Big Bank Failure on the Way?

What we don't know about economics could (and does) fill books. But, we have friends.

And one particularly smart smarty-pants, about a month ago, warned that the current economic crisis could well reach epic proportions. The bell-weather that would tell us that this more than a business cycle recession? The failure of a big American bank.

And that's what seems to be happening right now. And that bank is Bear Stearns.

The move today -- a highly unusal loan from JP Morgan to Bear, secured by the Fed -- has the air of desperation to it. Get this quote from Bear's CEO:

"Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity," said Alan Schwartz, president and chief executive in Bear Stearns, in a written statement. "We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations."

So, without this loan, Bear Stearns would have been unable to continue normal operation -- translation: failure. They have a month, if panic doesn't do them in sooner. And perhaps they will merge or structure their way out.

But my smarty-pants friend's warning seems especially grave this morning.