Deflation in our times

“Technically the Fed bailed out JP Morgan (JPM) not Bear Stearns (BSC). The Fed was very afraid of a derivatives cascade, and the Fed made JP Morgan whole on swaps it was holding on Bear Stearns. At $10 per share its pretty tough to argue Bear Stearns was bailed out. Employees darn near lost everything.

“I agree with Noland that an immediate deflationary collapse was prevented when the Fed bailed out JP Morgan.

“Noland gives far too much credit to the Fed. Postponed Is Not Prevented. It took three lending facilities, interest rates at 2.25%, and a rescue of JP Morgan to stabilize the markets. The cost was zombification of banks. Bernanke will soon have to face option arms, increasing numbers of walk-aways, a commercial real estate implosion, rising unemployment, mounting global tensions, and European displeasure over the Euro.”

Mish

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