Busted: Bankers and The Global Economy

March 17, 2008

Wall Street Confidence Stressed

Filed under: banking, federal reserve, investment, money — Tags: , , — digitaleconomy @ 6:56 am

This week starts out with a big negative as questions and confidence falters from financial markets in financial fallout from last week. Bear Stearns, the fifth-largest investment bank was just rescued by JP Morgan for what has been reported as $2 a share. Several weeks ago, the investment house was valued at $20 billion or about $70 a share. The more problems that seem to crop up from billions in failed investments, the more unknown issues appear. This is a direct result of financial instability caused by internal banking instruments as well as ardent repackaging and reselling of questionable mortgage securities. Wall Street and investors should be concerned about the financial health of the market.

The Fed has been using the various tools at its disposal in an effort to mend the market: creating tools that investors have never seen before and as a side note, tools that are untested. Were it not for the new enhanced authority and power of the Federal Reserve, the U.S. economy would have nowhere to go and massive failures would be a virtual certainty. As it is, the short-term workload of the FDIC has been greatly diminished because of Federal Reserve monetary and securities bailouts. Could the extreme moves to avoid a lack of confidence actually cause a lack of confidence? The Fed is expected to drop interest rates further on Tuesday as it holds a regularly scheduled meeting on interest rates. The Fed is expected to make a powerful statement to reassure the markets. Market analysts disagree, but expect cuts from a half-point to a full point from last nights’ 3.25 percent markdown.

The U.S. economy is clearly in uncharted waters.

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