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Not my work: written by Hellasious

 

With Bear Stearns having to be rescued by the Fed (i.e. the government), the credit crisis is entering the seriously ugly phase. And I say this now because we Street types exhibit sangfroid when a sub-prime family gets thrown out of its home ("they should have been more responsible in managing their debt"), but when the sheriff comes calling to our neighborhood "it's the market's fault". Come to think of it, I have never seen a mirror at a bank/broker/investment bank office - I wonder why..?

Anyway, prior to rescuing Bear Stearns yesterday, there were only two prior occasions when the Fed used the obscure provision about funding non-bank institutions through the Discount Window. As The Economist points out, the last time was in the 1960s - and before that in the 1930s. References and parallels to the Great Depression are getting all too frequent lately, it seems.

While the failure of one major-bracket investment bank to get funding on its own is bad enough, worse is yet to come. Broker/dealers are entirely dependent on ample short term loans and trading lines to carry their securities' inventory and to clear transactions. Any hint of trouble and counterparties pull their lines and customers pull their accounts. The end comes instantly, usually no more than a few hours: Sudden Debt, to coin a phrase*..

The trouble at Bear will now cause every firm to become even more cautious with counterparty risk, clamping down on credit lines to trading partners and customers. The immediate reaction is "Bear is history, who's next?". Unlike the isolated 1998 LTCM snafu - one bad apple threatening to contaminate many otherwise healthy apples - the current crisis is fundamentally more serious and widespread. We know that many healthy-looking apples are already wormy inside, but we don't know which ones. The result is less trust in "apples" overall, a major problem in an industry where trust is the cornerstone of daily business.

Bottom line: short-term market credit (aka margin) is going to get squeezed much harder in days and weeks to come, forcing the Fed into even more "gifts" of TAFs, TSLFs, etc. That's too bad: to use mythological parallels, Pandora has opened the box... or the Trojans have wheeled a certain horse into their city.

* Yes, hours. To provide an example, during the 1987 crash my then firm (a major bracket, too) asked that customer margin calls be satisfied immediately - as in "wire or bring a check to the cashier by 2 pm or you will be sold out". Fun, eh? When survival is at stake in the Street, noblesse never oblige
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Mickey~   You have a great portfolio as far minerals and mining goes. I can see why your on top right now. But I personally don't invest for today, I'm looking down the road to retire in a manner that does not make me depend on the federal government to surive. It is called "Personal Responsibility".  Our society is lacking in this right at the moment.  Another key word that our society doesn't get is "MODERATION".  We are living beyond our paychecks and buying things we want, which in return leaves us no money to buy want we really need in life. It's time to wake up and start looking in the mirror instead of pointing fingers at the banks.  We are sometimes our own worse enemy in life. Greedy people trying to live beyond their means have only themselves to thank. The banks just got talked into lending money with their fairy tales lies. By the way it takes farmers to feed thoses mining crews.  Spam sandwiches travel well underground.  The poor working class buy tons of Hormel Products. Their stocks may not be doing so well today, but I don't see this company going away too soon either. So I will be glad to bathe in SPAM when I'm old.   xxo

A Former Northern California Gal~  Dana    Stillwater, Oklahoma     Home of Oklahoma State University

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Some rescue,

Looked more like where the SWAT team shoots both the criminal and his human captive shield... and not with one bullet more like every agent shooting and then reloading and shooting.

Whats your take on BSC still trading at twice what JPM stays it should be worth.

And BSC not reporting earnings... instead selling at 2 a share.

 

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Hi Hendrix - fair enough.

 

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