The Cosmic Tap

Why Bear Stearns? A quick lesson in the trillions cooking beneath, and why the Fed cares, and why you should care.

JHK put it this way:

“Over the weekend, the Federal Reserve engineered a $30-billion dollar Saint Paddy’s day present for the JP Morgan bank by handing them the corpse of Bear Stearns. The object of the game is to prevent the ‘assets’ of Bear Stearns from going to the auction block, on which they would be discovered to be nearly worthless, which would instantly render all similar assets held by the other big banks to be similarly worthless, and would result in a universal margin call that would pretty much unwind the hallucinated ‘wealth’ acquired over the past ten years.”

“We are now experiencing the first truly major crisis of financial globalisation” …. “the lesson from Japan in the early 1990s is that the death dance goes on and on and on..”

Also - “It’s like fighting a virus with antibiotics.. it’s the stuff of bad dreams.” - this piece is especially interesting because it puts to rest the fantasy that other currencies will be far behind the dollar in their contractions.

The flip side of all this [thanks, Josh] is that fewer foreign investors means a forced debt reduction - but we’ve become so dependent on this inflow of debt-related cash that the re-adjustment is not going to be pretty.