From the March 2008 Idaho Observer:
Brace for the splat: WSJ, NYT, Bloomberg foreshadow dollar collapse; insiders warn bank "holiday" looming
Compiled from reports
Pushed to the brink of collapse by the mortgage crisis, the Bear Stearns & Company agreed to be sold to J.P. Morgan Chase & Co. for the fire-sale price of $2 a share or about $236 million, on March 17. Bear Stearns was worth $20 billion in January 2007 and $3.5 billion March 14. The Bear Stearns building alone is estimated to be worth $1.5 billion. A crisis of confidence swept the firm and fueled a customer exodus in recent days, leaving Bear Stearns with no choice but to sell the firm at any price.
Unprecedented. The Federal Reserve is taking the extraordinary step of providing as much as $30 billion in financing for Bear Stearns’s less-liquid assets, such as unsold mortgage securities.
This is believed to be the largest Fed advance on record to a single company. Fed officials wouldn’t describe the exact financing terms or assets involved. If those assets decline in value, the Fed would bear the "loss," not J.P. Morgan. "We’re very comfortable with what we found and what we acquired, but we needed a pretty substantial cushion from the Fed," Bill Winters, co-head of J.P. Morgan’s investment bank, said March 17.
With the deal, J.P. Morgan is essentially getting Bear & Stearns coveted prime brokerage business for free. It is twice the size of Bank of America’s prime brokerage, which is on the auction block for about $1 billion.
Uncharted waters. Former Treasury Secretary Robert Rubin last week described the situation as "uncharted waters," a view echoed privately by top government officials. Those officials have been scrambling to come up with new tools because the old ones aren’t suited for this 21st-century crisis, in which financial "innovation" has rendered many institutions "not too big to fail," but "too interconnected to be allowed to fail suddenly."
Wall Street experienced another week of roller-coaster trading beginning on St. Patrick’s Day after more than $300 billion was wiped off the U.S. equity markets Friday by the emergency funding package issued by the Fed and JP Morgan Chase to the Bear Stearns "rescue."
Deja vu. The Fed’s emergency funding procedure was first used in the Depression and rarely since. A Goldman Sachs trader in New York said: "Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we’re just standing by waiting. Everyone is nervous about what is going to emerge when trading starts [March 17].
Michael Taylor, a senior market strategist at Lombard said Friday [March 14], "We have all been talking about a 1970s-style crisis but as each day goes by this looks more like the 1930s. No one has any clue as to where this is going to end; it’s a self-feeding disaster."
Taylor expects a sharp downturn in the real UK economy as the public and companies stop borrowing. "We have never seen anything like this before. This is new territory for us. Liquidity is being pumped into the system but the banks are not taking any notice. This is all about confidence. The more the central banks do, the more the banks seem to ignore what’s going on. There will be more banks and hedge funds heading for collapse."
One of the problems is that, despite the Fed’s move last week to feed them another $200 billion, the banks are still not lending to each other.
Mark O’Sullivan, director of dealing at Currencies Direct in London said, "This crisis is one of faith. We are going to see even more problems in the hedge funds as they face margin calls, what we are waiting for now is for the Fed to cut interest rates again, but that’s already been discounted by the market and is unlikely to help restore confidence."
Mr Taylor said that, while the German economy remains strong, others such as Italy’s and Spain’s are weakening. "You could see a scenario where the eurozone breaks up if economies continue to be so worried about inflation."
Fed Chairman Bernanke’s interest-rate cuts have touched off a vicious circle of doom for the dollar. The Fed has already lowered its target for the federal-funds rate to 3 percent from 5.25 percent since last summer and is likely to cut the rates again very soon. Lower borrowing costs work against the dollar by making fixed-income securities issued by the government less appealing to global investors.
"The whole world feels there’s inflation when a good part of that is the weak dollar itself,’’ said Stephen Jen, head of global foreign-exchange research at Morgan Stanley in London. "Watching the dollar plummet like this is very dangerous.’’
The dollar tumbled 6 percent in the past month against the currencies of six major trading partners. It fell to a record low against the euro of $1.59. As the currency fell, commodity values rose 43 percent in the past 12 months on the UBS Bloomberg Constant Maturity Commodity Index of 26 energy, metals, agriculture and livestock commodities.
Meanwhile, gold is running wild as it broke through the $1,000 an ounce barrier, soaring this week to a high of $1023.50, then diving to $910 March 20, as the market manipulators try to save the fiat empire.
The instability of the dollar is being widely reported. Rumors of a "bank holiday" are circulating. It appears that the paranoia of securities traders is being promoted by whom or whatever controls the Fed.
However we slice it, it appears that the dollar is doomed and, just like 1929, its death will have been planned.