Markets Routed as Fed tries to hose down Fire
March 17th, 2008So JPMorgan picks up Bear Stearns for $2…..yes $2…not $20 as on Friday. The fed cuts the discount rate 0.25% which actually is neither here nor there.
The markets rallied initially on some short covering but the market is now in full blown meltdown.
Even Goldman Sachs has reported a write down. Only $3bln which is chump change for them but it shows how this contagion is spreading far and wide.
This is like a game of dominoes now and the central bankers globally need to pull every trick out of the bag to prevent a complete collapse in global banking stocks and general equities.
I would imagine there will be some concerted intervention either in currency markets or in the interest rate markets. This isn’t just a US problem because it will start spreading soon.
This is a very serious situation.
Tags: bear stearns, central banks, credit crunch, currencies, federal reserve, financial crisis, markets
March 17th, 2008 at 2:40 am
yes very serious
March 18th, 2008 at 1:21 am
You have to wonder though how much of a moral hazard is being created on Wall St by these sort of bailouts. And how long before all this liquidity creates an inflation problem for us all. I suspect it already is.
cheers
Bernard
March 18th, 2008 at 1:36 am
Well the Fed has taken a long look at the bank failures during the 1930s Depression. There is a paper on this “Contagion and Bank Failures during the Great Depression: The June 1932 Chicago Banking Panic” by Mason and Calomiris.
The conclusion was that greater cooperation between the banks and authorities can prevent systemic collapse. I don’t disagree with this at all. The issue is that banks are private companies creating profits out of what is essentially a sovereign right, namely the ability to create money. So in essence they can’t be allowed to fail if the impact will be too profound. There is your moral hazard.
Nobody wants a repeat of the 1930s……unfortunately we’ve had a repeat already of the 1920s.