This article is about how Bear Stearns stock was artificially collapsed so that illegal insider traders would make billions and J.P. Morgan would be paid $55 billion of US tax payer money to shore up themselves and buy Bear Stearns at bankruptsy prices.

Massive buying of puts and shorting stock in Bear Stearns

On March 10, 2008, the closing price of Bear Stearns

was 70. The stock had traded at 70 eight weeks earlier.

On or prior to March 10, 2008 requests were made to the

options exchanges to open new April series of puts with

exercise prices of 20, and 22.5, and a new March series with

an exercise price of 25.

Their requests were accommodated and new series

were opened for trading March 11, 2008.

Since there was very little subsequent trading in the

calls with exercise prices of 20, 22.5 or 25, it

is certain that the requests were made with the

intentions of buying substantial amounts of the puts.

There was, in fact, massive volumes of puts purchased

in those series which opened on March 11, 2008.

For example: between March 11-14 inclusive, there

were 20,000 contracts traded in the April 20s, 3700

contracts traded in the April 22.5s, and 8000 contracts

traded in the April 25s. In the March 25s, there were

79,000 contracts traded between March 11-14, 2008.

Question: Why did the options exchanges not open the

far out of the money puts for trading the first time that

Bear Stearns stock hit 70, when the April and March options

had far more time to expiration? Certainly if the requesters

were legitimate hedgers or speculators, their buying the

March and April puts with 2 and 3 months to expiration

was more reasonable.

Answer: The insiders were not ready to collapse the stock

and did not request the exchanges to open the new series

when Bear Stearns first hit 70.

Second Request and Accommodation

On or prior to March 13, 2008, an additional request

was made of the options exchanges to open more

March and April put series with very low exercise prices.

These new March put options would have just

five days of trading to expiration. The exchanges

accommodated their requests, knowing that the intentions

of the requesters were to buy puts. They indeed bought

massive amounts of puts. For example the March 20 puts

traded nearly 50,000 contracts (i.e. contracts to sell 5

million shares at 20). The March 15s traded 9600, the March

10s traded 13,000 and the March 5s traded 6300 all on

March 14 (the first day of trading of the new March series).

The introduction of those far-out-of-the-money put series

in the April and March months immediately before the crash

provided a vehicle whereby extreme leverage was available

to the insiders. In other words if an insider had $100,000 and

he knew that Morgan would buy Bear Stearns at 2, he

could make 5-10 times more on the $100,000 by buying the

newly introduced March puts. This is so because the soon to

expire far out-of-the-money puts were far cheaper than the

July or October out-of-the-money puts. And that is why the

illegal inside traders requested the exchanges to introduce

the far out-of-the-moneys just days before the crash.

But this scenario has serious implications. This means

that the deal was already arranged on March 10 or before.

That contradicts the scenario that is promoted by SEC

Chairman Cox, Fed Boss Bernanke, Bear CEO Schwartz,

Jamie Dimon of J.P. Morgan (who sits on the board of

directors for the New York Federal Reserve Bank) and

others that false rumors undermined the confidence in

Bear Stearns making the company crash, notwithstanding

their adequate liquiduty days before.

I would say that the deal was arranged months before

but the final terms and times were not determined until

maybe March 7-8, 2008.

On March 14, 2008, the April 17.5s, the 15s, the 12.5s and

the 10s traded 15,000 contracts combined. Each put

gives the right to sell 100 shares. So for example,

these 15,000 April puts gave the purchaser(s) the

right to sell 1.5 million shares at prices between 10

and 17.5. Those purchasers expected to make profits

on 1.5 million shares because they knew the deal was

coming at $2.00.

That is the only plausible explanation for anyone

to buy puts with five days of life remaining with strike

prices far below the maket price.

So there were requests, during the period of

March 10-13, to the exchanges to open the March

and April series for buying massive amounts of

extremely out-of-the-money puts, which were

accommodated by the options exchanges. Did the

Exchanges aid and abet the insider trading scheme?

We do not able to have a strong opinion on that idea.

Media statements of adequate liquidity.

However, Reuters, on March 10, 2008 was citing

Bear Stearns sources that there was no liquidity

crisis and that there was no truth to the

speculation of liquidity problems.

And none other than the Chairman of the Securities

and Exchange Commission on March 11, 2008 was

stating that "we have a good deal of comfort with

the capital cushion that these firms have".

We even had the "mad" Jim Cramer proclaiming on

March 11, 2008 that all is well with Bear Stearns and

that the viewers should hold on to their Bear Stearns.

