Panic of 2008: Is Lehman Brothers Next? Monday, 17 March 2008

Major financial news and emergency Fed meetings on a Sunday? If you had any doubts about how serious the Panic of 2008 is going to be, this should start hinting at how deep we've gotten. Watch Lehman Brothers this week - the brokers are selling it before the market even opens.

Early on Sunday (3-16-08) the details of the JP Morgan acquisition of Bear Stearns were released: $220 million, $2 per share. This is pennies on the dollar - or at least the dollars that Bear was claiming to have just a few days ago. Many were absolutely shocked at this final price, and the Fed rushed in immediately to cut discounts rates by 25 points - many expect an additional emergency meeting early today (Monday 3/17/08) with a target cut of about 100 basis points.

International markets wasted no time in profiting off American weakness, and the dollar crashed to yet another record low. Gold spiked $20-$30, and is now entrenched well over the psychological $1000 / ounce threshold.

Obviously, it all began following 9-11 as the Fed cut interest rates to very low levels, fueling an increased boom in home buying and mortgage activity. New demand for real estate drove up prices, and the banks holding mortgage-backed securities were using them as collateral for their own investments or as the reserve for their loans to hedge funds.

This is where Carlyle comes in (you may recognize this name for its association to the Bush family). One week ago, they managed $80 billion in assets - today there is nothing left. They had leveraged some assets 23 times into triple AAA bonds, and the bonds went bust. Within a day, the chain reaction brought them to default on their debts and triggered a "run on the bank" that effectively eliminated the company.

You know the economy is bad when the sitting president can't keep his dad's company from going bankrupt.

Enter Bear Stearns: They were the unfortunate holders of 15% of Carlyle's stock. Again, within the day, margin loans were being called in and Bear Stearns was in a position to liquidate its assets and shut down shop.

As if this wasn't bad enough, the Fed managed to engineer a "rescue" for the economy as a whole that consists of JP Morgan acquiring the Bear Stearns assets for 1 / 100th of their previously reported values.

Stop for a second and think about that. To save the economy, we have to revalue financial assets at 1 / 100th of their previous value.

	After the Bear Stearns bailout: Fears of more Wall Street failures	World Socialist Web Site	Mon Mar 17	8
	Fed rescue of Bear Stearns raises specter of Depression-era crash	World Socialist Web Site	Sat Mar 15	2
	After Bear Stearns Rescue, Who's Next?	Associated Press	Sun Mar 16	19
	Fed and Rival Bail Out Bear Stearns	Associated Press	Fri Mar 14	0
	Fed Races to Rescue Bear Stearns In Bid to Steady Financial System - WSJ.com	Wall Street Journal	Sun Mar 16	0