Financial Market Upheaval Turns Investors Wary of Wall Street

The Bear Stearns buy out by JPMorgan in March was a harbinger of deeper trouble on Wall Street. Major financial companies have suffered serious drops in their assets and stock prices that reflect a change in investor psychology. The big question is whether this change is long term or temporary.

The bond market is hoping that the psychological change in attitude toward Wall street is temporary. These hopes are based on the lessening gap on March 17 (the day after the Bear $2 per share buy out deal was solidified between the Federal Reserve, JPMorgan, and Bear Sterns) between high safety United States bonds and mortgage backed Fannie Mae bonds, indicating a psychological attitude on the part of bond investors that mortgage risk was returning to normal in the continuing wake of the subprime fiasco. But with financial market stocks dropping in value, the housing industry still in trouble, and home owners fearing further foreclosures, this seeming confidence could prove to be just one moment in time, instead of a demonstration of healthy investor psychology.

It is interesting to note that Japanese financial companies have been showing gains in value while in the U.S. the giants are crumbling. Citigroup was the country's number one financial institution but has been at third place due to losses from the subprime disaster. On March 18 Wells Fargo even bumped Citigroup out of third place and down to fourth. At the time Bank America and JPMorgan were the highest valued financial companies in the States, with market values at $158.5 billion and $124.1 billion, respectively. For comparisons sake, in 2006 Bank America and Citigroup were both valued at more than $230 billion.

The citadels of fiscal power.

Credit: Tim Rogers

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