Mauled

With the 27 point crash of Bear Sterns on Friday the crack in the global Ponzi finance scheme was widened and the economy upon which it depends brought to the event horizon of it’s Minsky moment. Bear Stearns dazed, distressed and hemorrhaging from the ugly open wounds of a subprime crisis it once denied, finally admitted that it is breathing it’s last breaths.

Alan Schwartz, Bear Stearns’ chief executive admitted it was forced to seek funding following a sudden spike in demand from investors wanting to withdraw their cash.

Mr Schwartz said today: “The company can make no assurance that any strategic alternatives” to fund itself in the long term “will be successfully completed”.

WOW that beats the Hell outta the To Big To Fail (TBTF) theory and is ominous for the remaining money center banks –all banks. There has been blood on the street for days, but just 24 hours ago Bear Stearns said it

“denied market rumors regarding the firm’s liquidity. The company stated that there is absolutely no truth to the rumors of liquidity problems that circulated today in the market.”

adding today that

… it had only experienced funding difficulties in the last 24 hours.

But they weren’t buying it in the options pit, down there they buying Bear Sterns puts, hand over fists full of them.

This past Tuesday, when Bear Stearns was trading around $65 a share, there was huge put volume in the March $30 strike.

And so it was that the shares sold for exactly $30.00 at the market close Friday. It was an overnight drop of $27.00, volume was huge.

The options activity undoubtedly represents not only some insiders protecting themselves, but an active feeding frenzy on the part of some insiders as well as the active option traders. It seems on behalf of the implied volatility of more than 100% that money in the know, knows the gig is up.

And today came news that several banks, including Goldman Sachs, would no longer act as a counterparty to any transactions with Bear. The inability to execute trades would essentially put Bear Stearns out of business.

It was the collapse of two Bear Stearns hedge funds last summer that brought credit markets to a roil and an economy to the brink. The ensuing frenzied concocting of bail out remedies, and resurrection screams, whether of housing, hedge funds, SIVs, asset backed commercial paper, and any sundry of credit crack addict rehab has failed as this will fail and so too Bear Sterns.