Clarkhoward Home

Mon-Fri 1-4pm ET
Stations near you | help

Video Minute Archives
Daily Audio Archives
Rip-off Alerts
Call of the Week

Today's Show Notes
Previous Show Notes
Clark's Greatest Hits
Free and Cheap

Ask Team Clark
Call 10am-7pm ET
(404) 892-8227

Member Center
Blogs
Newsletters
Message boards
Meet the Team

Appearances
Books
Photos
TV
Talk to Clark 1-4pm ET:
(877) 87-CLARK or
(404) 872-0750

Advertisement
Ask Clark  Looking for something on the site? Search for it here!  Also see Clark's Greatest Hits
help

Market perspective: Lions, tigers and Bear Stearns! Oh my!

CLARKONOMICS: The financial activities of the past weekend and the collapse of overseas stock markets highlight that the world has lost faith in U.S. markets, banks and brokerage houses. Bear Stearns -- a company not really familiar to most Americans -- lost 99% of its value, and the Federal Reserve worked all weekend to engineer JP Morgan's bailout purchase of the company using taxpayer money.

So what's going to happen next? No one knows. The Fed's moves have paradoxically been both not enough and too much. Our financial markets got into trouble bit by bit, with idiotic mortgage lending and other practices. Bear Stearns was involved in structuring, which is really like selling garbage with a bow on it. Here's an example: Say that Christa wants to buy a home. She goes to Clark's bank to borrow. Clark lends her the money, but he isn't sure she'll pay back the loan. So Clark turns around and sells off Christa's loan to Joel's brokerage house, which offers to pay 95 cents on the dollar. But Joel doesn't think Christa will pay either, so he bundles her loan with thousands of others like it and markets them to individual investors and big institutional investors. That, in a nutshell, is an explanation of the mortgage securities market. The individual loans became hot potatoes and people suddenly started getting burned.

So here we are as Americans with excessive debt; a government taking on debt like crazy; and the Federal Reserve trying to pump money into the system, which sends the dollar into the toilet and starts a vicious circle. Consider this: People who don't use U.S. currency are not paying high gas prices. So why are we? Simply put, it now takes more U.S. dollars to buy the same barrel of oil thanks to the Fed devaluing our currency. If all this negativity sounds awful, realize that it's all part of capitalism. Relief will come, but it will be a very slow process.

Unfortunately, Clark won't be able to answer any questions submitted via commenting. If you have a question, please try posting it to our message boards.

Add your comment

Security Image * Please enter the code shown at left
what's this?

What others are saying

  • Bear Stearns
    It saddens me to see on Clark Howards website such a poorly informed and written article. Clark mentions that Bears Sterns was "bailed out" with tax payer money. Now I agree with Clark that taxes should not be used for this but what the article, Clark and his website writers failed to realize was that the INVESTORS got nothing! The bump from $2 to $10 was to hopefully avoid lawsuits. $2 was a kind gesture when the firm was probably worth negative amounts.

    Who did they actually "bail out"? All of the Bear Stearns customers who would have seen their share of MSFT, IBM, and Mutual Funds share go INSOLVENT! Thats very bad for the econimy, the dollar, and the United States. Fearing this the Fed took action. The only real winners are the people with accounts at Bear Stears that had $100 cash still have $100 cash. Thats it!

Advertisement


This week's poll
Which of these recent rip-off alerts shocked you the most?
Campuses taking kickbacks from health insurers.
AT&T settling a lawsuit over 3rd party billing charges.
Online loans coming with interest rates as high as 2,000%.
Scamsters pretending to collect funds for flood-relief charities.
All of the above.
None of the above.
see previous polls


Advertisement