Bernanke tries to counter criticism of the Fed

the la times, in a long article that purports to limn the details of how bernanke is responding to the growing call for fed scrutiny up to and including its dismantling, instead ends up only trying to elicit sympathy for poor beleaguered ben without bothering to elaborate on what is, imho, well-justified criticism (see previous post)...

[O]dds favor Bernanke to be reappointed by Obama. Bernanke has strong backing from economists and is well regarded in the White House, where he has had a long and good relationship with the president's economics team, including Christina Romer, with whom Bernanke played bridge when they were both teaching at Princeton, and former Treasury Secretary Lawrence H. Summers. The latter is often mentioned as a potential candidate for Fed chief, but is generally seen as an underdog because of his forceful style.

[...]

With global finances and the Fed's reputation imperiled, Bernanke has asserted his leadership. In addition to dropping its key lending rate to banks to nearly zero interest, the Fed has taken unprecedented action by invoking emergency powers under the 1913 Federal Reserve Act to prop up Bear Stearns Cos., American International Group Inc., Bank of America Corp., Citigroup Inc. and other faltering institutions. Bernanke's Fed has bought hundreds of billions of dollars of government debt to drive down mortgage rates.

ya gotta love the list of impressive "accomplishments" in that last paragraph... "propping up" a.i.g., citi, bear stearns and bofa sure would make the top of MY list of major efforts carefully crafted to help out the mass of u.s. citizenry...

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"Negates its fundamental principles in its behavior" - HAHAHAHAHA...! < cough, snort > HAHAHAHA...!

< wipes tears from eyes >

Is the United States no longer the global beacon of unfettered, free-market capitalism?

In extending a last-minute $85 billion lifeline to American International Group, the troubled insurer, Washington has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, but it has also probably undercut future American efforts to promote such policies abroad.

“I fear the government has passed the point of no return,” said Ron Chernow, a leading American financial historian. “We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams.”

The bailout package for A.I.G., on top of earlier government support for Bear Stearns, Fannie Mae and Freddie Mac, has stunned even European policy makers accustomed to government intervention — even as they acknowledge the shock of the collapse of Lehman Brothers.

“For opponents of free markets in Europe and elsewhere, this is a wonderful opportunity to invoke the American example,” said Mario Monti, the former antitrust chief at the European Commission. “They will say that even the standard-bearer of the market economy, the United States, negates its fundamental principles in its behavior.”

not that the u.s. hasn't been the master of hypocrisy right along, but these last few weeks have put it right up there in neon lights for all to see...

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HAHAHAHA...!" title="Bookmark using any bookmark manager!" target="_blank">

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Dow down 358 points - the financial collapse continues in slo-mo

all the shit our media has been feeding us about "the worst being behind us" is strictly that - shit...

The Dow Jones industrial average fell 358.41 points, or 3.03 percent, to 11,453.42, its lowest level of the year, after a discouraging report predicted trouble ahead for some of the nation’s biggest brokerage firms.

The early sell-off in the financial sector helped push the blue-chip index down, and then accelerated late in the day. The index slipped below its value at the height of the Bear Stearns collapse, a moment that many investors thought would be the bottom of a painful year in the markets.

bring in on... let's get it the hell over with...

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Who is this guy Paulson, anyway...? Doesn't he work for Bush...?

doesn't that automatically mean his credibility is less than zero...?

Treasury Secretary Henry M. Paulson Jr. said yesterday that financial markets have stabilized since March, when the collapse of investment house Bear Stearns roiled Wall Street, and said he expects economic growth to rebound by the end of the year.

A severe housing slump remains "the biggest risk to our economy," Paulson said, adding that he was "very encouraged" to see "bipartisan progress" in Congress on a comprehensive plan to address the downturn.

"The markets are considerably calmer now than they were in March," Paulson said to business leaders gathered at a downtown hotel for a forum sponsored by The Washington Post. "In my judgment, we are closer to the end of the market turmoil than the beginning."

why does our esteemed news media insist on continuing to publish the statements of proven liars and criminals as though they were some kind of believable information that we should all pay attention to...? i'm confoozed...

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Crony Senility

The guy is outta his mind.

McCain: Feds shouldn't do much about mortgage crisis

By Matt Stearns McClatchy Newspapers

WASHINGTON — Sen. John McCain, R-Ariz., on Tuesday called for mortgage lenders to help struggling homeowners stay in their homes, but said government's role should be temporary and limited.

[...]

"It is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers," McCain said in a speech in Santa Ana, Calif. "Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy."


McCain said that the Federal Reserve's bailout of Bear Stearns met his criteria. But he offered no specific federal proposals to aid homeowners facing foreclosure. He promised to evaluate proposals "based on their costs and benefits," but he didn't address any of the solutions percolating on Capitol Hill.

[...]

