This ought to get our attention. Bear Stearns folded over the weekend, selling out to JPMorgan Chase for $2 a share, down from just under $80 a couple of weeks ago. This is an Enron-like collapse.
In addition, Bernanke and the Fed got together over the weekend to try to plug the leaks:
Worry about the damage a growing credit crisis is inflicting on an ailing U.S. economy led the Federal Reserve to make a rare weekend move, lowering a key lending rate before Wall Street opened Monday. The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created a lending facility for big investment banks to secure short-term loans.
The last half of the last sentence is a big deal. The Fed is offering financing directly to investment banks for the first time since the Great Depression.
Chris Wallace at Fox News asked Treasury Secretary Henry Paulson the key question about the Fed’s bailout of the bond daddies:
“Isn’t the result of this that U.S. taxpayers might end up holding billions of dollars in bad mortgage securities?”
“I’m not going to speculate about the outcome of this specific situation,” reiterates Paulson. “You’re going to have to wait and see. Conversations are going on–over the weekend–I’m very involved in those conversations.”
“Why should the government,” asks Wallace, “and thereby, U.S. taxpayers, bail out lenders and borrowers who made bad decisions; and, if they know they’re going to be bailed out, what does that do to the ‘moral hazard’ argument that they don’t end up paying a price?”
Paulson insists he understands the “moral hazard” argument, and tells Wallace he is jumping to conclusions when it comes to the taxpayer cost of the Bear Stearns bailout, and to “wait and see.” Paulson further defends protecting the “capital markets,” and thereby, he says, the economy.
“Why not,” asks Wallace of the plunging U.S. dollar, “take a more aggressive stance and support a stronger and stable dollar, and even implement policies to–prop up the dollar?”
“A strong dollar is in our nation’s interest,” responds Paulson. “Our long-term fundamentals in this country–economic fundamentals–are strong. Our economy has its ups and downs like any other economy, but I believe that that long-term strength is going to be in the dollar.”
To quote the incomparable Mogambo Guru: Hahahahaha!
Any freshman Econ student knows that the law of supply and demand: The greater the supply, the less the demand — and thus, the lower the value. Now look at the growth in the supply of US dollars in circulation over the last two years, courtesy of John Williams at ShadowStats.com:
Summary: Paulson is lying, a strong dollar is not the policy of this government, and in fact the steps required to strengthen the dollar — contracting the money supply by tightening up on credit (raising interest rates) — would cause more distress for Paulson’s colleagues in the world of high finance. Not gonna happen.
So Ben Bernanke and the Fed will continue to jigger the markets by assuming more and more risk on behalf of you and me, and at this point I don’t see any way off the hook for the Wall Street’s greed.