Where does the Fed get $30 Billion to lend - easy when it owns the printing presses
OE NOCERA, Business Columnist, New York Times: It's like something seizes up; that's really the best way to describe it. There was panic among its counterparties, the people they traded with, that they wouldn't have the money to pay them back.
So people, gradually first and then with increasing acceleration, stopped trading with them. In fact, hedge funds that did business with them were sending notes to their clients over the last week or so saying, "Don't worry. We've stopped trading with Bear Stearns."
When you're an investment bank and you depend on trading, and you depend on liquidity, and suddenly no one will trade with you, it really doesn't matter how many securities you have, how much money you have. You have no business and the securities that you hold have no value, because no one will trade with them.
So this is a classic -- this is the modern version of the run on the bank. And, you know, there's a reason their stock closed on Friday at $30 a share and by Sunday night they were bought for $2 a share. They had no business.
So I get that the Fed gave JPMorgan a 28 day $30 Billion dollar line-of-credit to help make this deal happen - not a gift of $30 Billion. But the idea that the Fed helped finance this fire sale does make me uncomfortable. What other shoes out there are waiting to drop?
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