Fed acts Sunday to prevent global bank run Monday ( Bear Stearns Taken over,...rates cut )

MarketWatch ^ | 9:40 p.m. EDT March 16, 2008 | Rex Nutting, MarketWatch

[Ernest_at_the_Beach]

WASHINGTON (MarketWatch) -- Acting quickly to prevent a run on major global financial firms, the Federal Reserve cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to a longer list of firms than ever before.

he extraordinary weekend moves came as J.P. Morgan Chase sealed a deal to buy Bear Stearns Cos. for just $2 a share backed by funds borrowed from the Fed. The Fed board gave its approval to that unique funding arrangement, which guarantees JP Morgan against losses from buying Bear. See full story.

The Fed board also approved the creation of a special lending facility through the New York Fed that would be available to members of its primary dealers list, which includes both commercial banks and investment banks. Investment banks, such as Bear Stearns, have not been allowed to borrow directly from the Fed.

JP Morgan has access to the discount window through its Chase Bank subsidiary, but Bear Stearns does not have direct access.

Events have unfolded at warp speed over the last week. On Tuesday, the Fed announced a new lending program for primary dealers in the bond markets, but that program won't go into effect for two more weeks. On Friday, the Fed allowed Bear Stearns to borrow money via JP Morgan in a desperate bid to save the firm, which has been pummeled by losses on exotic securities backed by subprime mortgages.

The Federal Open Market Committee meets on Tuesday. Analysts expect the FOMC to cut the target for the federal funds rate by as much as a full percentage point to 2%. Another cut in the discount rate is also likely.

[Ernest_at_the_Beach]

More direct link:

Greenspan, the Wizard of Bubbleland

By Henry C K Liu
Sep 14, 2005

************************EXCERPT************************

The Kansas City Federal Reserve Bank annual symposium at Jackson Hole, Wyoming, is a ritual in which central bankers from major economies all over the world, backed by their supporting cast of court jesters masquerading as monetary economists, privately rationalize their unmerited yet enormous power over the fate of the global economy by publicly confessing that while their collective knowledge is grossly inadequate for the daunting challenge of the task entrusted to them, their faith-based dogma nevertheless should remain above question. That dogma is based on a single-dimensional theology that sound money is the sine qua nonof economic well-being. It is a peculiar ideology given that central banking as an institution derives its raison d'etre from the rejection of a rigid gold standard in favor of monetary elasticity.

In plain language, central banking sees as its prime function the management of the money supply to fit the transactional needs of the economy, instead of fixing the amount of money in circulation by the amount of gold held by the money-issuing authority. Thus

central bankers believe in sound money, but not too sound please, lest the economy should falter. Their mantra is borrowed from the Confessions of St Augustine: "God, give me chastity and continence - but not just now."

This year, the annual august gathering in August took on special fanfare as it marked the final appearance of Alan Greenspan as chairman of the US Federal Reserve Board of Governors. Among the several interrelated options of controlling the money supply, the Federal Reserve, acting as a fourth branch of the US government based on dubious constitutional legitimacy and head of the global central-banking snake based on dollar hegemony, has selected interest-rate policy as the instrument for managing the economy all through the 18-year stewardship of Alan Greenspan, on whom many accolades were showered by invited participants in the Jackson Hole seminar in anticipation of his retirement early next year.

Greenspan's formula of reducing market regulation by substituting it with post-crisis intervention is merely buying borrowed extensions of the boom with amplified severity of the inevitable bust down the road. The Fed is increasingly reduced by this formula to an irrelevant role of explaining an anarchic economy rather than directing it towards a rational paradigm. It has adopted the role of a cleanup crew of otherwise avoidable financial debris rather than that of a preventive guardian of public financial health. Greenspan's monetary approach has been "when in doubt, ease". This means injecting more money into the banking system whenever the US economy shows signs of faltering, even if caused by structural imbalances rather than monetary tightness. For almost two decades, Greenspan has justifiably been in near-constant doubt about structural balances in the economy, yet his response to mounting imbalances has invariably been the administration of off-the-shelf monetary laxative, leading to a serious case of lingering monetary diarrhea that manifests itself in runaway asset price inflation mistaken for growth.

