I take absolutely no pleasure in Bear Stearns implosion. Keyne's dictum that it is not the banks borrowers going bust that destroys banks, it's the cutting off of it's lifeblood - cash - still holds good. In Bear's case the Fed has rightly seen that a collapse by it would create far too many problems for it to be able to stem the systemic tide. The Bear will be sold off within a very short space of time ( why would anyone go back to trading with it?) and life will go on, albeit at a reduced level. The Bear was one of the brokers giving hedge funds money. That's stopped too. We are back with cash is king .
I heard two stories last night at a dinner. The first was from a senior Royal Bank of Scotland executive, who said they had not changed their lending criteria one jot or tittle in the last two years. People's perceptions had changed, so that those who expected to get 100% or 95% or whatever, were shocked to discover they could only get 75%. In a sense this is the real disaster of the last few years where self-certified mortgages and 125% loans were increasingly common - people will long harbour a grudge against the ( solvent) banks who only ever lent reasonably prudently. " If Northern Rock could give 125% why not RBS?" HMM yes well, perhaps no reply is needed.
The other was much more interesting. A senior fund manager and his son, also a fund manager and in charge of the family's finances, at the start of 2007 instructed their bankers to turn all their cash into physical gold and Bank of England securities. You may think this is easy, but actually getting physical gold in significant quantities ( as opposed to deposit receipts etc etc) is not that easy. And BofE securities as opposed to Bank deposits are seriously hard to acquire.
You may think this is a little extreme.
But coming from where it does, and since yesterday on Wall Street, I wish I'd done the same.