Bear Stearns: A Venerable Institution Gone Forever.
I don't have any time for postings over the next handful of days but I'll take a few minutes to beat a dead horse re Bear Stearns. It's obvious Bear is insolvent. But, to be fair, that doesn't mean worthless. Just close to worthless. An inability to meet obligations might mean Bear only has a liquidity problem. Only is relative. Hundreds of banks may only have a liquidity problem. This is obviously the Fed's perspective with their remarks about potentially making a profit on this deal. We shall see.
People believe the Fed has a limitless ability to absorb these type of losses but that isn't so. They are shooting alot of bullets right now and that is very disconcerting. I used to shake my head when I'd hear the argument that the Fed should raise rates in order to have more bullets to fight a downturn. Are many of these high paid people really that clueless? Any brainiacs who still believe this won't spread needs an appointment for a frontal lobotomy. The reason we have a banking crisis fundamentally isn't because of banks. As I've said before, this concept of the crisis spreading to other parts of the economy is based on an invalid argument. It is the other way around. Problems in the economy are seeping into the banking system. And those problems aren't housing either. I wrote before, Wall Street has taken incredible risks when fundamentals never supported their hubris. Of course, that doesn't mean the U.S. is going to be vanquished from existence either. The general global sentiment against the U.S. is heavier than a Guinness. I don't use this as any kind of investment data but I will repeat one of my major themes on here. Those betting emerging market currencies or economies are safe are playing a fool's game. Right now, the speculation on that front is gargantuan. Remember, it's the same people betting against the dollar and in favor of commodities and emerging markets that told us we were in a Goldilocks environment.
Other than that, what is there to say? Not much beyond we've said this was coming for years. I'm sure more insightful transparency into what happened will leak out over coming weeks and months. One of the most venerable institutions in American history is gone. A firm that survived the Great Depression. This is really very unfortunate and I feel very sorry for Bear Stearns' shareholders and employees. $2 for a stock that was $170 a year ago is hard to fathom.
Update: I was asked a question about the remark that the Fed has limited abilities. Of course, the Fed can do anything they want to do with support of the government. But, if they get beyond their traditional tools or balance sheet, methods are unproven, highly suspect and likely would have unintended consequences of being destructive in my estimation. As I have written repeatedly, central planning does not work. Let's hope we never have to find out.
People believe the Fed has a limitless ability to absorb these type of losses but that isn't so. They are shooting alot of bullets right now and that is very disconcerting. I used to shake my head when I'd hear the argument that the Fed should raise rates in order to have more bullets to fight a downturn. Are many of these high paid people really that clueless? Any brainiacs who still believe this won't spread needs an appointment for a frontal lobotomy. The reason we have a banking crisis fundamentally isn't because of banks. As I've said before, this concept of the crisis spreading to other parts of the economy is based on an invalid argument. It is the other way around. Problems in the economy are seeping into the banking system. And those problems aren't housing either. I wrote before, Wall Street has taken incredible risks when fundamentals never supported their hubris. Of course, that doesn't mean the U.S. is going to be vanquished from existence either. The general global sentiment against the U.S. is heavier than a Guinness. I don't use this as any kind of investment data but I will repeat one of my major themes on here. Those betting emerging market currencies or economies are safe are playing a fool's game. Right now, the speculation on that front is gargantuan. Remember, it's the same people betting against the dollar and in favor of commodities and emerging markets that told us we were in a Goldilocks environment.
Other than that, what is there to say? Not much beyond we've said this was coming for years. I'm sure more insightful transparency into what happened will leak out over coming weeks and months. One of the most venerable institutions in American history is gone. A firm that survived the Great Depression. This is really very unfortunate and I feel very sorry for Bear Stearns' shareholders and employees. $2 for a stock that was $170 a year ago is hard to fathom.
Update: I was asked a question about the remark that the Fed has limited abilities. Of course, the Fed can do anything they want to do with support of the government. But, if they get beyond their traditional tools or balance sheet, methods are unproven, highly suspect and likely would have unintended consequences of being destructive in my estimation. As I have written repeatedly, central planning does not work. Let's hope we never have to find out.
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