Volcker's bloody victory
Paul Volcker, as chairman of the Fed before Greenspan, caused a "double-dip" recession in 1979-80 and 1981-82 to cure double-digit inflation, in the process bringing the unemployment rate into double digits for the first time since 1940. Volcker then piloted the economy through its long recovery that ended with the 1987 crash. To his credit, Volcker did manage to bring unemployment below 5.5%, half a point lower than in the 1978-79 boom, and the acknowledged structural unemployment rate of 6%.

To achieve his heroic, albeit bloody, victory over intractable inflation, Volcker adopted a "new operating method" for the Fed in 1980 as a therapeutic shock treatment for Wall Street, which had been spoiled fearless by the brazen political opportunism of Arthur Burns, Volcker's predecessor during the Nixon-Ford era. Wall Street had lost faith in the Fed's political will to control inflation.

[Travis McGee]

“Derivatives have permitted financial risks to be unbundled in ways that have facilitated both their measurement and their management…. As a result, not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.”~~Alan Greenspan, May 2003

"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."~~Alan Greenspan, February 22, 2004

“The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions.”~~Alan Greenspan, May 2005

"We're not about to go into a situation where (real estate) prices will go down. There is no evidence home prices are going to collapse."~~Alan Greenspan, May 21, 2006

[HeartlandOfAmerica]

This is gonna be a disaster of biblical proportions.

Gonna make the 1987 crash look like a tea party. Lot closer to 1929 I think than 87.

Watching it on a forex demo acct. Asia has to be hemorrhaging something awful.

Gonna be a horrible, horrible day!!!

God Bless America (cuz we're gonna need it!)

[Ernest_at_the_Beach]

The Petro Dollars are a real problem....then there is this Factoid I heard...

USA consumes ?Crude at the rate of 29 barrels per capita per annum...China consumes at the rate of 2 barrels per annum./////there is a problem.....

[DuncanWaring]

Silly me. I forgot - you used to be one of those guys who swims 20 miles in the morning to work up an appetite for breakfast, then runs 50 miles afterwards to help it digest. ;-)

[Travis McGee]

"A Wall Street Domino Theory" NEW YORK TIMES The Federal Reserve’s unusual decision to provide emergency assistance to Bear Stearns underscores a long-building concern that one failure could spread across the financial system.

[Lijahsbubbe]

It’s all being created by the media to make Republicans look bad. /s

[Obadiah]

Wow...just wow. Are those factual Greenspan quotes. Oh, my.

[Travis McGee]

And that was an easy day.

[Hacklehead]

“Ok, please explain this to this poor girl who does not understand the ins and outs of the stock market.”

Basically it’s like this.
The ecomony is headed for a disaster of biblical proportions, real wrath of God type stuff. Fire and brimstone coming down from the skies! Rivers and seas boiling! Forty years of darkness! Earthquakes, volcanoes...
The dead rising from the grave! Human sacrifice, dogs and cats living together... mass hysteria!

[Travis McGee]

Yes, they are actually samplings of the public wisdom of Sir Alan.

[Ernest_at_the_Beach]

Well...we have been having a good time...see #44...

I went out from the beach area towards Riverside Sat afternoon on the 91 freeway and got in the biggest damn traffic jam I have seen in awhile...and Gas is now at 3.50 a gallon...nobody seems to care...

[Obadiah]

And then the bad stuff starts to happen, right?

[Ernest_at_the_Beach]

Are you trying to frighten the poor Girl....?

[coloradan]

Travis didn’t post all of them, just a few. There are many more real doozies out there. As well as similar ones from others who really ought to have known better.

Oh well, I’m one of those nutcase gold bugs ... so don’t listen to me.

[TigerLikesRooster]

Will happen. It is only the matter of how many dominoes fall.

[Travis McGee]

Me too. I like heavy metals. Brass, steel, copper, lead, silver, gold.

[Lazamataz]

1929 will look like a cakewalk compared to how bad this is gonna be.

It's going to rain, man, and the rain will consist of shards of broken glass.

Red-hot broken glass with salt and lye all over it.

[AmericanInTokyo]

Man the lifeboats.

Two charts.

One for Yen-Dollar rate, and second for Tokyo Stock Exchange, both current to about 10 p.m. US Eastern time tonight (middle of the day out here):

She's a runnin' at almost 96 Yen to the Dollar now.

Here is a (somewhat) cute female Japanese financial announcerette delivering the latest scoop, about one hour ago:

The scoop (video link)

[Hacklehead]

“Are you trying to frighten the poor Girl....?”

Ok, I might have exaggerated a bit about the volcanos. 8-)