The Poo Begins To Fly

The unraveling of the financial fauxconomy appears to be accelerating. After lying earlier in the week about their liquidity problems, Bear Stearns is on the brink of collapse. Today’s emergency bailout – hastily orchestrated in the wee hours of Friday morning – was the first such move by the US Federal Reserve since the Great Depression. The Fed is authorized to take such action only under “unusual and exigent circumstances,” and the threat of a full market seizure certainly qualifies.

“The overriding public interest at the current moment is to maintain a functioning financial system, and [Federal Reserve] regulators clearly felt this was at risk..”WSJ

Former Fed Governor Lyle Gramley observed, I’ve been watching the economy for 50 years and I’ve never seen anything like this before… the Fed is very, very worried.” Speaking about the broader pinch the Fed has found itself in, Gramley had these encouraging words: “If that isn’t scary, I don’t know what is.”

Personally, I share Robert Reich’s assessment, who compared it with “someone with an helium tank blowing more air into a leaky balloon … It only postpones the inevitable, which is that the balloon will lose its air and float back to Earth.”

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