Fed's rescue halted a derivatives Chernobyl

[robertpaulsen]

Fed's rescue halted a derivatives Chernobyl

When the Federal Reserve stepped in to save Bear Stearns, most people had no idea what was at stake, writes Ambrose Evans-Pritchard

We may never know for sure whether the Federal Reserve's rescue of Bear Stearns averted a seizure of the $516 trillion derivatives system, the ultimate Chernobyl for global finance.

"If the Fed had not stepped in, we would have had pandemonium," said James Melcher, president of the New York hedge fund Balestra Capital.

"There was the risk of a total meltdown at the beginning of last week. I don't think most people have any idea how bad this chain could have been, and I am still not sure the Fed can maintain the solvency of the US banking system."

All through early March the frontline players had watched in horror as Bear Stearns came under assault and then shrivelled into nothing as its $17bn reserve cushion vanished.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/23/ccfed123.xml

[sam sarrha]

1. big need to regulate that gambling addict bullshit..

[autorank]

2. K*R Good post...Headline should have been...

"FEDS POSTPONES DERIVATIVES CHERNOBYL FOR A MONTH OR TWO"

The $516 Trillion is just the Over the Counter derivatives. With the side deals and private deals, it's supposedly up to $1000 Trillion dollars in face value derivatives.

These are clearly useless paper. They should be taxed so the full market is known then retired,
along with the gangsters who run the financial "markets."

[bluesmail]

7. yep, just delaying the inevitable.

buying time to think of another good-sounding scam to sell us American people.

[truedelphi]

9. Oh c'mon, Mr Rank - don't you know these surges are working!! n/t

[On the Road]

3. Great. I Agree.

Hopefully this will be enough to prevent the worst. Frankly, I cant understand rooting for a collapse of the financial system, as some people here seem to be doing.

Now, there have to be some controls introduced on derivatives to prevent this from happening next time. Should be end of discussion on the need for regulation of this type of firm.

[ljm2002]

10. I find it hard to understand...

...those who do *not* root for the collapse of the current system.

Sure, many of us will be hurt, myself included. Well, at least that is the assumption. But a rigged system such as the one that we have worldwide today, that is tipped for the big guys such that all money tends to flow in that direction, and that allows for a derivatives market to circulate many, many times more money that is actually in existence -- it's a damned shell game and its only function at this point is to ensure a privileged life for the few, on the backs of the many.

So what if one day we all just said, I won't play this rigged game anymore. Sure it would be annoying for those who played by the rules and did fine, being wise about how they handled their money -- and I do sympathize. But the botton line is, this system is no longer set up (if indeed it ever was) to provide a better life for the most people. No, it is now set up to entrench the oligarchs. And as such it deserves to be destroyed and rebuilt.

Why do we humans who create these systems, think that somehow they cannot be changed? And why do we gnash our teeth at the thought of "destroying" the system -- at the same time allowing the disgusting display of greed that is Wall Street and its minions, who are the ones who are really destroying the system, at the same time they rake in the dough.

The corruption of the financial systems is profound, and when something is demonstrably rotten, what do you do with it? I toss it -- or use it for compost.

[Doctor_J]

11. Heh. Amen.

The financial system needs to be ground up into ashes and scattered to the wind, just like the Bush administration. It's only by that first step that we can begin to reclaim our democracy.

[Mountainman]

4. How would this hurt someone who is not an investor?

I keep hearing that the financial market's health effects us all and so we help out them and screw us.

If we're screwed no matter what, who cares? It sounds like more trickle theory to me. It seems to me the wealthy investor class is more important to the fed than we are. (oh I forgot, we are getting $600 to spend)

Suppose they took 30Billion and bailed out the housing market, bought people ARMs and then gave them better credit terms that could afford. I think the economy would improve because the housing problem would be solved and spending would increase.

I see no real benefit to a working class slob like me. I wish someone would give me the scenario of Bear Sterns collapse and how the would effect us all.

[robertpaulsen]

5. You're right, they do care more about the investor class than the working class.

But that doesn't mean we won't get hurt either way. Recession is here; the question is how steep will it be?

[burythehatchet]

6. it would crush many of us regular folks

watch this vid and you should understand why...
http://www.brasschecktv.com/page/187.html

[Doctor_J]

8. I think they mean they passed it on to the taxpayers,

thereby putting off the collapse by a few months.

[Doctor_J]

12. Isn't the Telegraph a Murdock rag?

If it's good for Rupert, it probably sucks for the 99.99% of the people who aren't as rich as he is.

[yurbud]

13. Morgan controls a SIXTH of the global market? That's insane.

But JP Morgan is already up to its neck in this soup, with $77 trillion of contracts. It will now have $90 trillion on its books, a sixth of the global market.