Posted on 03/17/2008 1:48:03 AM PDT by bruinbirdman
The dollar tumbled and stock markets were left reeling after the Federal Reserve unveiled new measures designed to prevent a meltdown in global financial markets and Bear Stearns was sold for $240m.
Meeting over the weekend, Fed Chairman Ben Bernanke cut the so-called discount rate at which it is prepared to lend to banks to 3.25pc and said it will lend more to the 20 big banks that make the market for US government debt.
Coming a day before the Fed was scheduled to meet on interest rates, the action signals that the central bank is increasingly fearful of an implosion in markets. Vincent Reinhart, a former director at the Fed, told Bloomberg News that the move's "got to tell you the economy is in a pretty precarious state."
The news sent shares in Asia tumbling, with Japan's Nikkei 225 down more than 3pc, Hong Kong's Hang Seng index off more than 4pc and the dollar crashing to a new low against the euro.
The greenback, which has been battered so far this year, also fell against the yen and reached parity with the Swiss Franc. David Goldman, a strategist at Asteri Capital in New York, said: "Something is systemically very wrong and we're at a very dangerous moment."
Separately, JPMorgan announced it will buy Bear Stearns, the second-biggest underwriter of US mortgage bonds, for $240m. Shares in Bear Stearns crashed almost 50pc on Friday amid rumours of a cash shortage.
US Treasury Secretary Hank Paulson defended the bailout out of Bear Stearns, arguing that "our focus, our No. 1 priority is the stability of our financial system."
All of this seemed so inevitable. I remember reading a few years ago that something like 50% or more of mortgages in San Diego were ‘interest only’. How does that make any long term sense? As the economy worsens and the people living in those homes have trouble paying the interest only rent on homes, in which they have no equity, what are they going to do? I fear many will just walk away. We may have just seen the tip of the iceberg regarding defaults.
But you see, we wanted to be kiiiiiiiiiind and incluuuuuusive, and divvvvvvvvvvverse and compassssssssionate and make it a politically correct "kinder/gentler" United States of America where EVERY MAN IS A KING, EVERY MAN OWNS A HOME, whether they can afford it or not, whether they are legal or not, whether they are honest (or the mortgage houses they would deal with) or not.
Now the chickens are coming home to roost on all of the interest only, subprime crap out there, and bring down the world economy as a result. But, hey, we were compassssssionate, right, and gave everyone a chance at golden altar of American Home Ownership.
It might be that ‘Prevent’ may be an overly optimistic word choice on the part of the headline writer....
Indicator: CNBC stayed ‘live’ all night, foregoing its usual fare of infomercials and Suze Orman reruns....
Those who bought for speculation are not in trouble.
Those first time buyers who had no down and interest only will go ack where they were - renting and still with no equity. They lost their house, or walked away from it; they didn't lose their job.
Those who sold and bought up and can't afford new adjusted payments, can, just, sell down. That's the way it works.
yitbos
check out the markets in Europe...
This is the law of unintended consequences coming back at us in spades. Congress holds a good deal of responsibility for this as well. If I'm not mistaken, It was due to a lot of congressional arm-twisting that the banks/mortgage Co's developed these questionable products in the first place to be more “inclusive”. Now, most if not all of the industrialized world suffers from Congressional meddling into things they have no business meddling in.
Check out DOW Futures!!
yitbos
You have said it exactly as it is, there, r727. Yes, lots of jerks on Capitol Hill. Mostly Dems. Some Repubs, too, trying to be egalitarian and politically correct, but not very financially sound.
Japland? ( ;0)
I listened to parents who grew up in the depression, took Financial Peace University offered by Dave Ramsey and have lived will below my means for years and have investments/savings to prove it along with no consumer dept. I will weather the storm, no matter how bad, but 99% of Americans are in deep kimchi.
This is on the Irving Ranch properties near Newport Beach.
It has been 40 years ago since people have been buying such homes. So some people only have 60 years left on the leases on the land their houses (which they own) are on...
not good, not good, not good...
yitbos
I thought for a moment you meant some kind of tax haven island in the Baltic Sea.
There’s a host of problems. It’s easy to say in retrospect that we needed more regulation in an already heavily regulated industry. There’s some of that, but at the same time, I trace a lot of this back to the collapse of the immigration reform bill last summer. A lot of people basically said that we can’t throw out a large fraction of productive but undocumented workers without replacing them in some sort of orderly fashion. It’s like Steve Irwin vs. the stingray - some situations need to be handled with care.
But all the purists couldn’t deal with the compromises needed in a democratic society and so here we sit.
The wonderful place to retire, the tropical paradise, the heart of Exotic Micronesia, the beautiful Isle of Yap!!
yitbos
The issue is no longer hanging on individual mortgages but on the banks that are leveraged out. Bear Stearns got caught in a classic bank run and the open question is who's next and who's after that
Until confidence (yes as in con game)is restored the dominoes will continue to fall.
This is capitalism at it's finest
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