The Meaning of Bear Stearns’ Bailout
Last week Tim Coldwell, a British SNS member who seems to be near-prescient on the banking crisis, IM’d me and asked whether I thought Bear Stearns was about to fail.
No, I told him, that wouldn’t happen. Much more likely: that they’d end up being part of some larger bank, in a transaction called a merger that was really just a face-saving bankruptcy-avoidance move.
We’re now nearly there, and I expect that BS will not be an independent company 30 days from today.
But there is something more important to learn from what happened in the save-BS transactions this week. Most people probably thought that BS might be too large to let fail, and they may now have been proven right. But the real message was not in that they were saved, but in who saved them.
JP Morgan has a reputation for having single-handedly softened the blow during the 1929 depression, as the man behind the bank almost single-handedly stood against a tide of selling, shoring up the places that needed it the most.
So having JPM on the team has two meanings, perhaps: a potential interest in a takeover, and the historic one: perhaps things are a bit worse than everyone is letting on.
If there were doubt about the latter, we then have the Fed itself as the second saviour of the week. Not Warren Buffet, or B of A, or some Guy from Dubai, but — the Fed.
What the fucking hell is the Fed doing saving banks?
I could tone that down, but, er, why would I?
So, my suggestion to those who are eagerly reading stories today from the geniuses at AGEdwards that this is the bottom, etc., is: No, it’s not.
Rather, it appears that our banking system is in such disarray and danger that the Fed itself publicly stepped in on a bank-saving operation.
And that, in my book, means things are a lot scarier than you or I may have thought they were.
It would appear that we have a lot more risk in the banking system than is publicly stated, suggesting we have other large banks also on the edge of a precipice, and that the system itself may be less than up to the job.
Is your cash in FDIC – insured accounts?