Wall Street as Black Hole

[marmar]

from HuffPost:





Charles R. Morris
Wall Street as Black Hole
Posted March 19, 2008 | 07:59 PM (EST)



Originally published at the Washington Independent

Stock markets rebounded mightily yesterday, dazzled by yet more center-stage virtuoso turns by Federal Reserve Chairman Ben S. Bernanke. Over the weekend, he out-Greenspanned Greenspan by engineering a takeover of Bear Stearns, and then opened the Fed's resources to investment banks in addition to the commercial banks that are its normal constituency. Tuesday he cut the Fed fund rate target, or the bank funding rate, to only 2.25 percent, a full 3 percent rate cut since the fall.

(Matt Mahurin) Surely now, with crises once more brilliantly contained and Fed money flowing freely, consumers will get back to borrowing and buying, housing markets will stabilize and the economy will turn smartly upward.

Not a chance. The Fed has now committed all the ammunition it has to prop up Wall Street, and shore up shaky mortgages. All that's left in its trick-bag is to turn on a Weimar-style printing press.

With all the attention focused on the Fed, investors may not have noticed that the so-called Government-Sponsored Entities, (GSEs) Fannie Mae, Freddie Mac and the utterly obscure Federal Home Loan Bank, have been pouring even more money than the Fed into housing, with little effect. The mortgage mess, it now appears, is a black hole that can swallow up the Fed without a trace.

Consider the sequence of events during the Bear Stearns takeover negotiation over the weekend, as participants have described them to the media. JP Morgan Chase apparently came into the Saturday session expecting to do a deal in realm of $10-$12 a share, without any guarantees from the Fed. Bear, after all, owns lucrative low-risk businesses like stock-clearing, plus a trophy Skidmore, Owings building in midtown Manhattan. The equity in the building is worth at least $6 a share by itself. ......(more)

The complete piece is at: http://www.huffingtonpost.com/charles-r-morris/wall-street-as-black-hole_b_92459.html

[Karenina]

1. Las Vegas, anyone?