Bear Stearns - anyone else worried? Any thoughts or predictions?

[Callisto]

I must admit that this has got me quite worried and the effects are being felt globally as the Asian stock markets have fallen. What does everyone else think?

Why don't we just follow the Zim example and just print more bank notes!!

I find it amazing if people have been caught out by this news of this downturn...

Big profits don't just materialize from nothing - something has to give ...

"what are they planning to do when they can't actually cut rates further"

I think we might find out

yes, agree, Upwind!

The really bizzare thing in all of this, inside the banks themselves the execs are still demanding that desks hit returns of 15%-20% or more per annum. Now I won't go into the maths (as that bit is distinctly NOT VERY EXCITING), but basically if you don't want to take big risks then you aim for returns of around 8-10% max - that is plenty more than you would earn at what is called the risk-free rate. Yet people are still chasing much higher returns, and you simply cannot get those kinds of returns without takign the higher risks (yep, just like those which have backfired so spectacularly). If the banks don't start reducing their risk (and returns) then the roundabout has to come to a halt - it only goes on whilst central banks throw in lifelines (which they are doing at the moment in terms of liquidity). It can't last for ever. When it does all unravel it will be ugly because the cheap credit in turn financed the corporates who in turn were able to expand and keep GDP growth going; the effect over the last few years is that banks & corporates have hit the double-digit returns and their shareholders have benefitted (so creating a golden circle whcih has meant they can then borrow more cheap money and fuel retunrns again), now is payback time. banks (and, in turn, companies) will start producing lower returns and the economy will slow which will be horribly painful for all of us but essentially is inevitable for mature economies - it's like the house boom of the last few years: great, but now needs correcting back to more sustanable levels. Only trouble is no-one running the banks seems to be thinking along these lines - everyone is still being told to chase the big bucks that are no longer there.

All very interesting views on this thread. I want to single out cestlavie's post a little further down as being a good explanation, I agree with that.

Squiffy, I like your point about the banks still requiring their bankers to chase the high returns. Certainly, one of the issues for regulators of banks (like the FSA) is the concern that the way in which the remuneration of bankers is currently structured is in such as way as to create a moral hazard of chasing short term gains over long term sustainability of their investments.

In the mortgage market, the practice of banks 'originating-and-distributing' their mortgage books meant that the banks that lent the money did not ultimately carry the risk on their books. So there is no incentive for an originating bank to be overly thorough in their risk assessment of the customer if ultimately that bank is going to sell off that mortgage to another institution. One of the reasons how the sub-prime market has been able to grow so significantly in recent years.

Tonights newspaper reporting rumours that the B of England are intervening to prop up HBOS/Halifax...