by William Neikirk
Now we know. The Federal Reserve will not hesitate to bail out Wall Street firms that got into trouble because of their involvement in mortgage-backed securities.
The central bank, through the Federal Reserve Bank of New York, joined JPMorgan Chase & Co. today in rescuing Bear Stearns Co. from collapse. Bear Stearns, the fifth largest U.S. securities firm, has been badly damaged because of its involvement in mortgage-backed securities.
Chairman Ben Bernanke's Fed showed no reservation in stepping to the rescue of troubled Wall Street firm. In fact, the Fed worked on the problem yesterday, fearful that it would feed a crisis of confidence on Wall Street.
But it also sent a signal--not so subtle at that--that the central bank will turn to bailouts if necessary, though it would definitely like to avoid such a step.
They did it like this: JPMorgan Chase borrowed money directly from the central bank to help Bear Stearns. JPMorgan, bank, used collateral from Bear Stearns (presumably some of those mortgage-backed securities).
The Fed said it was "monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system."
Earlier in the week, the central bank allowed big Wall Street firms to use mortgage-backed securities as collateral for $200 billion in U.S. Treasury securities. That's almost like trading good money for bad. That move was right up to the edge of a bailout.
Our central bank is the most logical government institution to deal with today's credit crunch. And Bernanke is taking no chances out of fear that the stock market could crash. Even at that, the market went down sharply after the Fed's move, though at mid-day it appeared to be contained.
In a speech about housing this afternoon, Bernanke said one thing about the bailout: "i had a busy morning."
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Comments
Only a few months ago I remember reading scathing commentaries about how we shouldn't pass the Schiff bill to give children health insurance, that it would be welfare. And now we have the Federal Reserve bailing out very, very shrewd financial guys, the smartest and shrewdest in the country. There is obviously plenty of welfare money in the pot for certain people. What's wrong with this picture? It begins with R, ends in N, and is abbreviated GOP.
Posted by: Grandblvd "Hussein" 03 | March 14, 2008 1:21 PM
What happened to personal responsibility? Remember that Republics? You raised hell when there was talk about helping out individual homebuyers who were facing foreclosure. If you were intelecutally honest this would tick you off just as much.
Posted by: john | March 14, 2008 1:24 PM
There is obviously plenty of welfare money in the pot for certain people. What's wrong with this picture? It begins with R, ends in N, and is abbreviated GOP.
Posted by: Grandblvd "Hussein" 03 | March 14, 2008 1:21 PM
Yep, that's the GOP slogan, "we don't give a damn about the young, the old or the poor but if the rich guys need a tax cut or a bailout then it's our patriotic duty to do so".
I still find it amusing how the Republic Party members still can't understand why they're losing all of these elections lately.
Posted by: John Hussein E | March 14, 2008 1:37 PM
Meltdown Update;
http://www.nytimes.com/2008/03/14/opinion/14krugman.html?_r=1&ref=opinion&oref=slogin
Posted by: C.Morris | March 14, 2008 2:05 PM
Is any of this going to work?
Who knows. It's out of control and nobody knows where it's going.
Analogy; a triple trailer semi is heading down an icy mountain pass highway with two tires on fire and serious 'brake fade' and somebody in a Mercedes is stopped in front of him talking to his stock broker on the cell.
What's Mr. Trucker gonna do?
Try to climb back to the third trailer while underway, decouple it to lighten the load, shinny back into the cab and try to stop in time?
Might work, who knows....
Posted by: C.Morris | March 14, 2008 2:17 PM
Will Ben be bailing me out if I bet the mortgage money on a horse? Is the Fed going to give me low interest loans so I can play the market too? I'll put up my old Ford for collateral.
Just a reminder Ben - That isn't your money you're throwing around.
Posted by: Tom O | March 14, 2008 2:36 PM
When's Terry going to show up and explain why bailing out poor people is bad, but bailing out the rich is good?
Posted by: Luke | March 14, 2008 3:36 PM
Luke,
Terry is busy taking 'margin calls'.
Posted by: TheReamer | March 14, 2008 7:13 PM
This aint gunna work when the final shoe drops these guys are gunna lose everthing...do they deserve to...my oath.
Fortunatly for the little guy you can market money in a weak market.
http://www.youtube.com/watch?v=8Ze0qjjGA-8
Posted by: jim australia | March 15, 2008 7:54 AM