On Friday Bear Stearns, one of the largest investment banking firms in America, became illiquid. They had over 7.7 billion dollars of assets but they could not find enough buyers of these assets to pay their margin calls. Even the discount window at the Federal Reserve didn't help enough. So in the end JP Morgan Chase will buy Bear Stearns for $2.00 a share. A total cost of $236 million dollars, only 80% of the value Bear had last week.

This is all an overreaction to the sub prime lending crisis. Let me be clear the subprime market was and is a crisis, but it will run it's course and be over by 2010. What we are seeing now is bonds sold by Fannie Mae and Freddie Mac being passed over for commodities! Good debt that used to be the second safest place to put your money is now taboo. And why? All because of fear of delinquencies in the best mortgage backed securities. Your mortgage is probably in the same pool that investors are unwilling to buy. Not the poor sap that did a two year adjustable at 100%. People like you that have 10 to 20% down and have never missed a mortgage payment in your life. These are the note that are too risky to buy.

Now I ask you, What will make this fear go away and get some normalcy back to the market? My unfortunate answer is government intervention. Not that government is inherently bad but they usually overreact and oversimplify the problem. The problem is not Fannie Mae and Freddie Mac it is bad loans made to unqualified buyers. It may be painful but the market will correct itself if we let it. But in an election year that is unlikely. Also understand our government just proposed a tax increase on everyone that makes over $31,800!

No matter if the government gets involved or the market works it out, or a little of both. It will get worse before it gets better. Too much fear and now proof of the fear through the fire sale of Bear Stearns. Hold on to your hats!!!