Saturday, March 15, 2008

Bear Market Indeed

the Federal Reserve, in an attempt to restore confidence in the credit market, now accepts debt as collateral. this has been characterized as the Federal Reserve's 'boldest action since the Great Depression'. predictably, many investors and analysts are disappointed that the Federal Reserve just didn't purchase the mortgage securities outright. i am sick of idiot speculators who want their stupid asses bailed out after their foolish investment strategies bring the eminently predictable consequences down on their heads.

in other news, Drake Management is contemplating whether to shut down one of its largest hedge funds or continue to restrict redemptions or to allow their clients to shift money into other funds. they aren't the only firm to have a wee bit of trouble with hedge funds:

At least a dozen hedge funds have closed, sold assets or sought fresh capital in the past month as banks and securities firms tightened lending standards. The industry is reeling from its worst crisis because bankers -- staggered by almost $190 billion of asset writedowns and credit losses caused by the collapse of the subprime-mortgage market -- are raising borrowing rates and demanding extra collateral for loans.
Bear Stearns sought a bailout just days after reassuring their increasingly panicky clients that things were A-OK. apparently, their clients weren't reassured because there was a run on the bank which prompted the bailout by the Federal Reserve and JP Morgan. the bailout itself isn't a total fix because Bear Stearns needs to solve its financial crisis or find a buyer very soon. the real story behind the bailout is that JP Morgan borrowed the money from the Federal Reserve for Bear Stearns, but JP Morgan isn't bearing any of the risk of default on the loan. that risk is entirely on the Federal Reserve itself.