Too big to fail?

[Celebration]

http://www.247wallst.com/2008/03/jp-morgan-ny-fe.html

Bear Stearns Co. N(NYSE: BSC) is getting a reprieve this morning. JPMorgan Chase (NYSE: JPM) and the New York Fed have provided liquidity financing for 28 days to the struggling brokerage firm. This will allow Bear Stearns funding as needed.

There has been a run on the bank over at Bear Stearns over counterparty risk concerns and over its liquidity concerns. Part of the announcement also notes that Bear Stearns is also talking with JPMorgan Chase & Co. regarding permanent financing or other alternatives, although no assurances can be made.

Bear Stearns has been getting a liquidity crunch over the last week that culminated over the last 24 hours. This is a bailout for all practical purposes. If you want to know what the brink of disaster looks like at a major financial institution, this is it.

Bear Stearns closed at $57.00 yesterday. The initial reaction looked like this was going to open up 5% to 10%, but now shares are down around $54.00 or $53.00 in early indications.

Pretty good coverage on all this with Mark Haines on CNBC--not trying to sugar coat all this.

Bear Stearns is now down 25%. Bear Stearns is not allowed to fail because putting their asset portfolio up for bid could cause a cascading, domino effect on other investment banks. Believe me, the Fed would not be coming to the rescue if there was any other alternative.

[Common Sense Party]

1. "Capitalism without failure is like religion without sin."

I can't remember who said that, but it's true. Some companies NEED to fail, to serve as a wake-up call to others that actions have consequences.