Beware the ides of March! Wall Street did not get to take this past weekend off: Bear Stearns, the investment bank whose hedge fund woes last June launched the great 21st century credit crunch, is, to all intents and purposes, no more. J.P. Morgan is buying the bank for a ridiculously low bargain-basement price of $2 a share. If press accounts are to believed, that purchase price places a $270 million or so price tag on a bank that had a market capitalization of $30 billion at the close of trading on Friday.
But in possibly even more disturbing news, the Federal Reserve announced another emergency rate cut on Sunday, and promised even easier lending terms for beleaguered blue-chip borrowers than the friendly deal offered last Monday.
I've been reading the Wall Street Journal's coverage of the Federal Reserve by reporter Greg Ip for a long time, but this is the kind of lead sentence that really grabs your attention:
The Federal Reserve announced one of the broadest expansions of its lending authority since the 1930s in an effort to stem a credit crisis that is engulfing the financial system and threatening a deep recession.
Need we emphasize that you never, ever want to read the words "since the 1930s" when the topic is frantic government efforts to shore up an imploding economy? And while it's obvious that Ben Bernanke is hoping that yet another abrupt rate cut will provide some encouragement to investors who are running for cover, it's hard to say at this point whether such a gesture is proof that our government is proactively engaged with our economic woes, or just flailing desperately to get the brakes working on a runaway train. The Japanese, as of 11:30 p.m. EDT, did not appear to be assuaged by the news from Washington. The Nikkei stock index was down a huge 4.20 percent, or 514 points, at the end of its Monday morning trading session.
A couple of things to bear in mind while we watch and see what transpires this week. First: Bear Stearns was the canary in the coal mine. That canary is now dead. Whither Citigroup, or Merrill Lynch, the other standard-bearers of Wall Street that revealed big balance sheet disaster numbers all fall? Second: The exotic troubles experienced by Wall Street's investment banks right now are a direct consequence of the housing bust and the subprime collapse and all the funny-money machinations with complex financial instruments that have now definitively been proven to be fool's gold. How that distress intersects with high oil prices, high food prices, increasing stress in labor markets and other economic ailments much more familiar to the working man and woman is a narrative whose plot is just beginning to thicken.
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