Thread: Massive Debt Default: Bearly Alive

Massive Debt Default: Bearly Alive, Wall Street Investment Giant Rushed to "Intensive Care" by Panicky Fed-Chief

by Mike Whitney

Global Research, March 15, 2008

On Friday, Bear Stearns blew up. It was the worst possible news at the worst possible time. A day earlier, the politically-connected Carlyle Capital hedge fund defaulted on $16.6 billion of its debt. Carlyle boasted a $21.7 billion portfolio of AAA-rated residential mortgage-backed securities, but was unable to make a margin call of just $400 million. (Where did the $21.7 billion go?) The news on Bear was the last straw. The stock market started reeling immediately; shedding 300 points in less than an hour. Then, miraculously, the tide shifted and the market began to rebound. If there was ever a time for Paulson's Plunge Protection Team to come to the rescue; this was it. For weeks, the markets have been battered with bad news. Retail sales are down, unemployment is up, consumer confidence is in the tank, inflation is rising, the dollar is on the ropes, and the credit crunch has spread to even the safest corners of the market. Facing fierce headwinds, Washington mandarins and financial heavyweights had to decide whether to sit back and let one small investment bank take down the whole equities market in an afternoon or stealthily buy a few futures and live to fight another day? Tough choice, eh?

We'll never know for sure, but that's probably what happened.

We'll also never know if Bernanke's real purpose in setting up his new $200 billion auction facility was to provide the cash-strapped banks with a place where they could off-load the mortgage-backed junk that Carlyle dumped on the market when they went belly-up. That worked out well, didn't it? Now the banks can trade these worthless MBS bonds with the Fed for US Treasuries at nearly full value. What a deal! That must have been the plan from the get-go.

The Bear Stearns bailout has ignited a firestorm of controversy about moral hazard and whether the Fed should be in the business of spreading its largess to profligate investment banks. But the Fed had no choice. This isn't about one bank caving in from its bad bets. The entire financial system is teetering and a failure at Bear would have taken a wrecking ball to the equities market and sent stocks around the world into a violent death-spiral. The New York Times summed it up like this in Saturday's edition:

“If the Fed hadn't acted this morning and Bear did default on its obligations, then that could have triggered a widespread panic and potentially a collapse of the financial systemâ€

Darn, this almost makes me want to climb back into the rabbit hole.

I have been hearing about this coming for 3 or 4 yrs now, and I said surely the gurus on Wall Street were not that stupid. Now I just need to figure out wether it is stupidity or thievery.

Anybody know of any Presidential canidate that has been talking about this for awhile now?

Need a hint? His initials are RP.

Originally Posted by roundabout

Now I just need to figure out wether it is stupidity or thievery.

How about both, plus more! Yep...RP knew!

Well carolinamtwoman, guard your ginseng patch, this could be a bumpy ride.