After the speech, McCain adviser Doug Holtz-Eakin rejected the type of foreclosure moratorium that Clinton has pushed, saying it doesn't "address why someone is in foreclosure."


"As harsh as it may sound, that may be an appropriate outcome in some cases," Holtz-Eakin said.

[...]


Carly Fiorina, a McCain adviser, conceded that "there are clearly some mortgage lenders that are not in a position to do this" because many are in financial straits because of bad loans.


"It could be that this spawns a wave of consolidation in the mortgage lending industry that is appropriate," Fiorina said. "Consolidation is not a bad thing. It's a healthy market response."

Oh, that's rich, Carly! Let's monopolize the mortgage lending industry like we did the MSM. Got to take care of our obscenely wealthy cronies dontcha know.

I especially like that part about the Fed's bailout of Bear-Stearns met his criteria.

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Yeah, yeah, yeah... You make an obscenely lowball bid to cash in on people's pain, you get a little resistance...

no matter which way you turn, it's still going to be the average joes who are going to get screwed in this deal...

JPMorgan Raises Bid for Bear Stearns to $10 a Share

The sweetened offer is intended to win over stockholders who
vowed to fight the original fire-sale deal, struck only a
week ago at the behest of the Federal Reserve and Treasury
Department.

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Sitting on our fat American asses

don harrold on the fed and bear stearns... the really good stuff starts at 3:50...



this guy's still got his adrenaline pumpin'... after seven-plus years, i think my adrenaline finally ran out about mid-january...

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Dow down 190 points right out of the gate

here we go...

Dow Jones Index Drops 190 Points at Opening

Concerns about the fallout from the bargain-basement sale of
Bear Stearns to JPMorgan Chase drove Wall Street shares lower
in early trading.

when more bad news shit hits the fan - as it is bound to - look out... the avalanche is only beginning to pick up speed...

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Bear Stearns sale price as stated in previous post - $20/share; now, $2/share

OMFG... (see yesterday's post...)

JPMorgan is paying just $2 a share for Bear, or a total of $236 million, although the bank put a total $6 billion price tag on the deal including litigation and severance costs.

Still, the per-share payout is just one-fifteenth of Bear's stock price on Friday and miles off its record share price of $172.61 last year.

That means Bear's shareholders, including British billionaire Joseph Lewis and Bear Stearns' Chairman Jimmy Cayne, will have their holdings wiped out by the deal.

"It's scary for what it says about the value of financial assets, if a company is worth only a small percentage of book value," said Emanuel Weintraub, managing director of Integre Advisors, a New York-based money management firm.

oh, and btw, < wipes away alligator tears >, no golden parachutes for bear execs...

The plunging shares, plus a lack of the normal payout expected when a company is taken over, known as 'golden parachutes', delivers a serious blow to the bankers, traders and other executives worldwide at a firm that has long encouraged its above-average levels of inside ownership.

"The current stock ownership by executive officers reflects a significant personal investment in the company by those who are most responsible for the company's future success," the bank said in a proxy statement.

Employees own around 30 percent of the bank.

two dollars a share...!?!?! absolutely unbelievable... everybody better buckle in, this is going to be one HELL of a week... (remember, i'm writing this at 7 a.m. u.s. eastern time, and the markets haven't even OPENED yet...)

(thanks for the $2/share tip from commenter johann...)

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More on Bear Stearns - Step 9 of the financial meltdown

nouriel roubini's 9th step of the financial meltdown...

Step 9 of the Financial Meltdown: "one or two large and systemically important broker dealers" will "go belly up"

more roubini...

Let us be clear: given its massive exposure to toxic MBS and ABS product Bear Stearns is insolvent; the decision by the NY Fed to try to bail out Bear Stearns would make sense if this firm was only illiquid; the trouble that it is insolvent and thus such attempted bailout is altogether inappropriate. It is true that Bear is a large broker dealer; but its systemic importance is much smaller than that of much larger institutions. The world and financial market can survive if Bear disappears.

So the only possible justification for such Fed action is to engineer an orderly rather than a disorderly shutdown of this institution. But unfortunately the Fed is behaving as if Bear Stearns is illiquid but solvent. That is delusional and the official sector support of an otherwise insolvent institution will end up - like many other recent Fed actions - being paid for by the US tax-payer.

As discussed months ago in this column non-banks institutions don't have access - based on the Federal Reserve Act - to the lender of last resort support of the Fed unless a very special and unusual procedure and vote is taken. So for the first time in decades - possibly since the Great Depression - the Fed had to rely on this exceptional rule to bail out a non-bank financial institution. So what is next? Bailing out hedge funds, bailing out money market funds, bailing out SIVs? When is enough enough? This when the Fed has already committed this week to swap 60% ($ 400 bn) of its balance sheet of Treasuries for mortgage backed securities of dubious quality and value.

