Wading carefully into this conversation is a bit dangerous, but there were days over the past two months where I felt we were on the verge of global financial collapse. I knew of Bear’s troubles and of others. Had the Fed not arranged the merger and simply let Bear fall, that might have been really ugly, uglier than any of you can imagine. Money market funds would have possibly broken the dollar, derivative defaults everywhere and serious panic that the markets could absorb the hit. But equally as bad would have been to not open the discount window to others. While it philosophically cuts me to the bone to admit we needed government intervention, we were right on the edge of a cliff and Bernanke made the right call. Flame away.
No intention of flaming away. I don’t think Bernanke made the right decision. And I don’t think Greenspan did years earlier (by allowing this to happen...too much evidence out there to suggest that he either encouraged these risks, looked the other away, or didn’t understand the devastation these “innovations” would bring).
But...I still don’t believe we are passed the worst. Too much bad debt (and other issues) out there.
And new information I’m seeing and reading about Lehman isn’t too good, either.
And what happens when Citi fails ? Or JPM ? Or UBS ?
How much propping up can be accomplished when trillions are being lost in real estate - the very thing that set off this debacle in the first place. RE is not finished dropping - when a few more trillion are removed from backing all this paper, who can afford that bailout ?
It will happen, and the next failure will just be bigger.