He said that fear makes sense, but he does not think the Federal Reserve will allow that to happen. The Fed would bail Bear Stearns out before allowing the bank to dump upward of $275 billion of tainted investments on a market that currently has little appetite for risk, he said.
Well lo and behold...
- Bear Stearns received a secured loan facility from JPMorgan Chase as part of steps it is taking to shore up the market's confidence in its operations. JPMorgan Chase will provide a secured loan facility for an initial period of up to 28 days allowing Bear Stearns to access capital as needed.
- In a highly unusual step, the Fed, through its discount window, will provide non-recourse, back-to-back financing to JPMorgan Chase, the commercial bank said. JPMorgan said it does not believe this transaction exposes its shareholders to any material risk.
- "Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity," said Alan Schwartz, president and chief executive in Bear Stearns, in a written statement. "We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations."
- According to Cumberland Advisors Chief Investment Officer David Kotok, the problem is bigger than Bear Stearns. "This is about the system," he said. "It is about the unfrozen mortgage-back constructed paper and how you thaw it out and get a liquid market and get it trade...This is about getting liquidity to markets which are dysfunctional and seized up."
Now remember, when *you* make bad decisions you are left on your own, or must go bankrupt. When NYC bankers made bad decisions the entire Federal government rides to their rescue. Seems like an even playing field to me.
No position
4 comments:
The conspiracy theorist in me makes me wonder if someone in the gov. purposely set up the situation we are in now in order to nationalize our financial system. Every time I read articles like this I keep getting flashbacks to Atlas Shrugged.
I read from Tony Crecenzi this is the first time since 1930s that the Fed has come in to loan to a non depositary institution.
When Bank of America bought Countrywide I opined that this was a PPT intervention and the losses would be backstopped by the Fed. I was not the only one who said that. The announcement came 2 days after a PPT meeting at the White House.
Now Bear will be bought the same way. And next washington mutual. And so it will go. These will all be backstopped by either our tax dollars or more inflation (printing presses) - all losses will be backstopped so that we can go under the guise of "capitalism". Basically the Fed does not want to be seen as buying directly so they are using middlemen and implicitly guaranteeing those middlemen they will offset any losses. Thats simply my opinion but I believe what is happening.
Truly shameful. Hundreds of thousands of middle class people losing their livliehood as blue collar jobs get erased - they get no bailout. Not even good retraining options (which should be provided by govt in my opinion considering the free trade agreements are causing some of the issues) Those with white shoes, silver spoons, and $100M+ compensation packages get bailed out. So we allow creative destruction which hits the common man to go on with no offset, but when it begins to happen to the elite class, the whole govt rushes in to backstop it. I don't have an issue with creative destruction - it is part of capitalism, but we are NOT allowing it to happen to those who deserve it in NYC. Yet its ok when it hits Main Street common person. I wish this stuff was no so esoteric so more Americans knew what was happening... but it's "too hard" for most to understand so it continues on and on... as long as people are sheep, it will continue.
I just hate the hypocrisy of so many things nowadays - I don't see the US for all the hype very different than many 2nd and 3rd world countries where the elite few run everything for their own benefit. It is sad how entrenched the powers that be have taken this country in the past 30 years - there was at least some sort of equality before then. I only wonder if we continue this path for another 20-30 years how things will turn out socially.
you know i've been thinking about this. if the govt were to let free market capitalism takes its course, and you have BSC or whoever. don't you run the possibility of an utter collapse of the global financial system? grant it thats a worse case scenario but if banks left and right start to go belly up, you would have panic spreading from wall street to main street. everybody and their mom would be hoarding cash. a professor on one of my business classes said it best, "when the big one comes, all thats going to matter is your gun and gold". never has that statement been more appropriate than now.
t-rader:
Here's the problem. In a 'free' market you have to pay when you make mistakes. It's the paying that keeps people from doing things that are too risky in the first place. If BSC were to fail, sure it would could issues. But like anything they will pass, and I can bet the next group would be more careful when lending money (it wasn't long ago when a dog was able to get a 500k loan for house).
Pres. Bush said something the other day and he was probably more right than he knows. A reporter asked him why he didn't support the dems plan to have the gov. buy foreclosed properties (or to keep them from being foreclosed in the first place). His response was that those foreclosed properties are great opportunities for 1st time home buyers. And he's right.
There is going to be some pain going forward, and TM is right that the people who should feel the most pain are probably going to walk away with golden parachutes. It still doesn't change the fact that there is plenty of blame and greed to go around from the lender to the buyer and everyone in between.
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