And Bear is only the first broker dealer to go belly up.

and now...?

JPMorgan Chase & Co is close to rescuing the fifth-largest U.S. investment bank, Bear Stearns Cos Inc, a person familiar with the matter said on Sunday, in a deal that could be announced in the next few hours.

The Wall Street Journal said on Sunday that Bear Stearns could sell itself for around $2.2 billion, or less than $20 a share.

The low sale price, equal to about two-thirds the company's $30.85 closing share price on Friday, signals just how dire the situation is for the 85-year-old investment bank.

The deal with JPMorgan Chase has not been signed yet, said the person Reuters spoke with on condition of anonymity.

Bear Stearns' cash reserves were drained by fleeing customers on Thursday, and on Friday the bank secured emergency funding from the Federal Reserve, extended through JPMorgan Chase.

The Fed is widely seen as having provided the financing to prevent Bear Stearns from toppling, and potentially bringing other banks down with it.

things are getting pretty wild...

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Let's talk about the pending financial collapse and what - lord help us - is up next

item...

bloomberg...

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.

item...

nyt...

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.

item...

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...

reuters...

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"...

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"Bank run" - the NYT headline that tells it like it is

i haven't seen another headline referencing the bear stearns collapse that comes right out and says it... the others are more like this...

wapo...

Fed Comes To Rescue As Wall St. Giant Slips

la times...

Bear Stearns gets emergency loan from Fed

ah, but the nyt... now, HERE'S a headline with stones...

Run on Big Wall St. Bank Spurs Rescue Backed by U.S.

Just three days ago, the head of Bear Stearns, the beleaguered investment bank, sought to assure Wall Street that his firm was safe.

But those assurances were blown away in what amounted to a bank run at Bear Stearns, prompting JPMorgan Chase and the Federal Reserve Bank of New York to step in on Friday with a financial rescue package intended to keep the firm afloat.

The move underscores the extreme stresses that the credit crisis has imposed on the financial system and raises the once-unthinkable prospect that major Wall Street firms might fail.

The developments may only postpone the eventual sale of all or part of Bear Stearns, which has had crippling losses on mortgage-linked investments. To keep the 85-year-old firm solvent, JPMorgan, backed by the New York Fed, extended a secured line of credit that gives Bear Stearns at least 28 days to shore up its finances or, more likely, to find a buyer.

News of the bailout ignited fears that other big banks remain vulnerable to the continuing credit crisis, and stocks tumbled in another rocky day for the markets. Financial shares led the way, with shares of Bear Stearns plunging 47 percent. Hours after the rescue was announced, another Wall Street firm, Lehman Brothers, said it had secured a three-year credit line from banks. Its stock fell 15 percent.

i posted on thursday about carlyle capital and the rumors swirling around bear stearns... i'm absolutely convinced we haven't seen nothin' yet...

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The imminent collapse of the financial markets

yeah, i say "imminent" but it's really like watching a giant train wreck in slo-mo... i suppose there are a lot of other relevant analogies that could be visualized in slo-mo, my recent fave being the house of cards, but i guess we're only limited by our imaginations...

Global stock markets may have cheered the US Federal Reserve yesterday, but on Wall Street the Fed's unprecedented move to pump $280 billion (£140 billion) into global markets was seen as a sure sign that at least one financial institution was struggling to survive.

The name on most people's lips was Bear Stearns. Although the Fed billed the co-ordinated rescue as a way of improving liquidity across financial markets, economists and analysts said that the decision appeared to be driven by an urgent need to stave off the collapse of an American bank.

“The only reason the Fed would do this is if they knew one or more of their primary dealers actually wasn't flush with cash and needed funds in a hurry,” Simon Maughan, an analyst with MF Global in London, said.

Mr Maughan said that the most likely victim was Bear Stearns, the first bank to run into trouble in the sub-prime crisis and the one that, among all wholesale and investment banks, is most reliant upon the use of mortgage securities for raising funds in the money markets.

“The average financial institution was up 7.5 per cent yesterday after the Fed's actions, but Bear Stearns rose just 1 per cent on massive trading volume,” Mr Maughan said. “The market is telling you it's Bear Stearns.” [emphasis and italics added]

ya gotta love that phrase, "primary dealer"... it kinda has the same ring to as "my main man" and i can't help but picture a drug kingpin in a dusty, abandoned warehouse, doing a deal...

bonddad at daily kos notes the above and adds in carlyle capital to come up with this prognosis...

Simply put, folks, things are getting incredibly nasty. And there isn't much of a respite in sight.

if the fed would simply stop creating worthless money out of thin air and throwing it at the problem, hoping against hope it will go away, we'd see a very rapid collapse... but they'll keep on doing it as long as they think they can stave off the ultimate fate of their clients, the super-rich elites, and continue to do it on the backs of us campesinos...

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