“Household debt-service ratio is near a record high 14.3%, while the personal savings rate hovers near a record low 0.5%. Still, it is worth noting that in many cases debt service is as much about perception as reality. Optimistic social mood creates the right conditions for enhanced credit appetites and an optimistic view of how much debt one can service without stress. That is one reason the high-debt service ratio and low savings rate has been able to persist, and to grow to unimagined heights, for so long. A negative social mood can take things to an opposite extreme, where debt is repudiated or shunned…..”

More at Minyanville.com.

And this from The Big Deal.com:
“What makes me even more skeptical about the solidity and cogency of the financial market as a whole is the fact that this disaster was largely caused by panic, or “sentiment”, if you prefer.
Bear Stearns prime brokerage business, providing admin services to hedge funds with a fixed income bent, was the main source of liquidity for the now-moribund financial institution. Last week a rumor, which later led to rampant speculation, was put out about Bear Stearns fragility and its excessive exposure to US mortgages. Obviously all the hedge funds using Bear Stearns to deposit their assets panicked and were quick to terminate their relationship with the bank.
Without the funds’ liquid assets in its “vaults” Bear Stearns was not able to meet its running costs.

The worst part is that just a few days later, on March 27th, the bank would have been able to exchange its gigantic portfolio of mortgage backed securities for high quality, liquid US Treasuries…”