More Thoughts on the Fed & JPM's BSC Liquidation

Includes: BSC, JPM
by: Barry Ritholtz

Anyone get a great night's sleep?

Not me. I kept waking up, mind racing, thinking about what all this means going forward.

I have Kudlow & Co. Monday night, and Morning Call on Fed day, and I always like to bring some ideas that are not the usual clichéd blahblahblah. Hence, the adrenal overload.

This entire series of events has me thinking about some fascinating wrinkles:

• I think the Fed is acting appropriately to avert an entire financial system meltdown. Whether they will be successful is as of yet, unknown. As we are so fond of saying, there will be costs: Financial, economic, psychological, and prestige-wise to this debacle.

TANSTAAFL: Speaking of which, we see the Dollar getting whacked further, Gold at $1030, and Oil over $110.

• A bailout for Wall Street may not be very palatable during a recession in a election year. Thus, we should expect a major Housing/Mortgage bailout along any day now. Cost: Very expensive.

• Could J.P. Morgan (NYSE:JPM) really complete a thorough due diligence on all of Bear Stearn's (NYSE:BSC) crappy paper, leveraged risk, and counter-party obligations in 2 days? I doubt it. Hence, the $30B backstop from the Fed. Not quite free market capitalism, but definitely creative, and certainly destruction.

• JPM now gets a terrific scapegoat for the next 4 (or 8 or 12) quarters to blame for all of their crappy paper, leveraged risk, and counter-party obligations: Bear Stearns.

• The Efficient Market Hypothesis [EMH] takes yet another hit. I am beginning to think markets are lagging indicators...

• The impact of the credit crunch is -- disturbingly -- showing up in places you would never expect. Example: 20% Of Silicon Valley Startups Can’t Get To Their Cash.

• Does this mean Bear's Quarterly earnings call -- scheduled for Monday -- will be canceled?

• EVERYTHING seems to trace its way back to Housing.

Markets are closed for Good Friday, option expiry is Thursday. Get ready for a fun filled, jam packed 4 day week!