Let's talk about the pending financial collapse and what - lord help us - is up next
Bernanke Discards Monetary History With Bear Stearns Bailout
Federal Reserve Chairman Ben S. Bernanke is being forced to throw out four decades of monetary history by a financial system choking on miscalculated risks and a deepening recession.
Bernanke and the four Fed governors voted yesterday to become creditors to Bear Stearns Cos., a securities firm that isn't a bank, by invoking a law that hasn't been used since the 1960s. Three days earlier, the Fed said it would swap Treasury notes on its balance sheet for privately issued mortgage-backed securities held by Wall Street firms.
"It's a re-drawing of the relationship of the Federal Reserve with the rest of the financial system," said Vincent Reinhart, former director of the Division of Monetary Affairs at the Board. Risks of so-called moral hazard, where firms will now come to count on bailouts by a federal agency, "are considerable," he said.
Fed Chief Shifts Path, Inventing Policy in Crisis
As chairman of the Federal Reserve, Ben S. Bernanke has long argued that a central bank should base its policies as much as possible on consistent principles rather than seat-of-the-pants judgment.
But now, as the meltdown in credit markets threatens major institutions on Wall Street and a recession appears inevitable, Mr. Bernanke is inventing policy on the fly.
“Modern monetary policy-making puts a lot of weight on rules, but there is no rule book for an economic crisis,” said Douglas W. Elmendorf, a senior fellow at the Brookings Institution and a former Fed economist.
On Friday, the Federal Reserve seemed to toss out the rule book altogether when it assumed the role of white knight, temporarily bailing out Bear Stearns, one of Wall Street’s biggest firms, with a short-term loan to help avoid a collapse that might send other dominoes falling.
times of london...
Which bank is going to follow the Bear?
So who is next? As advisers to Bear Stearns struggle to find a buyer or funding in the next 28 days, Wall Street, the City and the financial district in Tokyo were scrabbling to find out who is the most exposed to Bear Stearns, either through loans or trading positions.
Traders in all three centres were panicking even for those banks not directly exposed to Bear. They feared that the problems experienced at the stricken bank signalled that the credit crisis has deteriorated to a new level.
Yesterday, traders began to look anxiously at the robustness of Lehman Brothers, which, although bigger than Bear, is small compared with JPMorgan Chase, Morgan Stanley and Citigroup.
Shares in Lehman dropped 11 per cent yesterday, a far bigger fall than its other rivals, which saw their stock decline by about 3 per cent.
and, finally, news about a meeting tomorrow that is the surest sign yet that things are headed south at an extremely high rate of speed...
UPDATE 2-Bush to meet with U.S. financial policymakers
President George W. Bush plans to meet on Monday with top U.S. financial policymakers, the White House said, at a time of increased strains in credit markets and fears of a recession.
The White House said on Saturday Bush will meet members of the President's Working Group on Financial Markets, and a spokeswoman said Bush will get a status report on the markets.
In his Saturday radio address, Bush addressed the economy for the second straight day, after remarks on Friday in New York City acknowledging that times were tough.
note that monday's meeting is not being referred to as an "emergency meeting"... don't want to panic the great unwashed dontcha know, but you gotta believe that's exactly what it is... as further evidence, bush, the perennial liar, talked about the troubled economy for - OMG - TWO DAYS IN A ROW, instead of shoveling the usual shit about how rosy everything is... even the hard-of-hearing are starting to take notice of that "giant sucking sound"...
Labels: Bear Stearns, Ben Bernanke, credit crisis, economic collapse, economy, Federal Reserve System, financial markets, financial meltdown, George Bush, President's Working Group on Financial MarketsSubmit To Propeller