What sort of arm twisting must have been necessary to get the bank to stand up for Bear Stearns? So what if JP Morgan can get all the funding it wants from the Fed to keep Bear Stearns going. The bank is now being dragged into this vortex.

Remember too, there was no vortex as of yesterday. Bear Stearns denied having any liquidity problem, but suddenly within 24 hours they are at death's door? The market is going to treat this very cynically because now the worst rumors are beginning to come true.

Bear Stearns will fail despite the help.

the Fed is in the process of setting up a facility to take every bad security(probably at par) as collateral for a repurchase agreement that it will let fail. Upon failure, it will simply take the security as collateral. It will do this over and over, and we shall have the equivalent of the Chinese Asset Management company which takes the bad loans off a bank's books at par. The credit crisis will go away this way.

So the taxpayers will pay for the entire credit crisis. It will not be a political football because all debts are equal, none is more equal than others.

After the markets stabilize, the lawyers, who will have a shortage of M&A business, will join in the effort to prosecute the few unlucky ones whose fraud is particularly politically egregious.

Thus, the soldiers of the street will get paid until another generation, Harvard schooled in high finance, can discern a new way to manufacture false wealth.

This is the plan. We'll see if it works.

http://mauberly.blogspot.com/

Failure of Bear Stearns is incomprehensible. I can't believe more is not being done, not that it should, but the insanity of Bear Stearns going under. What it tells me is that JP Morgan and the Fed are doing everything they can, and it is not very much compared to what is happening.

Stearns has over $1 trillion of wealth under management, most of it level 3 off book. What is it worth REALLY. No one knows. It could be half. Stearns has a market cap of only $3 billion right now. It was $30 billion just seven months ago. But this entity could be $100 billion under water.

Can't be anything other than fraud. The tangled web of the big five brokerage houses can't be unwound. I will say that if one goes, then they all go down. Everyone of these companies is suffering the exact same problem.

We can start conceptualizing another reality that is likely to emerge.
SHORTAGES and how to deal with it.

1) Shortage of Diesel which is happening right now. How to transport stuff if there are sporadic diesel shortages.

2) Shortages of gasoline. At least some point this year, there will be shortage. Already seeing talk in political circles of the need to reinstitute the 55 mph speed limit. Saves Diesel too. Ready for buying gas on the day your license plate says you can - odd even?

3) Shortages of electricity. Think you can take electricity being 24/7 for granted. The coasts and south are in for load shedding this summer. electric grids going down for hours at a time during peak demand.

4) Shortages of natural gas. How does that play out? Next winter. California is already gearing up to putting furnace controls in homes that are controlled by the utility with mandatory turn down of heat or mandatory turn off of airconditioners to maintain the capacity of electric and natural gas. Florida is looking at the same. Can you imagine that? Russia has done that for years.

5) Shortages of water. This happens two ways. A shutdown of electricity results in a limit on water supplies, or drought emptying out the reservoirs. Lawn bans, and shutdown of water for commercial use and critical moments. Xeriscaping the golf courses.

You folks ready for this, it is coming. The money is vanishing, it is supposed to do real things like keep the infrastructure from falling apart.

Too late I am afraid.

CNBC: Fed says it is allowing JP Morgan to bring Bear Stearns collateral to discount window 11:02am ET

So, anybody bring a rope? We might be needing one soon...

Bush Acknowledges Weakness in US Economy

* AP foreign
* , Friday March 14 2008

By JENNIFER LOVEN

Associated Press Writer

NEW YORK (AP) - Trying to calm jitters about the economy, President Bush conceded on Friday that the country ``obviously is going through a tough time'' but expressed confidence about a rebound.

In a speech to The Economic Club of New York, Bush said this was not the first time the economy has been rattled and that he is certain that it will ride out its troubles. ``These are uncertain times,'' he said.

The president spoke as evidence of an ailing economy piled up. The dollar fell, oil and gold hit record highs, the economy is shedding jobs, retail sales saw a big drop and the effects of a severe credit squeeze linger. Economic worries have replaced the Iraq war as the No. 1 concern of voters in this presidential election year.

Bush acknowledged that prices are up at the gas pump and grocery stores and housing values are down - leading to worries among everyday ``hardworking Americans.'' But he said low unemployment and strong productivity are proof of the economy's fundamental strength and resilience.

``Every time, this economy has bounced back better and stronger than before,'' Bush said.

The president also praised the work of the Federal Reserve. After cutting interest rates several times, the Fed said Friday it has voted to endorse an arrangement to bolster troubled Bear Stearns Cos. and stands ready to provide add liquidity to a combat a serious credit crisis.

``It was strong action by the Fed and they did so because some financial institutions that borrowed money to buy securities in the housing industry must now repair their balance sheets before they can make further loans,'' the president said.

``Today's events are fast moving, but the chairman of the Federal Reserve and the secretary of the treasury are on top of them and will take the appropriate steps to promote stability in our markets,'' Bush assured his audience.

more

March 14, 2008
Op-Ed Columnist
Betting the Bank
By PAUL KRUGMAN

Four years ago, an academic economist named Ben Bernanke co-authored a technical paper that could have been titled “Things the Federal Reserve Might Try if It’s Desperate” — although that may not have been obvious from its actual title, “Monetary Policy Alternatives at the Zero Bound: An Empirical Investigation.”

Today, the Fed is indeed desperate, and Mr. Bernanke, as its chairman, is putting some of the paper’s suggestions into effect. Unfortunately, however, the Bernanke Fed’s actions — even though they’re unprecedented in their scope — probably won’t be enough to halt the economy’s downward spiral.

And if I’m right about that, there’s another implication: the ugly economics of the financial crisis will soon create some ugly politics, too.

To understand what’s going on, you have to know a bit about how monetary policy usually operates.

The Fed’s economic power rests on the fact that it’s the only institution with the right to add to the “monetary base”: pieces of green paper bearing portraits of dead presidents, plus deposits that private banks hold at the Fed and can convert into green paper at will.

When the Fed is worried about the state of the economy, it basically responds by printing more of that green paper, and using it to buy bonds from banks. The banks then use the green paper to make more loans, which causes businesses and households to spend more, and the economy expands.

This process can be almost magical in its effects: a committee in Washington gives some technical instructions to a trading desk in New York, and just like that, the economy creates millions of jobs.

But sometimes the magic doesn’t work. And this is one of those times.

more

They're just returning the favor....