Best Financial Markets Analysis Article The ongoing deleveraging of the $500 trillion derivatives markets claimed its biggest scalp on Sunday - Bear Stearns, formerly one of the worlds top investment banks and now taken over by JP Morgan to prevent a global financial panic, with the aid of funding and guarantees from the US Fed amounting to $30 billion which was reminiscent of the UK Governments bailout of Northern Rock Bank.

The dominos started to fall against Bear Stearns earlier in the week, as customers withdrew more than $25 billion in just three days. The large financial institutions behaved little different to the panicking Northern Rock customers albeit without the queues as they rushed to withdraw funds before Bear Stearns went bust on the basis of further mortgage related losses.

The US Fed cut the Discount rate on Sunday from 3.5% to 3.25% in an attempt to provide liquidity to other US banks on Monday should there be further panic withdrawals. This implies that the Fed Funds Interest rate cut this week could be as much as 1%, i.e. taking US interests down to 2% from 3%.

So how much did JP Morgan pay for one of the worlds biggest investment banks ? Just $2 per share or $370 million ! A far cry from the $160 per share the bank was trading at just a few months ago, and just 3% of the $62 price the bank was trading at just last Thursday. The bank is now dead in its former role, whatever emerges will be a mere pigmy of its former self, much as is expected of Northern Rock Bank.

The credit crisis for Bear Stearns comes full circle as it came to public attention back in July 07 when Bear Stearns had to bailout two of its own hedge funds at a cost of $3.2billion.

The credit crunch of 2007 has become the credit crisis of 2008. The bank failure illustrates that the end is nowhere insight. This crisis is going to roll and grow all the way into 2009 as the downward spiral will result in further economic contraction due to the fact that for every $1 billion of losses results in an estimated $10 billion reduction in credit made available to main street borrowers. Therefore the growing estimates of losses that could reach as high as $2 trillion could prove highly deflationary.

The first shoots of an end to the credit crisis will only be found in the stabalisation of the US housing market, until then watch for many, many more banks to follow both Northern Rock and now Bear Stearns into financial oblivion. For the latest on the Credit Crisis subscribe to our free weekly newsletter.

Your hard assets investing analyst

By Nadeem Walayat

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article if published in its entirety, including attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

Comments

Post Comment (Moderated)

Subject:

Name:

E-mail address (will not be published):

Comment:

Commenting Issue - If on submitting you are returned to the main Index Page (50% chance) then your comment has not been accepted, Follow below steps for 95% chance of comment being accepted.

Click your browser Back button (from main index page).
COPY your comment text from Comment box (i.e. copy to clipboard).
Press PAGE Refresh - You should see the message "You are not authorized to carry out this operation"
Paste your comment back into the comment text box.
Click Submit - If everything goes okay you will remain on the article page with the message "Your comment was held for moderation and will be reviewed shortly".
If instead you are again returned to the main index page then repeat 1-5, alternatively EMAIL to comments @ marketoracle.co.uk quoting the article number.

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2011 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.