Sunday, Bloody Sunday...adding to an already insane level of volatility
was yesterday's coordinated action by the Fed and JPM Chase to bail out
troubled investment banker and huge sub-prime holder Bear Stearns. Bear
Stearns was the number one buyer of sub-prime loans, with a huge
appetite for this type of paper- their greed for fees pushed them to buy
sub-prime transactions with both fists, and this strategy has come back
to haunt them.
In addition to the Bear Stearns news, the Fed was also buys slashing the
Discount Rate by .25%, bringing it to 3.25%. This is the first time the
Fed has taken this type of weekend action in nearly 30 years.
Tomorrow's FOMC meeting should produce a .75% cut to the Fed Funds rate
bringing it to 2.25%, thus lowering the Prime Rate to 5.25%.
Remember, as Bond prices move higher, mortgage interest rates move
lower.
