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March 17, 2008
I want my two dollars!
Bear Stearns is sold for $2 dollars a share.
Fear spreads who's next?
Krugman closes out today's column with some painful candor:
"According to late reports on Sunday, JPMorgan Chase will buy Bear for a pittance. That's an O.K. resolution for this case — but not a model for the much bigger bailout to come. Looking ahead, we probably need something similar to the Resolution Trust Corporation, which took over bankrupt savings and loan institutions and sold off their assets to reimburse taxpayers. And we need it quickly: things are falling apart as you read this."
Dean Baker points us to Ben Bernanke's testimony from March 28th, 2007.
"Although the turmoil in the subprime mortgage market has created severe financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear. The ongoing tightening of lending standards, although an appropriate market response, will reduce somewhat the effective demand for housing, and foreclosed properties will add to the inventories of unsold homes. At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency. We will continue to monitor this situation closely."
It seems that Bear Stearns was taken down by a modern version of a bank run, where the key ingredient is fear. Dean is right what we need now is not happy talk but transparency.
The New York Times summarizes the spread of distress in financial markets to the real economy in the form of emerging budget deficits. Here is a nifty chart.
As a reminder, new data on Pennsylvania's employment situation in February should be released by Friday.
--Mark Price
Posted by Price at March 17, 2008 08:25 AM