Financial System Collapse

Digby:

Tomorrow should be an interesting day on Wall Street. JP Morgan just bought Bear Sterns for less than the price of the office building it's housed in and then the Fed cut interest rates another quarter of a point to try to cushion the blow.

Bear was bought for $2/share payable in stock, down from $88.25 on December 31. The shareholders are screwed. But a far larger part of the price are Bear's liabilities, which Morgan also acquired. Undoubtedly Morgan acted in the knowledge that the alternative - Bear simply vanishing with no one to meet its obligations to its creditors - would trigger a massive die-off on Wall Street. The rate cut is also supposed to help, sort of like giving codeine to someone with a bullet wound. As Digby says, if you're in stocks, buckle your seatbelt for tomorrow. As of this moment, the Nikkei is down 3.14% 3.37% 4.20% they appear to have stopped updating the numbers 40 minutes ago (as of 10:40 p.m. EDT) - I'm off to bed.

This probably is only delaying the inevitable. The financial system is pancaking, layers collapsing onto lower layers, causing them to collapse.  We could be in for the worst recession since 1937. Unlike the Great Depression, the government will probably remain able to keep banks open. But it wouldn't be a terrible idea to withdraw a bunch of currency and stash it somewhere safe.

Update: John Cole calls the Fed providing special financing for "less-liquid assets" The Invisible Handout.

Comments

[Michele]

withdraw a bunch of currency and stash it

. . . so long as it's euros.