SubscribeIn a potentially even bigger move, the Federal Reserve also announced its biggest commitment yet to lend money to struggling investment banks. The central bank said its new lending program would make money available to the 20 large investment banks that serve as “primary dealers” and trade Treasury securities directly with the Fed."Hard-to-sell" has a bit of a ring to it as risible euphemisms go, don't you think?
Much like a $200 billion loan program the Fed announced last Tuesday, this program will essentially allow the government to hold as collateral a wide variety of investments that include hard-to-sell securities backed by mortgages. But Fed officials told reporters on Sunday night that the new program would have no limit on the amount of money that can be borrowed.
Bear Stearns's profit exceeded $2 billion in 2006, yet the price JPMorgan is paying is about one quarter the value of the securities firm's headquarters building in midtown Manhattan. The 1.2 million-square-foot, 45-story structure built in 2001 is worth about $1.2 billion, based on the average $1,000 per- square-foot that comparable office space in the city is currently fetching.
Amnesty As Travesty
And, it appears that the Fed's new TSLF was set up solely to provide Bear Stearns with liquidity, as Bear cannot avail itself of the TAF. Obviously, JP Morgan can use both. Nevertheless, even the TSLF hasn't been enough, as Bear today needed help from JPM and the NY Fed. So, this is the Fed's way of attempting to bail out Bear Stearns. And that illuminates something I have railed against for some time: We have become a bailout nation.
You would think that if ever there was an example to be made of a brokerage firm that took risk-taking to its extreme, it would be Bear Stearns. Given that the company put itself in harm's way, why shouldn't it be allowed to fail? But the sad fact of the matter is that the Fed and the regulators think they can and should prevent anyone from failing. Which is how we got to this point in time -- where, notwithstanding efforts by the powers that be -- the problems are too big to bail out.
Meanwhile, the consequences of their attempts are a collapsing dollar and a higher gold price. And, at some point, it will matter to the Treasury market, though it certainly hasn't yet. The repercussions to the policies pursued by Greenspan and the Fed are now manifesting themselves. Over the course of the coming months, it will finally be clear to everyone just what an abomination and what a dangerous entity the Fed has become. Perhaps the good that will arise from the crackup ahead is a new regime at the Fed, though I am not holding my breath for when that becomes reality.
Suppose that Monday morning, Ben Bernanke is presented with a deal, under which a buyer gets Bear assets on the cheap, Bear stockholders get paid out, and the Fed (implicitly or explicitly) bears residual risk. If the Fed doesn't approve, executives say, Bear will file for bankruptcy. Dr. Bernanke will then have an unappetizing choice. He can say yes, and hope that there aren't any more rumors out there about any other firms. Or he can say no, and make it very clear that if Bear Stearns files for bankruptcy despite the Fed's continuing provision of liquidity, he will do everything in his power to hold Bear executives personally responsible for the crisis that results.
A man who by all accounts is a very nice guy may be forced to play some very hard ball.
Nevada, California and Florida had the highest foreclosure filing rates in the nation. One in every 165 households in Nevada received a filing in February, up 68% from a year ago and more than three times the national average. [...] Outside of the sun belt, Michigan and Ohio each reported more than 10,000 properties with foreclosure filings in February. These "Rust Belt" states with struggling economies were originally at the epicenter of the housing crisis that began last year with the collapse of the subprime mortgage market.
posted by Malor at 7:55 PM on March 16 [5 favorites]