Too Big To Fail? Federal Reserve Intervention - Bear Stearns Cos!

Real estate is dominated by the talk of sub-prime, but few of us in real estate know that much of the sub-prime debacle we deal with today is a direct result of the two hedge fund failures in Bear Sterns Cos last summer!  I follow the stock market everyday and today was a roller coaster ride led by the announcement this morning from Bear Stearns Cos!   This was a run for cover maneuver at the edge of the cliff!  It is a major confidence issue that without a Federal intervention would have spilled over into the foreign markets. A Federal intervention of this size has not been seen since the 1930's!  The problem?  The rumor mill had mentioned they were having a liquidity problem for the last few weeks, and even though Bear Stearns Cos said there was no problem, obviously there was!  Where there is smoke, there is fire!  This is a prime example of the credit crunch everyone is talking about these days!  Credit is not liquid these days, and institutions  that have mortgage backed securities  cannot buy or sell their assets!  When they cannot borrow money or lend money it is a stalemate!  Banks are out of business when they are frozen.

What is scary about this is that Bear Stearns Cos is really a bank's bank!  Bear Stearns Cos is the 2nd largest underwriter of US mortgage bonds and without assistance from the Federal Reserve and JPMorgan Chase & Co Bear Sterns would have disappeared this weekend.  Bear Stearns had 2 hedge funds collapse due to sub-prime last summer that led to much of the decline we are now seeing in our real estate business.  Bear Stearn's Cos melt down is directly related to the sub-prime mortgage mess we are in.  It will be interesting to see next week and the coming months how this affects us in real estate.  Banks and bank issues are interrelated, an since Bear Stearns was a big player in mortgages there will be major ramifications...just how they will impact us in real estate remains to be seen.