And on March 12, 2008, Alan Schwartz CEO of Bear

Stearns was telling David Faber of CNBC that there

was no problem with liquidity and that "We don't see

any pressure on our liquidity, let alone a liquidity

crisis".

The fact that the requests were made on March 10

or earlier that those new series be opened and those

requests were accomodated together wth the

subsequent massive open positions in those newly

opened series is conclusive proof that there were

some who knew about the collapse in advance,

while Reuters, Cox, Schwartz and Cramer were telling

the public that there was no liquidity problem.

This was no case of a sudden developement 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, even

while the CEO of Bear Stearns and the SEC Chairman

of the SEC were making claims of stability.

What was the reason that Cramer, Cox and Schwartz

were all promoting Bear Stearns immediately before

the collapse. That will be speculated upon for years to come.

Could it have been that Cramer and Cox has the assignment

to prop up the stock to make it easier for the short sellers

to get better prices.

Cramer has admitted that "truth" was not his friend

and that he manipulated stocks to influence investors

behavior. Was this one of his acts?

But no apologies from Cramer as he claims now that

he was referring to keeping money in Bear Stearns Bank

not in Bear Stearns stock.

To prove Insider Trading:

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.

What information did they have access to which the

CEO and the SEC did not have? Where did they get the

info? Why aren't Cramer and Cox, Dimon, Bernanke,

Geithner, Paulson, Faber and Schwartz subject to a bit of

prosecutorial pressure to get to the bottom of this.

Maybe the buyers of puts and short sellers of stock

just didn't believe Reuters, Cox, Schwartz, Cramer and

Faber and went massively short anyway, buying puts that

required a 70% drop in a weeK. Maybe they had better

information than Schwartz or Cox. If they did, then that's

a felony, with the profits made subject to forfeiture.

April 3, 2008 Congressional Hearings on the

Bear Stearns Bail-out.

I watched both sessions and drew the following

conclusions:

In the first session there were the following witnesses.

Bernanke of the Federal Reserve Board, Cox from

the SEC, (see link below where Cox blames the contra parties refusal

to do business with Bar Stearns)

http://docs.google.com/viewer?a=v&q=cache:kGwrqRQ1oOkJ:banking.senate.gov/public/_files/CoxOpeningStatement.pdf+christopher+Cox&hl=en&gl=us&pid=bl&srcid=ADGEESh2rNmAGXo_q4Etsqd5K5NU5PywzCKX9GI0ptHBjwo4WXEN-ZZPDbc4HfyhSxR0zqREefUhTFFxxNDnTWLvUpjl4-21LZTnioCLCeAteCbs72lgKRicvkuq1c9TW_1bCRd5FddZ&sig=AHIEtbT9cwa9CPSa-k8qjAqbAdA49h9n8A

Geithner representing the New York Reserve

Bank and an incidental player Mr. Steel from the Treasury.

In the second session, Alan Schwatrz of Bear Stearns and

James Dimon CEO of J.P. Morgan and member of the FED Reserve

Bank Board of Directors appeared.

The only Senators that seem to be willing to attack

these bankers were Bunning, Tester, Menedez and

Reed.

Senator Dodd avoided asking Dimon about the conflict of

interest that Dimon had as CEO of J.P. Morgan and as

Director of the New York Fed.

All the rest were useless and very respectful.


Absurdities

All witnesses did their best to keep their stories

consistent but they did slip up a bit.

They all agree that the bail-out was necessary without

any proof that it was.

They all agreed that what caused the cash liquidity to

dry up within one day was the rumor mongers.

Apparently it is claimed that some people have the

ability to start false rumors about Bear Stearns's 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.

Goldman between March 11-14 warned their average

customers that Bear Stearns stock was "hard to

borrow" for shorting due to the fact that other

customers had used up all of the stock avaiable.

That idea that rumors caused a "run on the bank" at

Bear Stearns is 100% riduculous. Perhaps that's the

reason why every witness were so guarded and hesitant

and looked so strained in answering questions.

Even Alan Schwartz stated before the Senate Committee:

" I would say that, as an observer of the markets, it looked

like more than just fear. It looked like there were people

who wanted to induce a panic. There's lots and lots of

reasons why people could have a financial motivation to

induce a panic. There's a lot of the trading that would

point to that."

What trading was he referring to and who are the persons

who could have a financial motivation to induce a panic?

Cui Bono!

