The secret weekend purchase of
> Bear Stearns with a Federal Reserve loan was precipitated by a run on
> Bear's stock allegedly triggered by rumors of its insolvency. An article
> in The Wall Street Journal on March 15, 2008 cast JPMorgan as Bear's
> "rescuer":
>
> "The role of rescuer has long been part of J.P. Morgan's history. In
> what's known as the Panic of 1907, a semi-retired J. Pierpont Morgan
> helped stave off a national financial crisis when he helped to shore up
> a number of banks that had seen a run on their deposits."
>
> That was one interpretation of events, but a later paragraph was
> probably closer to the facts:
>
> "J.P. Morgan has been on the prowl for acquisitions. .. . . Bear's assets
> could be too good, and too cheap, to turn down."3
>
> The "rescuer" was not actually JPMorgan but was the Federal Reserve, the
> "bankers' bank" set up by J. Pierpont Morgan to backstop bank runs; and
> the party "rescued" was not Bear Stearns, which wound up being eaten
> alive. The Federal Reserve (or "Fed") lent $25 billion to Bear Stearns
> and another $30 billion to JPMorgan, a total of $55 billion that all
> found its way into JPMorgan's coffers. It was a very good deal for
> JPMorgan and a very bad deal for Bear's shareholders, who saw their
> stock drop from a high of $156 to a low of $2 a share. Thirty percent of
> the company's stock was held by the employees, and another big chunk was
> held by the pension funds of teachers and other public servants. The
> share price was later raised to $10 a share in response to shareholder
> outrage and threats of lawsuits, but it was still a very "hostile"
> takeover, one in which the shareholders had no vote.
>
> The deal was also a very bad one for U.S. taxpayers, who are on the hook
> for the loan. Although the Fed is privately owned, the money it lends is
> taxpayer money, and it is the taxpayers who are taking the risk that the
> loan won't be repaid. The loan for the buyout was backed by Bear Stearns
> assets valued at $55 billion; and of this sum, $29 billion was
> non-recourse to JPMorgan, meaning that if the assets weren't worth their
> stated valuation, the Fed could not go after JPMorgan for the balance.
> The Fed could at best get its money back with interest; and at worst, it
> could lose between $25 billion and $40 billion. In other words,
> JPMorgan got the money ($55 billion) and the taxpayers got the risk (up
> to $40 billion), a ruse called the privatization of profit and
> socialization of risk. Why did the Fed not just make the $55 billion
> loan to Bear Stearns directly? The bank would have been saved, and the
> Fed and the taxpayers would have gotten a much better deal, since Bear
> Stearns could have been required to guaranty the full loan.
>
> The Highly Suspicious Out-of-the-Money Puts
>
> That was one of many questions raised by John Olagues, an authority on
> stock options, in a March 23 article boldly titled "Bear Stearns Buy-out
> . . . 100% Fraud." Olagues maintains that the Bear Stearns collapse was
> artificially created to allow JPMorgan to be paid $55 billion of
> taxpayer money to cover its own insolvency and acquire its rival Bear
> Stearns, while at the same time allowing insiders to take large "short"
> positions in Bear Stearns stock and collect massive profits. For
> evidence, Olagues points to a very suspicious series of events, which
> will be detailed here after some definitions for anyone not familiar
> with stock options:
>
> A put is an option to sell a stock at an agreed-upon price, called the
> strike price or exercise price, at any time up to an agreed-upon date.
> The option is priced and bought that day based upon the current stock
> price, on the presumption that the stock will decline in value. If the
> stock's price falls below the strike price, the option is "in the
> money"and the trader has made a profit. Now here's the evidence:
>
> On March 10, 2008, Bear Stearns stock dropped to $70 a share -- a recent
> low, but not the first time the stock had reached that level in 2008,
> having also traded there eight weeks earlier. On or before March 10,
> 2008, requests were made to the Options Exchanges to open a new April
> series of puts with exercise prices of 20 and 22.5 and a new March
> series with an exercise price of 25. The March series had only eight
> days left to expiration, meaning the stock would have to drop by an
> unlikely $45 a share in eight days for the put-buyers to score. It was a
> very risky bet, unless the traders knew something the market didn't; and
> they evidently thought they did, because after the series opened on
> March 11, 2008, purchases were made of massive volumes of puts
> controlling millions of shares.
>
> On or before March 13, 2008, another request was made of the Options
> Exchanges to open additional March and April put series with very low
> exercise prices, although the March put options would have just five
> days of trading to expiration. Again the exchanges accommodated the
> requests and massive amounts of puts were bought. Olagues contends that
> there is only one plausible explanation for "anyone in his right mind to
> buy puts with five days of life remaining with strike prices far below
> the market price": the deal must have already been arranged by March 10
> or before.
>
> These facts were in sharp contrast to the story told by officials who
> testified at congressional hearings on April 4. All witnesses agreed
> that false rumors had undermined confidence in Bear Stearns, making the
> company crash despite adequate liquidity just days before. On March 10,
> 2008, Reuters was citing Bear Stearns sources saying there was no
> liquidity crisis and no truth to the speculation of liquidity problems.
