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Fed shows the chancellor how to do it

We recently heard the news that troubled investment bank Bear Stearns has been snapped up at the heavily discounted price of two dollars per share by JP Morgan Chase.

The takeover was part of a rescue plan backed by the US Federal Reserve. It was accompanied by a government loan facility at a newly discounted rate with a significantly extended loan period.

But the Fed’s action had an unsavoury side effect. The fact that the US government took such drastic steps triggered negative sentiment across the world and led to a slump in global share prices.

European and Asian stock markets fell heavily in reaction to the news and on March 17 London’s FTSE 100 index touched as low as 3.5% down. In Paris the Cac 40 slumped 3.2% and in Frankfurt the Dax fell 3.8%.

At the time of writing the full implications of the Bear Stearns situation are still unclear but it has the potential to get much worse.

The stark reality is Bear Stearns is Wall Street’s fifth-largest investment bank. Had it not been bailed out it would have faced a run on its credit agreements, with its collapse the inevitable result. Such a disastrous scenario would have hit stock market confidence even harder.

Although the action taken by the Fed has led to fiscal turbulence, I believe that things aren’t quite as disastrous as the media hype would have us believe.

Of course I agree that things are bad, but the one saving grace is that the US government reacted quickly to the crisis.

Following the revelation of Bear Stearns’ difficulties on March 14, the Fed held a series of emergency talks over the weekend and enacted its rescue plan on March 17.

Compare this to the Northern Rock fiasco and the months of deliberation, discussion and finger pointing undertaken by chancellor Alistair Darling.

There’s no doubt that those who display a degree of decisiveness and certainty are those who instill the most confidence in their decisions.

Although the action taken by the Fed may be thought of as rash by some, I think it was decisive and in my opinion this can only help to restore confidence. Right now this is exactly what we need.

Recommended appoints consultant

Secured loan packager has signed up Ray Ronan as a consultant to help develop new relationships within the intermediary market.Ronan has been in the financial services market for over 20 years in development roles, latterly with Access Loans and Mortgages.Ronan says: “The state of the market means that more than ever intermediaries need to […]

Commercial 1 appointed exclusive provider to CMG

Specialist brokerage Commercial 1 has been appointed exclusive provider of a raft of loans and mortgages to Connect Mortgage Group’s brokers.The broker will now provide network secured loans, commercial mortgages and bridging finance to CMG’s brokers. The deal means that CMG’s network of brokers will have access to Commercial 1’s customer relationship management technology ifinance.The […]

Over 2,000 products withdrawn this month

Lenders have withdrawn over 2,000 products in the past month, says Harvey, mortgage analyst at, says smaller building societies that had escaped much of the pain of the liquidity crisis are now being affected with full out withdrawals replacing increases in rates or tightened criteria.She says: “It seems that there is no stopping […]

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England vs Australia: pensions

Well, the cricket season is here, and England and Australia are stepping up to the wicket. Although we compete with each other in the sporting world, when it comes to pensions, Australia’s pension programme is held up as a model for our auto-enrolment initiative. Auto-enrolment was introduced because people weren’t saving enough into their pensions, and it is still early days but signs are positive. However, in Australia, saving into a pension is compulsory, and in fact employers are the ones who have to pay in. Employees in Australia can make additional contributions into their pensions, but they don’t have to. Should the onus be on the employer or employee to save? Well in the UK we think it’s both, but to get ‘adequate’ savings for retirement it’s the employee who has to pay more in.


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