Tuesday, March 18, 2008

BANK CRISIS 2008 | After Bear Stearns Do We Need Brady Bonds?

March 18, 2008–The Fed's intervention in the Bear Stearns distress was presaged on November 8, 2007 when bank announcements of billion-dollar writeoffs were being announced with an air of finality while analysts like Bob Janjuah of the Royal Bank of Scotland were saying that the losses would soar to $250-$500 billion.

That November day, Chairman Bernanke told Congress to expect "temporary" slower growth and higher inflation.

How long is temporary? The overnight 97.5 percent cut in Bear Stearns's valuation (from $80/share book to $2/share sale price) may hasten whatever markdowns and recapitalizations are still needed in other financial institutions. Brady Bonds could help unfreeze the credit markets.

(More: John Tepper Marlin, Huffington Post, After Bear Stearns: Brady Bonds.)