Another day, another bank failure (and multi-billion dollar Fed bailout)

Unbelievable.

I gotta clear my head and think about what this means. Obviously it's not good, but how bad is it?

 

I said this in the Depression thread, but the FED cut rates by 25 bps today. I can see Bernanke cutting again tomorrow, possibly by 100bps.

 

Bear Stearns went down fast. JP Morgan should come out in good shape as their loans to Bear Stearns were backed by the Fed.

 

This is the market deflationary pressure I'm talking about. Value that investors had placed in these financial institutions simply isn't there, and with a few hours of re-valuation, hundreds of billions in digital dollars can just vanish. 95% of the money supply is so fake isn't even printed on counterfeit bills!

The Fed says things will be OK though, they've used these sort of "no risk" loans to allow one bank to absorb its competition at fractional costs before, in the 1930s. Bear Stearns supposedly had $40 billion in assets after liabilities, but JP gets the deal at 220 million... paying less than 1% of the value analysts were reporting last Monday.

Either the digital money supply is vanishing at a rate of a few hundred billion - 1 trillion per week, OR the Fed is using a panic mentality to facilitate consolidation of the banking industry for private gain. Pick your poison! Its probably a bit of both.

I think very few people fully understand what is going on (I surely don't understand, and I'm watching it daily)!

 

I pity any run of the mill person that had a lot of shares in them.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/14/bcnbear114.xml

 

Joseph Lewis must be steaming, he bought about a billion dollars worth of Bear Sterns stock in the last few months, holding around 9.6% of the company, his billion dollar investment in bear sterns in only worth around $20 million now.

 

Ok, after looking into Bear Stearns sale, I have a lot of questions.

1) JP Morgan wants to insulate itself from risk. How is this being done? IIRC Stearns has 2 ongoing court cases against it for fund mismanagement, and needless to say, the firm had problems with losses exceeding it's capital reserves.

2) Am I the only person concerned that the FED was involved in conversations with these firms? The job of the FED is not to deal with these sorts of companies, the job of the FED is to manage prices and employment.

3) Since BSC is still going to use the 28 day FED financing program, is this basically JP Morgan cherry picking the good portions of the business, and leaving the rest to default at the taxpayers expense?

It's going to be a very interesting week....

 

Was he following your investment advice?

Go read that book I pointed out to you. It will blow your mind.

Small explosion.

 

I don't think I ever recommend Bear Sterns as an investment, the only investment banking firm I ever owned was in Goldman Sachs and I've sold that when that was at $230 a share

I briefly looked over the pdf file, will read it later this week. Thanks

 

Usually it is the people that need the money most that lose out the most.

 

He only cut the discount rate, plus they are meeting on Tuesday so there is no reason to cut interest rates tomorrow. If your going to do it wednesday

 

There is no reason to cut rates period.

It's the same thing as the Depression. It doesn't matter how much liquidity they create, no one wants it. Everyone is trying to get out of leverage, not leverage further.

The irony in all of this, is that when the sh1t hits the fan, the banks are actually more conservative than the money masters. In a boom economy, they would be thirsty for liquidity, in a bust economy, it's radioactive to them.

 

The consumers that want the liquidity are already living above their incomes.

 

Exactly. It's like when that idiot GWB wants people to keep shopping, like we can spend ourselves out of trouble. And consumption spending no less.

As long as we consume 70%+ of GDP and shrink our manufacturing base, we're on borrowed time. The Asians are not going to work for cheap forever so we can enjoy an artificially high standard of living. One day they are gunna want MTV, Playboy and Big Screen TVs too.