So, Bear Stearns bailed out its own hedge funds. As I gather it from Gross' article, they took money from pile 'A' and put it into pile 'B.' In and of itself, I'd be inclined to say, so what?

But the troubles in the housing market aren't limited to the agony of those who took out subprime loans not to those who are getting whacked for having lended it to them. And I just don't mean the effects of tightening loan standards and higher interest rates are having on those who are entering the housing market.

The impact is now being felt most acutely in working-class neighborhoods in Detroit and Philadelphia. But will it stop there?

Sales of existing homes are down 25% from a year ago. That's a Depression-sized drop! And it rachets up every step of the liine. Since most home-buying activity is in the existing home market, where new buyers generally begin with the lower-priced starter, which enables those former owners to leverage their equity into a 'better' home, and so on, up the price scale, failure at the bottom will choke off activity at the top. This has ominous implications for the economy as a whole.

After all, how much of the past six years of economic activity can be attributed to new home construction and all the ancilliary business that goes along with it?

The expansion of suburbia leads to the inevitable laying of new roads, construction of strip malls, proliferation of Starbucks, sales of cars and trucks, manufacturing of furniture and appliances, bank loans and a myriad of other things.

Our economy is like the proverbial hamster in a wheel, running as hard as it can to stay in place. Now, a key part of that mechanism has wrenched short. So, what's next?

Will it stop the spreading rot? I doubt it, as it hardly represents a bailout of the entire subprime sector; just a chunk of it that was going down in flames; the rest of it is still in a heap of trouble. And your question is another way of asking whether Daysman was correct in calling the FED a big fat liar when they said this meltdown won't affect the general market... here's example A that it does affect the rest of the market and it does so dollar for dollar.

40% of Bush's economy was being carried by the real estate market and associated business (like mortgage bankers) and most of that business is in the toilet these days. Republicans are pulling every rabbit they available in their deep hat to get them through to 2008 and then dump the recession/depression on the dems the same way Bush claims it was dumped on him (it wasn't; his problems were the result of losing the WTC; the economy would never had receded without the effects of 09/11).

what's next?

my money is on recession; this current surge of manufacturing won't pay off the way it did last year, and there's nothing left to fall back on. Subprime foreclosures are hurting the banks, those foreclosures aren't money makers, they are mostly big losers; especially in this housing market, and that pain goes right to their bottom line... we've already lost all our subprime lenders, funding is at a standstill, there's no one standing up to bail out the market. Do you hear that sucking sound? That's the subprime sector sucking all the profits out of the money market.

Stop with the analysis of the economy. Your interests obviously lie more in the political sphere. Go back to what you like to do.

is a terrible way to spend the holiday. Rates rose a tenth today, but it is just the games people play with a small headcount.

do you follow the market?

It is called "Moral Hazard," and Wall Street does not have any. In the bail out of the late 80's, U.S. banks took on enormous risk on currencies, the bets went bad, the government engineered a bail out!

Bear Stearns is simply the latest example of why the rich get richer, as the rules are set for them to gain regardless of the wager! The smugness of the first writers message is all wrong, there is not nor has there ever been a plurality regarding these matters, the deck is most definetly stacked, and the smartest guys do not always get the job.