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Fed rescue of Bear Stearns raises specter of Depression-era crash

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IndianaGreen Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-15-08 06:31 PM
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Fed rescue of Bear Stearns raises specter of Depression-era crash
Fed rescue of Bear Stearns raises specter of Depression-era crash

By Barry Grey
15 March 2008


The Federal Reserve Board on Friday took emergency action to prevent the collapse of Bear Stearns, the fifth largest US investment bank and one of the worlds largest finance and brokerage houses.

Invoking a little-used provision added to the Federal Reserve Act in 1932, at the height of the Great Depression, the US central bank agreed to allow the Federal Reserve Bank of New York to insure an infusion of credit to Bear Stearns by JP Morgan Chase. Under the terms of the secured loan facility, to extend for up to 28 days, the risk of a default by Bear Stearns will be borne by the Federal Reserve Bank of New York, not JP Morgan Chase. The latter will serve essentially as a conduit for the cash provided by the US central bank.

This mechanism was used because only commercial banks, so-called depository institutions, can borrow directly from the Feds discount window. Bear Stearns is not a depository bank, and hence the Fed was obliged to invoke a provision of the 1932 amendment to the Federal Reserve Act that applies when unusual and exigent circumstances exist and the borrower is unable to secure adequate credit accommodations from other sources.

The announcement of the Fed bailout sent shivers through Wall Street and shook financial markets around the world. It confirmed rumors that had been mounting over the past week that Bear Stearns, the second largest US underwriter of mortgage bonds, did not have the cash to meet claims by its creditors. The rescue operation came one day after the collapse of Carlyle Capital Corporation, a $22 billion publicly traded investment fund controlled by the Carlyle Group, long one of the most profitable and well-connected private equity firms in the US.

http://www.wsws.org/articles/2008/mar2008/bear-m15.shtm...
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Vincardog Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-15-08 06:38 PM
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1. How much of that money will be paid in Bonuses?
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DS1 Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-15-08 06:38 PM
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2. hmmm. I wonder if 150,000,000 might help the company a bit. Where to get it
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cliss Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-15-08 06:48 PM
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3. Some unbelievably scary things ~
1. The Fed just rescued an INVESTMENT bank, not a commercial bank. This I think is unprecedented, possibly the first time they've done that.

2. The Fed won't disclose how much money they fronted to the ailing bank. How much did they get?

3. Bear Stearns is not expected to survive, regardless of the Cash infusion from Daddy. Guess who will be stuck holding the bag when Bear Collapses? (hint: )

4.
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Tandalayo_Scheisskopf Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-15-08 06:52 PM
Response to Reply #3
4. 4.
Profit!!!
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MadMaddie Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-15-08 07:11 PM
Response to Original message
5. Hey Corporate Welfare Yea.........
But...But....only individuals are responsible for making bad decisions....Wait aren't Corporations now considered individuals?

Reagans America...hip..hip...hooray....
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