Bear Stearns was acquired by JP Morgan at yet another fire sale for about 2 bucks a share that commanded $70 a share 7 days ago. The Fed provided financial backing of about 30 billion that facilitated the sale. This is the first bail out since the depression. The Fed also moved to lower the discount rate it charges for direct loans to banks to 3.25% and extended the loan period from 30 to 90 days. This is intended to insure that commercial banks have access to funds they need. I’m not sure they couldn’t do this with the recent run on Bear Stearns. They were strapped for cash. It took 85 years to build Bear Stearns but only a few days for its stunning collapse. A failure by them would have created a cascading crisis of confidence that probably would have brought down several other leading firms.




It’s clear that Bear Stearns was heavily leveraged in the mortgage market. The question is whose next and how deep are the problems in the market. This follows the fire sale of Countrywide on January 11, 2008, for 4 billion dollars to Bank of America. A year ago they were worth 24 billion. And recently Citibank secured a 50 billion dollar loan from China?



We may be entering uncharted economic territory here. A lot of economists are speechless on what may happen next or when we may feel the full impact of this sub-prime mortgage mess. Nation-wide home values have declined 11 percent. Because some home owners owe so much more then the value of their home, they’re just walking away? I’m not sure how these institutions were able to dish out these double barrel risks to marginal borrowers? It’s almost criminal and guess who is starting to bail them out?




When will it bottom out? How will declining equity impact second mortgage loans? How hard will it be to even get credit? There are just so many questions that we don’t know the answer to. With gas prices putting the squeeze on Americans along with rising costs to ship goods and produce related petroleum products, this economy is on incredibly fragile grounds. One thing is certain, lenders have been playing “Deal or no Deal” with the mortgage market and they should have never got away with this insane practice. Now we wait to see how low we can go. Hang on folks; this is just the beginning of some strange economic times indeed.