Answer:

J.P. Morgan, the competitors of Bear Stearns and the short

sellers and put buyers, many of whom met with Bernanke for

lunch May 11, 2008.


Loans to J.P. Morgan total $55 billion from FED


The Private New York FED lent $25 billion to Bear Stearns

(described as the primary facility by James Dimon)

and another $30 billion to J.P. Morgan (described as the

secondary facility by James Dimon). So the bail-out cost

was $55 billion not the $30 billion that is promoted. This

was revealed at the second session of the Senate hearings in

a James Dimon response to a question from Senator Reed.

Who gets the $55 billion? J.P. Morgan will receive the money

on a loan pledging Bear Stearns assets valued at $55 billion.

$29 billion is non-recourse to Morgan.

Effectively the FED received collateral appraised by Bear

Stearns at $55 billion, which they can not sell to anyone

for a loan to J.P. Morgan of $55 billion. That's a loan to

appraised value of 100%.


If the value of the secondary facility of $30 billion

($29 billion of which is non recourse) is worth only

$15 billion when all is said and done, then J.P. Morgan

has to pay back only $1 billion of the $30 billion received

and keeps the $14 billion that the Fed loses plus the $15

billion. If the $25 billion primary facility is worth only

$15 billion when all is said and done, J.P. Morgan has to

pay $10 billion of the $25 billion received. If J.P Morgan

can not pay, then the Fed loses the $10 billion.

If after all is said and done, the $25 billion primary

assets or the $30 billion secondary assets are sold for

more that $25 billion or the $30 billion respectively, the

difference goes to J.P. No matter how you cut it,

J.P. Morgan wins.

If the $55 billion assets turn out to be worth only $20

billion when all is said and done, J.P. Morgan owes $1

billion on the $30 billion and the difference between

$25 billion and the value received on the primary facility.

The best the FED can do is get their money back with

interest and the worse they can do is lose

about $25 -$40 billion.

The FED would have been far better to just buy the

assets at Bear's and J.P.Morgan's valuation.

-----------------------------------------------------------

The question arises:

Why didn't the FED just make the $55 billion loan to

Bear Stearns directly? The FED received Bear Stearns

assets valued by Bear Stearns as its only collateral for

the 100% loan. I am sure that Bear Stearns would

have guaranteed the full $55 billion and would have

advanced more collateral and accepted a 90% loan

to value. Everything would have been just fine

for Bear Stearns and the FED would have had a

better deal. But the Bear Stearns stock would have

gone up and all short stock sellers and all put buyers

would have massive losses instead of massive gains.

The bail-out is a great deal for J.P. Morgan, and the

illegal insider short sellers got a great deal.

Bear Stearns stock holders and employees got

a very bad deal and the sellers of puts sustained

large losses.

This shows, in my view, that J.P. Morgan and the FED

were in collusion with the short sellers and put buyers.

John Olagues

P.S. On May 12, 2008 an article was published on

Bloomberg which discusses a luncheon that was held

at the New York Federal Reserve Bank on March 11, 2008

attended by the following persons.

1. Bernanke . Chairman of the Federal Reserve Board

2. James Dimon, CEO of J.P. Morgan Bank and Director

of the New York Federal Reserve Bank, formerly president

of Citigroup

3. Richard Fuld CEO of Lehman Brothers and Director of the New

York Federal Reserve Bank.

Mr. Fuld was quoted in the Financial times of London on

June 4, 2008 with the remarkable statement below:

"the Federal Reserve's decision earlier this year to lend

directly to investment banks should take questions about

Lehman's liquidity off the table".

Essentially Mr. Fuld as director of the New York Fed and

CEO of Lehman Brothers is saying that the Fed will give

Lehman whatever it needs to shore up its liquidity and that

no one should even question Lehman's liquidity position.

Does Mr. Fuld have a conflict of interest where he will vote

on decisions to give tens of billions to Lehman.

Answer:

Of course he does.

Well, Mr. Fuld at last count owns about 1.9 million shares of

Lehman, although he did sell over $172,000,000 worth of

stock at near highs in 2006 and 2007 through exercises of his

Executive Stock Options.

He also owns about 600,000 Restricted stock units and

900,000 executive stock options issued by the company.

Why is Lehman so much different from Bear Stearns?

Both were downgraded by Moody's and Standard and Poor's.

Both are paying very high prices to insure their borrowings.

