I don’t really comment very much on the markets…mostly because I don’t know very much - it’s more of SushiAttack’s territory.  Plus, this is where reading the Economist for a year probably really would come in handy, but as mentioned previous I don’t do that either.

But big news today, Bear Stearns, a fortune 500 brokerage firm with a market cap of over $7 billion (before today at least) required what was probably a huge bailout by the Fed.  The details of this bailout are kind of complex…it was done through JPMorgan, and used a somewhat obscure Fed rule last enacted over 40 years ago.

The trouble for Bear Sterns started in mid 2007 when a couple of its hedge funds registered huge losses and basically ran through a bunch of cash.  Now normally, Bear Sterns has a lot of money coming in through investments and loans, and a lot of money going out for interest payments, investments and the like.

But once Bear Sterns started to show a bit of weakness, lenders bailed.  That means not so much money coming in, lots of money still going out.  Not only that, but once word of Bear Sterns’ liquidity problems surface, then lots of people withdraw their money - your classic run on the bank…that means more money going out, and eventually insolvency.

Normally a brokerage firm going under would be a pretty big deal, but it wouldn’t merit the Fed’s intervention.  But over the past several months Wall Street has grown increasingly antsy at problems with the credit market.  From what I understand this all stems in one way or another from sub prime mortgages and how overzealous lending has created a credit crunch.

It seems the Fed didn’t want to have Bear Stearns go under.  It’s one of the largest brokerage firms in the world, and with everything else going on with sub prime mortgages that would mean a very bad summer for Wall Street.

So, bailout.  Apparently the Fed is lending money to JPMorgan, which is then going ahead and lending money to Bear Sterns so they actually have some cash on hand to pay debts and hopefully secure additional financing.  No one knows how much money was infused by JPMorgan, but you can bet it’s lots and lots.

And this doesn’t mean Bear Sterns is out of the woods yet.  The company says its problems are a result of FUD, not actual financials.  But now, it’s about financials and who knows when people will want to invest in the fund again.  Plus, even when the do the company will probably need a nice enticing interest rate, which means less profit.

Really, this comes at a pretty bad time for Wall Street.  After penetrating the 14,000 mark in October 2007, the dow is back around 2006 levels.

I think it’s pretty interesting that the Fed is taking such a hands on approach with the mortgage crisis.  I don’t think I’ve seen this before - it’s not really Greenspan’s style, I don’t think, but it’s encouraging that they’re at least doing something.  If they do avoid a huge dot com style bust this would be a huge win for Fed Chairman Bernanke.

All I know is that despite my best efforts, I wasn’t able to get casino credit in Vegas.  When casinos won’t lend you money to lose, you know there’s a storm brewing.