Lost in the midst of all the political drama is the currently reality of just how desparate the economy has become. On a Sunday, the American cinsumer saw two unprecedented events. The first was the federal reserve cutting rates from 3.50 to 3.25. The second was the announcement of JP Morgan Chase's bid to buy failing investment bank firm Bear Sterns for simply 2 dollars a share.
The federal reserve cut is difficult to swallow simply becuase it occured on a Sunday rather than waiting until Monday morning, when such things are usually announced. This potential could indicate that the government really does think we are in desparate straits despite all the rosy rhetoric of the White House.
Second, is the bid to buy Bear Sterns. Although, the bid is perhaps reasonable, the government's willingness to approve the acquisition in light of traditionally extensive regulatory review indicates again that something is amiss.
Both events coupled together could make for a desolate Monday on the trading floor. Perhaps it is time that those in power recognized something is wrong with the economy and do something about it. What we need is a long term economic policy that puts America back in competition on the world market. Unfortunately, I only expect to see worse as time progresses.
2 comments:
Seeing as how Bear Sterns closed at 30 on friday, it is a bit of a bargain. Feel bad for the shareholders, shows markets aren't always efficient at valuing stock.
Bear Sterns is an I-banking firm. The value of their stock is primarily based on trust not assets. The fact that they would be hit hard by the sub-prime crisis would have destoryed their per share value anyway.
I don't understand why JP Morgan did just let them go bankrupt and buy the assets at discount...oh yeah the government wouldn't let them. Which is why $2 per share is reasonable.
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