Mortgage Meltdown: J Pierpont Morgan, Where Are You Now?

Bear Stearns Deal and What it Means

In the absence of someone filing the leadership vacuum now, we must use the rules of civil procedure to slow down the foreclosures, evictions and bankruptcies. We need breathing room if we are to avoid a depression, or if one is coming anyway, to at least keep it as shallow and short as possible.

The sale of Bear Stearns at $2 per share, when it was selling recently at $170 is not merely a number, or the story of one historically important company gone bad. It is the story of an industry gone bad, without any current footing, none in sight, and a complete vacuum of leadership. $2 was a gift and the money coming from the Federal Reserve is also a gift. The fact remains that these bailouts, mergers and emergency capital infusions are still part of the problem and not the solution. For 3 years, everyone has had their heads stuck in the sand pretending that nothing bad was happening. 

The issue is trust, confidence, and competence. And those issues have spread from just the public viewing the financial markets to each of the players viewing each other. As JP Morgan, the person, knew, character and trust were the key components of any successful economy and the foundation of well-functioning financial markets. JP Morgan may exist as a company, but there is no JP Morgan who can leverage the power of his person-hood against a rising tide of distrust, ankle-biting and outright fear and panic. The fact that the media is only referring to a run on Bear Stearns generically only stokes the fires of distrust, and at best sweeps deep structural problem under a carpet with no room left to hide the debris.

It was good that SOME agreement was reached with respect to Bear Stearns, but what are we going to do with the rest of the companies that are going to go under? Right now the answer is nobody knows and possibly nothing at all. We are in free fall which is otherwise known as a crash. The only hope is leadership and consensus. That there is no apparent credible leader with the power of J Pierpont Morgan, is an indication that there will be no consensus. Morgan averted a similar crisis 100 years ago — but only because he was respected, he kept his focus on the good of the country, and he exercised enormous influence over government and industry.

The leader must be someone who is known, trusted, and who has the interest of the country at heart. He or she must be competent and knowledgeable in financial instruments, and down to earth enough to understand that the agreement reaches everyone affected, not merely the financial players. Besides Warren Buffett, I don’t know anyone who can come close to that definition. And I don’t know for sure if he is actually up to the task. 

In the absence of someone filing the leadership vacuum now, we must use the rules of civil procedure to slow down the foreclosures, evictions and bankruptcies. We need breathing room if we are to avoid a depression, or if one is coming anyway, to at least keep it as shallow and short as possible. 

Or we can wait for political and legislative and judicial solutions later. If we do that, we are certainly looking at another 18 months of downward spiral. With that kind of timeframe, the dollar will lose at least another 40% of its value, oil will easily surpass $200 per barrel, at least another 25% of existing financial institutions will “go away”, the economy will slip into actual decline, joblessness will increase geometrically and inflation will not be less than 15% per month. 

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