The First Casualty

For the past several months I've been warning of strong possibility of an upcoming depression. On Friday, the Wall Street investment bank Bear Stearns became the first major casualty of the Great Depression of this century. The Federal Reserve, the US central bank, is leading a desperate struggle to prop up one of Wall Street's largest and most historic investment banks, as the credit crisis threatened to spiral into a full-blown banking crisis. The Federal Reserve agreed to offer financing for a proposed buyout from JP Morgan Chase bank and accept $30 billion of Bear Stearns' illiquid assets as collateral. Fed chairman, Ben Bernanke, who pumped $200 billion of loans to cash-strapped institutions last week, said more would be available to help others in distress.

Clients and trading partners have been pulling their business from Bear Stearns in accelerating numbers since rumors about its solvency began circulating earlier last week, it became clear that the end was near. In a rushed conference call with investors Friday afternoon, the company's management warned that its emergency lending facility with the Fed had so far failed to staunch the bleeding.

The proposed takeover by JP Morgan Chase, which is pending shareholder approval, would net investors 0.05473 shares of JPMorgan for each share of Bear Stearns. Nearing Monday's close, JPMorgan shares were at $40.52, making the deal worth almost $2.22 a share, for a total of just below $262 million.

Bear Stearns plunged 84% on the news, with investors up in arms over the severely discounted price. Billionaire Joseph Lewis, a key investor in the troubled investment bank, who pumped about $1.2 billion into Bear Stearns late in 2007 at what appeared to be bargain-basement prices, stands to lose over a billion dollars.

Meanwhile, one UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The Fed's emergency funding procedure was first used in the Depression and has rarely been used since.

In the UK, Michael Taylor, a senior market strategist at Lombard, the economics consultancy, said on Friday night: "We have all been talking about a 1970s-style crisis but as each day goes by this looks more like the 1930s. No one has any clue as to where this is going to end; it's a self-feeding disaster." Mr. Taylor, who had been relatively optimistic, has turned bearish: "It really does look as though the UK is now heading for a recession. The credit-crunch means that even if the Bank of England cuts rates again, the banks are in such a bad way they are unlikely to pass cuts on."

European shares tumbled by more than 3 percent early on Monday as a distress sale of Bear Stearns pushed rattled investors to dump financials, fearing a spreading contagion across the banking system.

Obviously, as I've been pointing out for months, there will be many problems with the economic storm that has been brewing. Bear Stearns is just the first of many banks that will have to close their doors. We will be examining in more detail the effects of these problems this week and the conditions that have led up to the problems. Ultimately though, this is all part of a planned event by the international bankers that run the World Bank and International Monetary Fund (IMF).

For a brief history of the international bankers, see recent posts in this blog starting on Monday, January 28, 2008.

He replied: "Watch out that you are not deceived. For many will come in my name, claiming, 'I am he,' and, 'The time is near.' Do not follow them. When you hear of wars and revolutions, do not be frightened. These things must happen first, but the end will not come right away.

"Then he said to them: "Nation will rise against nation, and kingdom against kingdom. There will be great earthquakes, famines and pestilences in various places, and fearful events and great signs from heaven. Luke 21:8-11 (NIV)

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Email: DeltaInspire@panama-vo.com