Fed acts Sunday to prevent global bank run Monday ( Bear Stearns Taken over,...rates cut )

MarketWatch ^ | 9:40 p.m. EDT March 16, 2008 | Rex Nutting, MarketWatch

[Ernest_at_the_Beach]

WASHINGTON (MarketWatch) -- Acting quickly to prevent a run on major global financial firms, the Federal Reserve cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to a longer list of firms than ever before.

he extraordinary weekend moves came as J.P. Morgan Chase sealed a deal to buy Bear Stearns Cos. for just $2 a share backed by funds borrowed from the Fed. The Fed board gave its approval to that unique funding arrangement, which guarantees JP Morgan against losses from buying Bear. See full story.

The Fed board also approved the creation of a special lending facility through the New York Fed that would be available to members of its primary dealers list, which includes both commercial banks and investment banks. Investment banks, such as Bear Stearns, have not been allowed to borrow directly from the Fed.

JP Morgan has access to the discount window through its Chase Bank subsidiary, but Bear Stearns does not have direct access.

Events have unfolded at warp speed over the last week. On Tuesday, the Fed announced a new lending program for primary dealers in the bond markets, but that program won't go into effect for two more weeks. On Friday, the Fed allowed Bear Stearns to borrow money via JP Morgan in a desperate bid to save the firm, which has been pummeled by losses on exotic securities backed by subprime mortgages.

The Federal Open Market Committee meets on Tuesday. Analysts expect the FOMC to cut the target for the federal funds rate by as much as a full percentage point to 2%. Another cut in the discount rate is also likely.

[AmericanInTokyo]

WOW, over here in Tokyo as I Freep, the US dollar is getting kicked to the sidewalk; it is now 96 Yen to the US Dollar. 10 p.m. Eastern Time Sunday night.

I don't think I have seen these levels in 12-15 years!

Well, there goes Hawaiian real estate! Visiting Japanese in limos will be putting down hard cash, 100% of the sales price, after just driving by condos that meet their fancy, parking the car (with the engine running) and negotiating with the owners directly, paying with Yen-based traveler's checks on the spot. Talk about "bargain basement." YIKES.

[Ernest_at_the_Beach]

Bear Stearns was a very big player in the Sub Prime Mess....they needed to be taken out!

[GRRRRR]

Pelosi's Fault!!

Ever since the DemonRats took over, the economy has gone down. It's all THEIR FAULT!!

[HereInTheHeartland]

“I’m going to get out early tomorrow morning so I can claim the best corner for my apple stand.”

I already took the prime corners on Friday. But I am selling pencils

[Ernest_at_the_Beach]

Maybe you should cash out in Japan and move to Hawaii....

[Travis McGee]

Man the pumps!

[Walmartian]

I already took the prime corners on Friday. But I am selling pencils

I hope you're not selling those crappy saw dust pencils. Mine are solid wood and far more superior.

[palmer]

The bailout is in the rates. In 1998 for example, the LTCM bailout was relatively minor, a couple billion, but the rates were lowered by 0.75 which reignited the Nasdaq bubble and made the 2000 pop much worse. The other direct effect of 1998 was that was when the subprime mortgage security market was rescued (as it was about to die).

[AmericanInTokyo]

They used to tell me I was building a dream, and so I followed the mob,
When there was earth to plow, or guns to bear, I was always there right on the job.
They used to tell me I was building a dream, with peace and glory ahead,
Why should I be standing in line, just waiting for bread?

Once I built a railroad, I made it run, made it race against time.
Once I built a railroad; now it’s done. Brother, can you spare a dime?
Once I built a tower, up to the sun, brick, and rivet, and lime;
Once I built a tower, now it’s done. Brother, can you spare a dime?

Once in khaki suits, gee we looked swell,
Full of that Yankee Doodly Dum,
Half a million boots went slogging through Hell,
And I was the kid with the drum!

Say, don’t you remember, they called me Al; it was Al all the time.
Why don’t you remember, I’m your pal? Buddy, can you spare a dime?

Once in khaki suits, gee we looked swell,
Full of that Yankee Doodly Dum,
Half a million boots went slogging through Hell,
And I was the kid with the drum!

Say, don’t you remember, they called me Al; it was Al all the time.
Say, don’t you remember, I’m your pal? Buddy, can you spare a dime?

[DWC]

Out come the chicken littles.

[Travis McGee]

"The first rule of bank runs: get there first."

[AmericanInTokyo]

I won’t wax personal personal here, but let’s just say Plans B, C, and D are all in place for ol’ AiT. Sheesh. What a day.

[Ernest_at_the_Beach]

Another thread with some links to Mr. Liu's articles....:

Bear Stearns Racing Toward Selling Itself to JPMorgan ( Fed driving the deal before Asia Mkt opens)

He talks about Greenspan setting up these bubble's.

[TigerLikesRooster]

There was a report that Fed beefed up manpower to handle bank runs. When some banks(even if they are relatively small) go under, dollars would tank further, and Japanese could buy stuffs real cheap.

[Travis McGee]

The first rule of bank runs: get there first!

[DuncanWaring]

Ain’t it past your bedtime?

[Travis McGee]

You kidding? This is my prime time.

[Nervous Tick]

>> when the dust has settled and we read about all this, I suspect you might actually feel different about the Fed’s actions.

What I expect to see are the financially irresponsible breathing a HUGE sigh of relief... “Way to go Helicopter Ben! You da man! Bail me out and inflate my debt away BABY!”

And another (probably smaller) group... responsible folks who didn’t join the go-go speculation craze... who had little or no debt and cash. Cash that is now worth less, if not worthless. Do you think those of us in that category will also “feel different” about the Fed’s actions?

You get what you reward. Ben Bernanke is rewarding the profligate and the irresponsible. Tell me... can this go on forever? The bubble is dead, on to the next bubble? Leaving the taxpayer and the financially responsible to clean up on Aisle 9 while the speculators move on to the next party?

Is this a good long term strategy for the financial health of the US?

[AmericanInTokyo]

Already the oft whispered word out here in Tokyo this Monday morning is バーゲン・ベースメント ("sale", as in "fire sale", buy up stuff in the US on strong Yen that Americans with their shrinking US Dollars won't be able to afford). It is sad to see happening as an American, that's for sure.

[Obadiah]

No, Greenspan was not misquoted as it was an article he wrote for the Financial Times (Drudge has a link). Greenspan’s thesis is that rating agencies are to blame for not properly valuing market risk. While this is certainly true, again, Greenspan fails to point out that it was on his watch that he left the 1% punchbowl out waay too long that created a feeding frenzy environment which led to the current mortgage crisis.