03/15/2008 06:32 am ET Updated May 25, 2011

Core Melt (the Bear [Stearns] Bailout)

"I hate it when that happens."

-John McCain, -Hillary Clinton, -Barack Obama

These securities firms are among the largest contributors to them all. Now, as the feces hits the proverbial fan, let's watch them tie themselves in knots telling us all how this happened... and how they will look out for the rest of us when the Titanic's bow is angled toward the icy night sky.

We are in for an interesting 2008.

...the Fed is offering 28 day repos which -- if this auction works like the Fed's other facility, the TAF -- the loans can be rolled over free of charge for another 28 days. Yippee. The Fed found a way to recapitalize the banks with permanent rotating loans and the public is none the wiser. The capital-starved banksters at Citi and Merrill must feel like they just won the lottery. Unfortunately, Bernanke's move effectively nationalizes the banks and makes them entirely dependent on the Fed's fickle generosity...

...So now the Fed is planning to expand its mandate and bail out investment banks, hedge funds, brokerage houses and probably every other brandy-swilling Harvard grad who got caught-short in the subprime mousetrap. Ain't the "free market" great?

In fact, Bernanke is destroying the currency by trying to reflate the equity bubble...


...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...


...The emergency bailout of Bear Stearns Cos. dented confidence in other securities firms ahead of results next week from some of Wall Street's giants including Goldman Sachs, Morgan Stanley and Lehman Brothers, analysts said on Friday...


...Securities Arbitration UPDATE: The Federal Reserve and JP Morgan Chase bank early Friday announced a loan of "emergency" funds to help it maintain Bear Stearn's liquidity challenges with a liquidity position that has "deteriorated" in the last 24 hours.

At the same time, a Bear Stearns analyst's report indicated that the firm expected Standard and Poor's 500 financial companies to "post additional first quarter write-downs of $35-70 Billion" as credit markets are in shambles...


A financial bubble {1} is a market aberration manufactured by
government, finance, and industry, a shared speculative hallucination
and then a crash, followed by depression. Bubbles were once very rare -
one every hundred years or so was enough to motivate politicians,
bearing the post-bubble ire of their newly destitute citizenry, to enact
legislation that would prevent subsequent occurrences. After the dust
settled from the 1720 crash of the South Sea Bubble, for instance,
British Parliament passed the Bubble Act to forbid "raising or
pretending to raise a transferable stock". For a century this law did
much to prevent the formation of new speculative swellings.


Can't the media find any economists who don't think that handing
hundreds of billions of taxpayer dollars to the big banks and the
incredibly rich people who own and manage them is a good idea?
Apparently not, given the coverage so far to the Fed's proposal to lend
$200 billion to the banks using mortgage backed securities as collateral.