EUROLINKS DAILY VIEW
Bankers' Gloom Has a Multiplier Effect
By MICHAEL CONNOLLY
With Bear Stearns Cos. closing in on a deal overnight to sell itself to J.P. Morgan Chase & Co. amid worries that the financial crisis of confidence could spread if Bear failed to find a buyer by Monday morning, bankers have begun girding for the global financial crisis to last longer and grow deeper.
This shift in mood, as Carrick Mollenkamp reports, threatens to magnify the impact of the crisis on markets and economies. The cash crunch that hit Bear Stearns last week illustrates that bankers' moods and actions can help bring about the scenario they fear. The global economy and financial markets rely heavily on banks' willingness to lend to one another and to their clients. But as banks cut back on those loans, lay off workers and unload assets, they aggravate the crisis. The change in bankers' outlook helps explain why the best efforts of the world's central banks haven't had the desired effect of restoring liquidity.
Now, as banks and brokers report their first-quarter results in coming weeks, the question will be how far their problems have extended beyond the subprime market. The next four weeks will be critical in defining the outlook, as the world's biggest banks and brokers report to the public -- and each other -- how much more they lost in the first quarter on bad investments, and what they feel the future holds. Meanwhile, the Federal Reserve's unusual loan to Bear Stearns shows how the evolution of the financial system has left it with less ability to stem panics than it had once imagined.
Read Carrick Mollenkamp's report from London on the self-fulfilling impact of bankers' bearishness:
Read Dennis K. Berman, Susanne Craig and Kate Kelly's report on Bear Stearns' moves to sell itself to J.P. Morgan:
Read Greg Ip's report on the ability of central banks to stem panics:
Read Paul Evans's report on the weakening outlook for the dollar:
Read E.S. Browning's report on the bearish outlook for the stock market:
Read Mark Gongloff's Ahead of the Tape column on "the new birdflu":
Read Rick Carew's report from Hong Kong on how the unraveling of the Bear Stearns-Citic Securities deal may have saved the Chinese bank a lot of money:
Read our report on Joseph Lewis's disastrous Bear Stearns investment by Cassell Bryan-Low in London and Kate Kelly in New York:
Read Breakingviews' analysis, warning of aftershocks:
