The US suffered two Northern Rock style crises last week.
Firstly, U$22bn hedge fund, Carlyle Capital Corporation, collapsed as all 14 of its creditor banks called in their debts.
Even more dramatically, Bear Stearns sought and received emergency funding from the Fed in conjunction with JP Morgan on Friday, and by Sunday had been sold to the latter for U$ 2 per share. This values Wall Street’s fifth largest bank at barely 1% of it’s market value just two weeks ago.
Other than the obvious concern at two financial giants finding themselves in such difficulty, this presents a worrying new turn in the credit crunch, as both catastrophes can be linked to the collapse of prime mortgage-backed securities.
The fact that even these might be seen as insufficient security could spark a whole new squeeze on mortgage finance. Other Wall Street giants such as Goldman Sachs report Q1 earnings this week and are expected to show that even the strongest are no longer immune for the fall out.
In the UK a Bank of England survey showed that inflation expectations jumped to 3.3% during February; inflation figures released on March 18 will hopefully prove less dramatic.
Minutes from the last MPC meeting are also published this week. Although most economists still believe no change in April is the most likely scenario, last week’s events across the pond must increase the possibility of a cut.