Fed bail out continues: Bear Stearns throws in the towel
March 14th, 2008Bear Stearns finally ran up the white flag today and was forced to seek funds from JP Morgan for 28 days. These loans have been underwritten by the Fed essentially preventing Bear Stearns going under.
This was the moment of truth for the Fed. They blinked.
Now they have underwritten the US banking system they will have no choice but to support any institution that experiences similar problems. On one hand this is a prudent move as the implications of a bank failure are very serious but the sad fact is that in order for the market to recover from this era of cheap and funny money is to allow failure to occur.
So the taxpayer can now expect to pick up the tab for this party. It will be interesting to see if this spreads outwards from the US as the credit markets simply disintegrate.
Expect more official action next week probably involving currencies as well.
Tags: bear stearns, central banks, credit, derivatives, dollar, federal reserve, financial crisis, forex, G7, hedge funds, intervention, markets