Dvd Avins (![[info]](http://p-stat.livejournal.com/img/userinfo.gif){kind=small} barking_iguana) wrote,@ 2008-03-16 21:08:00 |
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Tomorrow may be historic
But we'd damn well better hope it isn't.
My financial situation is awful (but ultimately salvageable), in any case. I'm glad most of my friends with significantly positive net worth own houses. Later this year, those houses may be worth many fewer dollars than they are now, but they will still be worth a house, no matter what happens to the dollar or the rest of the economy.
Saturday morning, I observed to my father that there was a small but non-negligible chance of a financial meltdown on Monday. That's because people would have all weekend to stew about Bear Stearns, without seeing any reassurance of seeing the markets function normally.
Bear Stearns, for those who don't know,is was a major nexus in the overly leveraged economy of the past 20 years. Friday, it almost went under and had to be indirectly bailed out by the Fed. The Fed had to stretch its mission and rules, as well as expend resources to accomplish the task. I don't think it has the ability to do this over and over.
Now it turns out the bailout wasn't enough. Bear Stearns, which was trading at $150 per share months ago and closed at $30 per share on Friday, was just bought $2 per share (translation: a drunk pitching coach and a rosin bag) by the Fed's companion of late, JP Morgan.
If Bear Stearns had actually declared bankruptcy, rather than merely gone bankrupt, all of its 'unsalable' assets would have been sold, putting rather unpleasant, but actual, market-driven numbers next to everybody else's (like JP Morgan's) similar assets. That would, I believe, almost immediately trigger many other Wall Street bankruptcies.
It remains to be seen how much confidence (that's a euphemism for lack of complete, rational and irrational panic) JP Morgan's playing White Knight will instill. Asian markets are down only 2% and the dollar hasn't collapsed, and if things have held so far, it's reasonable to bet that they will hold for the immediate future.
But it's also reasonable to hedge your bets. How much cash would you need for a week or two, if none of your cards worked. The cost of losing the return on having that much money invested is probably small right now, compared to the security of knowing you have it at hand.
But we'd damn well better hope it isn't.
My financial situation is awful (but ultimately salvageable), in any case. I'm glad most of my friends with significantly positive net worth own houses. Later this year, those houses may be worth many fewer dollars than they are now, but they will still be worth a house, no matter what happens to the dollar or the rest of the economy.
Saturday morning, I observed to my father that there was a small but non-negligible chance of a financial meltdown on Monday. That's because people would have all weekend to stew about Bear Stearns, without seeing any reassurance of seeing the markets function normally.
Bear Stearns, for those who don't know,
Now it turns out the bailout wasn't enough. Bear Stearns, which was trading at $150 per share months ago and closed at $30 per share on Friday, was just bought $2 per share (translation: a drunk pitching coach and a rosin bag) by the Fed's companion of late, JP Morgan.
If Bear Stearns had actually declared bankruptcy, rather than merely gone bankrupt, all of its 'unsalable' assets would have been sold, putting rather unpleasant, but actual, market-driven numbers next to everybody else's (like JP Morgan's) similar assets. That would, I believe, almost immediately trigger many other Wall Street bankruptcies.
It remains to be seen how much confidence (that's a euphemism for lack of complete, rational and irrational panic) JP Morgan's playing White Knight will instill. Asian markets are down only 2% and the dollar hasn't collapsed, and if things have held so far, it's reasonable to bet that they will hold for the immediate future.
But it's also reasonable to hedge your bets. How much cash would you need for a week or two, if none of your cards worked. The cost of losing the return on having that much money invested is probably small right now, compared to the security of knowing you have it at hand.
