I blogged before about how the US economy looked pretty dire, due to the recession sparked by the credit crisis stemming from sub-prime loans late last year. Well it looks like things have gotten even worse. Today, JP Morgan Chase, a large Wall Street bank, acquired Bear Sterns, a previously well reputed Bank, that played a large part in the sub-prime mortgage crash.
JPMC got Bear Sterns at $2 a share, its previous value was over $150. Thats outrageous. It appears that other major lenders are also hitting the wall. Even in little old NZ, the liquidators are having trouble divvying up the assets of Blue Chip. The end result of all this is that more and more Banks appear to have shaky legs in the US market. There could be even more worrying times — that are approaching sooner — than we think. Without functioning and reputable banks producing credit, commerce is going to grind to a sickening halt.
The acquisition for Bear Sterns at such a low price by JPMC shows just how low these great banks have fallen, and it also elucidates how heavily the US market is relying on cash injections from the Federal Reserve to inflate their economic outlook. This is unsustainable in the long run, and as Joseph Stiglitz so rightly said in his talk at the Micheal Fowler center last Friday — they just need to keep it ticking over until the end of November.
That they do, whether they can, before the entire pack of cards falls down around us is a different question. Until then, ponder the amount of money already lost by large American Banks. (Hat-Tip, BBC World Service)
Citigroup: $18bn
Merrill Lynch: $14.1bn
UBS: $13.5bn
Morgan Stanley $9.4bn
HSBC: $3.4bn
Bear Stearns: $3.2bn
Deutsche Bank: $3.2bn
Bank of America: $3bn
Barclays: $2.6bn
Royal Bank of Scotland: $2.6bn
Freddie Mac: $2bn
JP Morgan Chase: $3.2bn
Credit Suisse: $1bn
Wachovia: $1.1bn
IKB: $2.6bn
Paribas: $197m
Yeah, we are pretty much sunk.