Gutted

Bear Stearns was gutted from within. The take down from the board room could not have been more vicious if done with a straight razor in an ally, but by the callous smoothness of it the victims never knew they had been cut,until they saw the blood. As the shares hovered at 74 the trigger was pulled and the ensuing brutal fall wouldn't end until 2.84. On March, 14 it opened at 54.24 the following day it closed at 4.81, most of the crushing 50 point decline on a single stick and gap leaving no way to run. Share holders, some of them life long employees with shares loaded into retirement funds were wiped out. With all eyes on the Street for bears no one suspected the sharks in Stearns own board room.

But a raiding and hoarding of Bear Stearns options specifically March deep out of money puts of 20, 22.5 and 25 and by the subsequent implied volatility it was clear that someone expected the crash. The puts were so far out of the money with only 5 days remaining until expiration the options exchanges had to be requested to write them. And as soon as they were written they were devoured in a feeding frenzy that only a mad man or a very certain of himself insider would engage in, we bet the latter. Why?

First, it's important to understand that buying a put gives you the right to sell the stock at the strike price. So to buy a put that requires the stock to decline over 50% is essentially a bet that the company is possibly on the brink of going out of business or about to deliver some terrible news.

You have to ask yourself would you make a huge bet that a stock is going to crash for no known reason and do it less than 5 days. No one would do that unless they were mad or certain.

In this Itulip post John Olagues makes the case that the Bear Stearns collapse was artificially created so that insiders could take large short positions in Bear Stearns stock prior and so that J.P. Morgan would in effect be paid $55 Billion of US tax payer money to shore up themselves and to buy Bear Stearns.

On March 10, 2008, the closing price of Bear Stearns was 70. The stock had traded at 70 eight weeks prior. 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.

Question: Why did the options exchanges not open the far out of the money puts for trading the first time that BSC hit 70, when the Aprils and March had far more time to expiration. Certainly if the requesters were legitimate hedgers or speculators, buying the March and April with two and three months to expiration was more appealing.

Answer: The insiders were not ready to collapse the stock and did not request the exchanges to open the new series then.

So it appears that as rumors began swirling early in the week that Bear was having liquidity problems and might possibly be bordering on insolvent, someone took that to heart and bought the puts as disaster insurance.

So we have a specially requested issue on deep out of the money puts on or before March 13, which tells you when the perpetrators (insiders) decided to to take it down. But SEC Chairman Cox, Fed Chairman Bernanke, Bear CEO Schwartz, Jamie Dimon of J.P. Morgan and others blamed the crash on false liquidity rumors about Bear Stearns back on March 11. In fact Cox, Schwartz and even Jim Cramer was brought in to pump the stock claiming there was no liquidity problem. THEY LIED!

Reuters, however, 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 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, while Reuters, Cox, Schwartz and Cramer were telling the public that there was no liquidity problem.

So they were all in on it, the press, the SEC, Treasury, the FED, even scum ball Cramer. It was a scam a huge scam.

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, even while the CEO of Bear Stearns and the SEC Chairman of the SEC were making claims of stability.

With the body of Bear Stearns still warm on March 17 down on the street it was Lehman Brothers the short sellers were circling, it was Lehman Brothers who saw the deadly volatility spike in it options. On Friday March 14, Lehman Brothers (LEH) closed at 39.26, the following Monday March 17, it opened at 25.38 and closed at 31.75 after going all the way down to 20.25. From there on March 18 it miraculously regained its losses and closed at 46.49. Obvious Fraud. For you to believe otherwise you would have to believe that on three consecutive trading days the fair, efficient free markets valued Lehman Brothers as high as 41.92 (high of 3/14) to as low as 20.25 (low on 3/17) then back to 46.49 the close and high on March 18. I don't believe it and neither should you. And if you still don't believe the media are corporate mouthpieces then why were there no media cry of foul, why were no protestations were heard, why didn't CNBC give John Olagues half of the profile of Paris Hilton's new sex tape? And now ask why didn't Lehman go the same way as Bear Sterns right then, as Olagues says because the insiders weren't ready to take it down yet.

So this is what we have, the business model du jour. The deliberate insider gutting of Bear Stearns showed all the other corporate copycat criminals a way out of their personal ashes, by torching the bank instead. Lehman Brothers was not quite ripe in March, but now the meat is hanging on the bone, the bears are on the lose, there will be blood and we are already in. We are short a 1/4 position and will add to it, but puts is what we are really after. We may go after the June 17.5 puts LYHRW, when the market opens Tuesday.

As this new business model takes hold people (buy and holders) will lose everything, wiped out. It will be a colossal crime that few will even know occurred, as always they will watch CNBC, listen to Cramer and read the Wall Street Journal and never know what hit them. They will never know they were cut only that they are bleeding.