Speak of the devil
Speak of the devil. We had barely finished saying that that were no assurances that things would work out well, when Bear Stearns winds up needing, and getting, a bailout by the Federal Reserve. (For what can happen absent a bailout, see this sad story.) Bear Stearns got the ball rolling on the credit crisis with two of its hedge funds last year, as reflected in this conference call early last August. Now it’s the latest victim of a crisis of confidence so large that it is by far the most urgent story of the day. WSJ:
J.P. Morgan Chase & Co. and the Federal Reserve Bank of New York stepped in with emergency funds to keep beleaguered investment bank Bear Stearns Cos. afloat. The move, after a week of persistent concerns about whether Bear could continue to meet its obligations, took the credit crisis to a new, more serious stage…
The intervention by J.P. Morgan and the New York Fed shows Bear “didn’t have enough money to turn the lights on this morning,” said Carl Lantz, strategist at Credit Suisse. “And in a big picture sense, this isn’t that comforting.”…
The timing of the move made the urgency clear: If Bear could have held out until March 27, it could have borrowed directly from the Fed itself under a new program announced by the Fed just Tuesday.
It’s an interesting situation. Just two days ago Bear’s CEO said that everything was hunky dory with the company’s liquidity. Moreover, Bear Stearns stock has a consensus Wall Street target of $100 per share for the stock (currently at $32 or so). Its earnings were estimated to be $0.90 per share for the quarter to be announced next Monday. So something happened, and quickly. Was it just the systemic anxiety finding an appropriate host to land on? Or did the shorts know something that was not yet public? Or some combination of the two?
March 15th, 2008 at 2:28 pm
I was taught that markets are larger than governments. Is the Fed large enough to prevent a systemic collapse?