> On March 11, the Chairman of the Securities and Exchange Commission
> himself expressed confidence in its "capital cushion." Even "mad" TV
> investment guru Jim Cramer was proclaiming that all was well and the
> viewers should hold on. On March 12, official assurances continued.
> Olagues writes:
>
> "The fact that the requests were made on March 10 or earlier that those
> new series be opened and those requests were accommodated together with
> the subsequent massive open positions in those newly opened series is
> conclusive proof that there were some who knew about the collapse in
> advance . . . . This was no case of a sudden development on the 13 or
> 14th, where things changed dramatically making it such that they needed
> a bail-out immediately. The collapse was anticipated and prepared for. .
> . ..
>
> "Apparently it is claimed that some people have the ability to start
> false rumors about Bear Stearns' and other banks' liquidity, which then
> starts a 'run on the bank.' These rumor mongers allegedly were able to
> influence companies like Goldman Sachs to terminate doing business with
> Bear Stearns, notwithstanding that Goldman et al. believed that Bear
> Stearns balance sheet was in good shape. . . . The idea that rumors
> caused a 'run on the bank' at Bear Stearns is 100% ridiculous. Perhaps
> that's the reason why every witness was so guarded and hesitant and
> looked so mighty strained in answering questions . . . .
>
> "To prove the case of illegal insider trading, all the Feds have to do
> is ask a few questions of the persons who bought puts on Bear Stearns or
> shorted stock during the week before March 17, 2008 and before. All the
> records are easily available. If they bought puts or shorted stock, just
> ask them why."5
>
> Suspicions Mount
>
> Other commentators point to other issues that might be probed by
> investigators. Chris Cook, a British consultant and the former
> Compliance Director for the International Petroleum Exchange, wrote in
> an April 24 blog:
>
> "As a former regulator myself, I would be crawling all over these
> trades. . . . One question that occurs to me is who actually sold these
> Put Options? And why aren't they creating merry hell about the losses?
> Where is Spitzer when we need him?"6
>
> In an April 23 article in LeMetropoleCafe.com, Rob Kirby agreed with
> Olagues that it was not Bear Stearns but JPMorgan that was bankrupt and
> needed to be "recapitalized" with massive loans from the Federal
> Reserve. Kirby pointed to the huge losses from derivatives (bets on the
> future price of assets) carried on JPMorgan's books:
>
> ". . . J.P. Morgan's derivatives book is 2-3 times bigger than
> Citibank's - and it was derivatives that caused losses of more than 30
> billion at Citibank . . . . So, it only made common sense that J.P.
> Morgan had to be a little more than 'knee deep' in the same stuff that
> Citibank was - but how do you tell the market that a bank - any bank -
> needs to be recapitalized to the tune of 50 - 80 billion?"7
>
> Kirby wrote in an April 30 article:
>
> "According to the NYSE there are only 240 million shares of Bear
> outstanding . . . [Yet] 188 million traded on Mar. 14 alone? Doesn't
> this strike you as being odd? . .. . What percentage of the firm was
> owned by insiders that categorically did not sell their shares? . . .
> Bear Stearns employees held 30 % of the company's stock . . . 30 % of
> 240 million is 72 million. If you subtract 72 from 240 you end up with
> approximately 170 million. Don't you think it's a stretch to believe
> that 186+ million real shares traded on Friday Mar. 14? Or do you
> believe that rank-and-file Bear employees, worried about their jobs,
> were pitching their stocks on the Friday before the company collapsed
> knowing their company was toast? But that would be insider trading -
> wouldn't it? No bloody wonder the SEC does not want to probe J.P.
> Morgan's 'rescue' of Bear Stearns . . ."8
>
> If real shares weren't trading, someone must have been engaging in
> "naked" short selling - selling stock short without first borrowing the
> shares or ensuring that the shares could be borrowed. Short selling, a
> technique used by investors to try to profit from the falling price of a
> stock, involves borrowing a stock from a broker and selling it, with the
> understanding that the stock must later be bought back and returned to
> the broker. Naked short selling is normally illegal; but in the interest
> of "liquid markets," a truck-sized loophole exists for "market makers"
> (those people who match buyers with sellers, set the price, and follow
> through with the trade). Even market makers, however, are supposed to
> cover within three days by actually coming up with the stock; and where
> would they have gotten enough Bear Stearns stock to cover 75% of the
> company's outstanding shares? In any case, naked short selling is
> illegal if the intent is to drive down a stock's share price; and that
> was certainly the result here.9
>
> On May 10, 2008, in weekly market commentary on FinancialSense.com, Jim
> Puplava observed that naked short selling has become so pervasive that
> the number of shares sold "short" far exceeds the shares actually issued
> by the underlying companies. Yet regulators are turning a blind eye,
> perhaps because the situation has now gotten so far out of hand that it
> can't be corrected without major stock upheaval. He noted that naked
> short selling is basically the counterfeiting of stock, and that it has
> reached epidemic proportions since the "uptick" rule was revoked last
> summer to help the floundering hedge funds. The uptick rule allowed
> short selling only if the stock price were going up, preventing a
> cascade of short sales that would take the stock price much lower. But
> that brake on manipulation has been eliminated by the Securities
> Exchange Commission (SEC), leaving the market in unregulated chaos.
