Things are not getting better…

For those of you who haven’t been paying attention to the financial markets in the past week, let’s just say that when Dubya finds some BS adjective like “troubled” to describe America’s economic state, he really means that the general situation is continuing to deteriorate. Let’s look at some of the grim reading…

  • Practically every day saw headlines to the effect of “Dollar falls to record low against yen/euro/swiss franc/baht” (well, I’m lying about the baht, maybe). Bloomberg has now gone so far as to call the dollar situation a “vicious circle of doom”. Apparently the Fed is talking more rate cuts today after the Bear Stearns debacle (see below), just what the dollar needs to continue plunging to new stomach-churning depths.
  • Everyone’s heard about the complete implosion of everything related to subprime mortgages, right? Well, last week, the ensuing panic completely destroyed an investment fund that had nothing to do with subprime mortgages at all – Carlyle Capital Group, a fund investing solely in what have been thought to be the safest, most conservative mortgages from Fannie Mae and Freddie Mac, defaulted on $17 billion dollars worth of debt, leading its creditors to foreclose on all its assets and leaving its shareholders with essentially nothing.

  • Ever heard of Bear Sterns? They are (soon to be “were”) one of the five major investment banks in the country, making them a pretty key part of the whole financial system. Their stock was trading at $159 last summer, and while it had fallen substantially up to last week, to $60 or so, not everyone believed the rumors that it was in dire trouble. That all changed big time on Friday – Bear announced that it was tapping an emergency line of credit provided by their competitor JP Morgan Chase, which was basically lending money that the Federal Reserve gave it to try to stave off a new and terrifying wave of panic in the financial markets if Bear were to collapse. The stock market was distinctly unamused – it ended the day “only” down 194 points, after dropping more than 300.
  • Matters don’t seem to have improved at all with the latest news, that Chase is going to go ahead and just buy Bear Sterns outright. Remember that $159 stock price Bear traded at last year? It last closed at $30, a huge drop – but Chase is purchasing the company for the paltry price of $2 a share. That’s pretty horrific, especially when you consider that their employees own 1/3 of the company. Stocks in Asia have plunged on this latest bit of scary news.
  • Those of you in college may be thinking, “Phew, I’m glad I’m not invested in anything!” But the great part about this crisis is that you, too, may end up screwed. No one wants to lend money to ANYONE these days, or invest in the loans (collateralized debt obligations are about as attractive as Kryptonite these days), and student loans could be next in line for the crunch. If you need more student loan money, now might be an excellent time to apply for it, while you still can.

Can someone tell me where the “panic” button is?


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