Tuesday, March 18, 2008

Thanking their lucky stars...

... That it didn't happen on a weeknight. From the WSJ:

Federal Reserve officials insisted that the firm complete a deal that weekend...Their priority was that Bear's counterparties -- the parties that stood on the other side of its trades -- would be able to arrive at work Monday knowing their contracts were good, minimizing the risk of a generalized flight from the markets.
Haven't had much to say about the stunning demise of Bear Stearns - surprising on several levels. Those who tend to be further from the markets and of a certain ideological persuasion see this as a bailout of rich fatcats, while those pro-markets see it for what it is - an "orderly liquidation" (at least as orderly as it can be). Play by play of what happened here.

I have no direct interest in the events beyond friends who still work in investment banking (which is now a lot more limited), but the effects will be felt for some time to come. The world is deleveraging (or at least leveraging to reflect revalued assets) and the US is almost certainly in a recession. There has been significant growth in newer and useful tools that have been able to help businesses create liquidity in their businesses - particularly in the area of asset backed securities (e.g. loans against inventory or receivables). With the Americans often pioneering - or at least popularizing products like these, the rigor of these products will be tested and with even greater certainty, it will be more difficult to get almost any type of loan.

Update from a WSJ Editorial: "There's no joy in seeing a venerable firm expire, but it has to happen if financial markets are going to have any discipline going forward."

Somewhat frightening/funny from Paul Kedrosky: "The U.S. financial crises is newly making African debt seem like a (relative) safe haven."

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