>
> Eliot Spitzer has also been eliminated from the scene, and it may be for
> similar reasons. Greg Palast suggested in a March 14 article that the
> "sin" of the former New York governor may have been something more
> serious than prostitution. Spitzer made the mistake of getting in the
> way of a $200 billion windfall from the Federal Reserve to the banks,
> guaranteeing the mortgage-backed junk bonds of the same banking
> predators responsible for the subprime debacle. While the Federal
> Reserve was trying to bail the banks out, Spitzer was trying to regulate
> them, bringing suit on behalf of consumers.10 But he was swiftly exposed
> and deposed; and the Treasury has now broached a new plan that would
> prevent such disruptions in the future. Like the Panic of 1907 that
> justified a "bankers' bank" to prevent future runs, the collapse of Bear
> Stearns has been used to justify a proposal giving vast new powers to
> the Federal Reserve to promote "financial market stability." The plan
> was unveiled by Treasury Secretary Henry Paulson, former head of Goldman
> Sachs, two weeks after Bear Stearns fell. It would "consolidate" the
> state regulators (who work for the fifty states) and the SEC (which
> works for the U.S. government) under the Federal Reserve (which works
> for the banks). Paulson conceded that the result would not be to
> increase regulation but to actually take away authority from state
> regulators and the SEC. All regulation would be subsumed under the
> Federal Reserve, the bank-owned entity set up by J. Pierpont Morgan in
> 1913 specifically to preserve the banks' own interests.
>
> On April 29, a former top Federal Reserve official told The Wall Street
> Journal that by offering $30 billion in financing to JPMorgan for Bear's
> assets, the Fed had "eliminated forever the possibility [that it] could
> serve as an honest broker." Vincent Reinhart, formerly the Fed's
> director of monetary affairs and the secretary of its policy-making
> panel, said the Fed's bailout of Bear Stearns would come to be viewed as
> the "worst policy mistake in a generation." He noted that there were
> other viable options, such as looking for other suitors or removing some
> assets from Bear's portfolio, which had not been pursued by the Federal
> Reserve.11
>
> Jim Puplava maintains that naked short selling has now become so
> pervasive that if the hedge funds were pressed to come in and cover
> their naked short positions, "they would actually trigger another
> financial crisis." The Fed and the SEC may be looking the other way on
> this widespread stock counterfeiting scheme because "if they did unravel
> it, everything really would unravel." Evidently "promoting market
> stability" means that whistle-blowers and the SEC must be silenced so
> that a grossly illegal situation can continue, since the crime is so
> pervasive that to expose it and prosecute the criminals would unravel
> the whole financial system. As Nathan Rothschild observed in 1838, when
> the issuance and control of a nation's money are in private hands, the
> laws and the people who make them become irrelevant.
>
> Ellen Brown, J.D., developed her research skills as an attorney
> practicing civil litigation in Los Angeles. In Web of Debt, her latest
> book, she turns those skills to an analysis of the Federal Reserve and
> "the money trust." She shows how this private cartel has usurped the
> power to create money from the people themselves, and how we the people
> can get it back. Her eleven books include the bestselling Nature's
> Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000
> copies.
>
> 1. For many references, see E. Brown, Web of Debt (2008); and E. Brown,
> "Dollar Deception: How Banks Secretly Create Money,"
> webofdebt.com/articles (July 3, 2007).
>
>
> 2 Lewis v. United States, 680 F.2d 1239 (1982); Edward Flaherty, "Myth
> #5: The Federal Reserve Is Owned and Controlled by Foreigners,"
> www.geocities.com/CapitolHill/Senate/3616/flaherty5.html.
>
> 3. Kate Kelly, et al., "Fed Races to Rescue Bear Stearns in Bid to
> Steady Financial System," The Wall Street Journal (March 15, 2008).
>
> 4. John Olagues, "Bear Stearns Buy-Out . . .100% Fraud,"
> optionsforemployees/articles.com (March 23, 2008).
>
> 5. Ibid.
>
> 6. Chris Cook, "LQD: Bear-faced Robbery?", eurotrib.com (April 24,
> 2008).
>
> 7. Rob Kirby, "A National Disaster," lemetropolecafe.com (April 23,
> 2008).
>
> 8. Rob Kirby, "Further Thoughts on Bear Stearns," lemetropolecafe.com
> (April 30, 2008).
>
> 9. "Naked Short Selling," Wikipedia.
>
> 10. Greg Palast, "Eliot's Mess" gregpalast.com (March 14, 2008).
>
> 11. Reuters, "Ex-Fed Official Criticizes Bear Stearns Rescue," citing
> Wall Street Journal (April 29, 2008).
>
>