Both had the same type of problems. The difference is

that Lehman is one of the owners of the NY FED and

Lehman's CEO sits on the Board of the New York FED.

bank. So Lehman will be taken care of by the New York

FED, but not in the same manner as Bear Stearns was

taken care of. The Fed will accept Lehmans collateral for

non - recourse loans and the people will be stuck with

the losses.


4. James Gorman Co-President of of Morgan Stanley, formerly

of Merrill Lynch.

5. Robert Rubin former Treasury Secretary under Clinton,

currently Chairman of Citigroup. Citigroup's subsidiary

Citigroup Derivatives,is the CBOE Designated Primary Market

Maker for Bear Stearns Options. Citigroup Derivatives

requested the opening of the March and April far out of the

money put series mentioned above. Rubin was formerly

co-chairman of Goldman Sachs, having been there for 26 years.

6. Timothy Geithner, President and CEO of the New York

Federal Reserve Bank and formerly with Kissinger and

Associates. A member of the Bilderberg Group along with

Senator Dodd, Chairman of the Senate Banking Committe,

which held hearings on the J.P. Morgan bail-out.

7. Stephen Schwarzman started Blackstone Group along with

Peter Peterson. He was formerly of Lehman Brothers.

He along with Bush and Kerry are members of Yale's SKull

and Bones.

8. John Thain CEO of Merrill Lynch and formerly of Euronext and

Goldman Sachs and presently a director of Blackrock Inc.,

mentioned by James Dimon as an advisor and manager of the

$55 Billion collateral received by the Federal Reserve Bank of

New York to secure the $55 Billion loans to J.P. Morgan/Bear

Stearns.

9. Lloyd Blankfein CEO of Goldman Sachs

10. Stephen Friedman of Stone Point Capital LLC and Chairman

of the Board of Directors of the New York Federal Reserve Bank

along with Dimon and Fuld. He is a retired CEO of Goldman

Sachs and presently sits on their Board.

11. Kennith Griffin CEO of Citadel Investment Group LLC, a

Hedge Fund with $12 Billion in assets. Citadel Derivatives

Group is one of the largest options market makers in the world.

12. Kenneth Chenalt CEO of American Express.

13. Stanley Druckmiller CEO of Duquesne Capital Management.

14. Bruce Kowvner CEO of Caxton Associates, a secretive

hedge fund. He is Chairman of the American Enterprise

Institute, the primary think tank for neo-cons.

15. William Dudley and Terrence Checki Vice presidents of the

New York Fed,

No one from Bear Stearns was present. Why?

Some claim that these firms were the contra parties who

withdrew from Bear Stearns.

In fact Kate Kelly, a reporter for the Wall Street Journal wrote a

front page article for the May 28, 2008 issue where she states:

"Bear Stearns Cos. plan to turn over documents to securities

regulators showing that several financial giants, including

Goldman Sachs Group Inc., Citadel Investment Group and

Paulson & Co. slashed their exposure to the securities firm in

the weeks before its collapse". and "In the three weeks

preceding Bear Stearns collapse, Goldman, Citadel and Paulson

exited about 400 trades where Bear Stearns was the trading

partner." and "In any event the volume of credit default swap

trades with Bear Stearns that hedge funds and others shifted

to other parties in the two weeks before Bear Stearns collapse

was 10 to 20 times the normal volume of such activity".

Assuming that Kate Kelly is correct, Goldman, Citadel and J.P.

Morgan were certainly aware of potential problems at Bear

Stearns in the weeks prior to the collapse not on March 13,

2008 as they stated before the Senate Commttee April 4, 2008.

Some speculate that this March 11, 2008 meeting is where

the final touches were put on the months long plan to collapse

Bear Stearns three days later.

Goldman, Citigroup , and Citadel are the largest options market

maker groups in the world. And they have extensive ties to

notorious hedge funds who specialize in short selling stock and

buying puts.Goldman, Lehman, Citigroup and J.P. Morgan own

the Lion's share of the stock of the New York Fed and are

represented on the Board of Directors.

Goldman, Lehman, Citigroup, J.P. Morgan and Merril Lynch were

all competitors of Bear Stearns with similar exposure in their

mortgage dealings and they were all there for lunch March 11,

2008 to make sure all the pieces were in place before they

"pulled it".

John Olagues

P.S.

Discussion on Reasons for the Bear Stearns fall;

http://finance.yahoo.com/tech-ticker/article/175099/The-Fall-of-Bear-Stearns%3A-An-Insiders-View%2C-One-Year-Later

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