Housing Doom Housing Bubble Blog

From Yahoo Finance this morning:  [Thanks L!]

Bear’s stock has popped to $10, now that the Fed has caved and Bear and JP Morgan have announced a new, higher-priced deal.

What does this mean?

Among other things, it means tha all that jawboning from Treasury Secretary Hank Paulson last week about how the government wasn’t bailing out Bear Stearns was a bunch of hooey. The Fed and the Treasury Department gave Bear and JP Morgan shareholders a $30 billion gift from taxpayers. And the moment Bear Stearns realized that all the crap on its balance sheet had been transformed into a Treasury Bill, it, sensibly, demanded more for itself.

And why shouldn’t it have? When the Fed suddenly guaranteed Bear Stearns with the full faith and credit of the US government, it became worth more. Specifically, it went from being worth zero to at least $10 a share.

And now US homeowners, justifiably, will scream that the government cares more about Wall Street fat cats than it does about the Little Guy. And the Fed and Treasury will have to start scrambling to put together a plan to buy everyone’s house. Welcome to Bailout Nation.

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Many thanks to "Rational Expectations"  who sent us the following image and explanation:

The mood on Wall Street seems akin to that on the USS Abraham Lincoln soon after the invasion of Iraq.  My abilities  with graphics packages are not very good, but perhaps you will see the irony.  Mission accomplished!!

I hope Doomers enjoy this one as much as I did.  We’ll see how long the euphoria lasts.

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There were three interesting articles recently on Bloomberg, all speculating on MBS purchases by the Federal Reserve.

First there’s the case for "Maybe they will" today:

Forget lower interest rates. For the Federal Reserve to keep the financial markets from imploding it needs to buy troubled mortgage bonds from banks and securities firms, say the world’s biggest Treasury investors.

The only tool left may be for the Fed to help facilitate a Resolution Trust Corp.-type agency that would buy bonds backed by home loans, said Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co. While purchasing the some of the $6 trillion mortgage securities outstanding would take problem debt off the balance sheets of banks and alleviate the cause of the credit crunch, it would put taxpayers at risk.

 The Fed denied the possibility a few days ago:

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