Freezing in NH

The NYTimes has an interview with Paul O’Neill, former treasury secretary.  Worth reading just for the tone.  I did have to check that it wasn’t an April Fool’s joke.

Do you think it was appropriate for the Federal Reserve to lend a helping hand to Bear Stearns and save a private investment company from its own bad decisions? I would say they didn’t save Bear Stearns. They saved the financial system from a panic collapse. I reject the notion that they helped Bear Stearns. Bear Stearns was destroyed.

No it wasn’t. It was purchased by JPMorgan, which will keep it alive. They’re going to keep the book alive. But the institution of Bear Stearns has been destroyed. They’ve gone from $158 to $2 of equity. It’s wallpaper. It’s not even good wallpaper. It’s butcher paper.

He has a great analogy explaining why no one can get a mortgage when only a small percentage are defaulting.

If you have 10 bottles of water, and one bottle had poison in it, and you didn’t know which one, you probably wouldn’t drink out of any of the 10 bottles; that’s basically what we’ve got there.  

And that about sums up the whole crisis.

This entry was posted on Friday, April 4th, 2008 at 10:35 am and is filed under articles, housing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.