FIRE SALE ON WALL STREET!

From a share price of $170 to $2.00 plus the Fed's 30 billion, Bear made a big splash on the street. Too bad for home owners who cannot be rescued and who end up loosing everything.
For JP Morgan Chase, this is a no-brainer: the taxpayers will pick up the worst of Bear's assets and the best will remain private.

SHOOTING BLANKS.

The speed of Bear's sale is surprising to many, in fact it only took a week-end to close this transaction while strapped home owners are still waiting for real solutions to the housing crisis. They have been assured by the government that there will not be a taxpayer funded bailout and that the private sector can handle the crisis. In case you have not heard, following are some of the blank shots that have been fired:

1. FHA Secure: program designed to help subprime borrowers facing reset,

2. HOPE NOW: counseling referral for home owners in trouble

3. LIFELINE: covers prime and subprime borrowers by extending the foreclosure date by 90 days,

4. INTEREST RATE FREEZE: will freeze the rates for up to five years based on initial value,

5. INTEREST RATES CUTS: the Fed's rates cuts do not spur refinancing or purchases simply because lending guidelines have been tightened and property values continue to decline.

6. TEMPORARY LIMITS INCREASES: the costs associated with this new initiative are prohibitive. It costs 2.5 points (percents) to get the so called stimulus package loans!
It appears that the government has been shooting blanks when it comes to individuals, but it pulls the big guns in short notice when Wall Street is in danger!

What is next?

Bad loans led in part to Bear's demise but this is only one player in the investment banking business. There are literally hundreds of banks and other institutions who carry the same mortgage backed securities and other high risk assets in their books. The question is to know what will happen if many players succumb to the liquidity crunch? How far is the Fed willing to go to prevent the collapse of the system?

Is the Fed running out of options? Judging by all the actions undertaken so far, the Fed and the administration appear to have exhausted all the traditional policies. Printing more money will obviously have inflationary consequences. Legislative action may be needed in addition to the Fed's policies but the gridlock in Congress makes any real rescue plan unlikely. In the mean time food and energy prices are at an all time high.

New Rates Cuts Expected.

The Fed is expected to cut interest rates today, and the rumors are that we could see up a full percent drop. Whatever the magnitude of this round of cuts, their impact will be insignificant on the housing sector. Low interest rates will drive investors to place their funds where they could get higher returns and the falling dollar may not be the currency of choice for many.

Stay tuned, the story continues to unfold before your very eyes and the final has yet to be written. The fire sale of Bear may only be the opening act!