What should I think about the Bear Stearns collapse, you may be asking yourself. Well, I have a brief take up at the Current.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
So do you think this is a good act by the Fed or a bad one? Is it only bad when the government bails out the little guy, and good when it bails out big billion dollar corporations? Would a bailout of Bear Stearns be better for the middle class' 401(k)s than direct compensation of equivalent cash value by the government?
If you support the Fed bailing out Bear Stearns, why the newfound love of socialism?
Will you free marketeers & worshippers of Mammon ever admit that your entire structure of "capitalism," & its financial institutions, etc. are a house of cards dying to respond to gravity's inevitable suction?
Will you free marketeers & worshippers of Mammon ever admit that your entire structure of "capitalism," & its financial institutions, etc. are a house of cards dying to respond to gravity's inevitable suction?
Ummm... no?
"Will you free marketeers & worshippers of Mammon ever admit that your entire structure of "capitalism," & its financial institutions, etc. are a house of cards dying to respond to gravity's inevitable suction?"
Fiat Currency & Central Banking have nothing to do with 'Free Markets', actually, they're one, of the 10, plank(s) found in the Communist Manifesto.
At least get your ideologies right, before attempting to skewer them...
Megan, you need to hire whoever edited that piece to edit your blog--the writing is like night and day.
Bear does not deserve any help, and I suspect the Fed action will only provide time for them to unwind themselves. I just feel sorry for the UK billionaire who sunk tons of money in. (And wishing I had been sitting on some Bear put options).
Bear refused to help out hedge fund Long Term Capital Management way back in the 1990's, when financial markets were threatened and every other street firm did their part.
Bear refused to back its own collapsing hedge funds back in August of last year, leaving people hanging. (Unlike Goldman).
And now here is Bear, all hunger and begger.
I was reading that Bear 25 puts 72 hours ago were trading for $0.05 they were (last time I checked) trading at $3.60.
And why didn't anyone tell me to put all my money in Bear puts? WHY!!??!
"just feel sorry for the UK billionaire who sunk tons of money in."
Joe Lewis -- bought 7 or 8% of the company at an average cost of about $100.
Bear chairman and former CEO Jimmy Cayne will gain a well-deserved share of infamy for this. When Bear's hedge funds were collapsing last August, he was out playing golf or bridge most of the month. On Thursday and Friday when the Fed/J.P. Morgan bail out was going through, Cayne was at a bridge tournament in Detroit.
Re: Is it only bad when the government bails out the little guy, and good when it bails out big billion dollar corporations?
Bear Sterns is not being bailed out. It's deader than Elvis, and its shareholders will be lucky to get pennies on the dollar. What the Fed is doing is allowing time for an orderly demise (this is a temporary loan after all), and giving everyone else time to put their affairs in order. As someone commented on another blog, If you're going to pull the trigger make sure you know where the body will land first. A disorderly collapse of BS would be like the collapse of that crane Megan wrote about above, on a very grand scale.
Bear Sterns is not being bailed out
It is a non-recourse loan to JPM. They give the money to JPM, who gives it to Bear. If Bear defaults, JPM has to pay nothing. The Fed gets nothing.
How is that not a bailout? Or are just saying that Bear has to default first? In which case it is just "pre-bailout"?
I understand the pragmatism that we need to worry about when addressing these "too big to fail" companies. But the solution is very simple. If they require funds that cannot be adequately backed by collateral (which is certainly the case here, else the loan would not have gone through JPM), then the company is being bought by the taxpayer. The shareholders get squat and the company becomes the property of the US of A. This allows for your orderly unwinding as the company either get rehabilitated (and made private again) or liquidated.
A disorderly collapse of BS would be like the collapse of that crane Megan wrote about above, on a very grand scale.
Um, so? When big company fall down, big boom happens. That's just the free market at work. What the Fed did, as Walker ably explained, was a bailout--a blatant intervention against free market.
Rickm already made this point, but it bears repeating with an extra splash of vulgarity. When the housing market sinks and folks get evicted from their homes, the federal government shouldn't intervene because it would create a moral hazard by encouraging future home buyers to make similarly risky purchases under the expectation that the fed will bail them out, too. Okay.
But-but-but... when Bear Stearns fails, the government should intervene because it's "too big to fail" even though it would also create a moral hazard by encouraging investment banks to make risky investments, knowing that the fed will bail them out, too. Okay.
Wait. What?
In other words, sorry, homeowners. Can't interfere with this necessary market correction. Hey, this pain will be good for you, you won't make the same dumbass mistake. Suck it up.
Oh, Bear Stearns, are you hurting too much? Don't worry, papa Fed will make the pain go away. Shh. It's okay. It's okay.
Give me a goddamn break.
Malignant Buffoon:
As to your comment: "Will you free marketeers & worshippers (sic) of Mammon ever admit that your entire structure of "capitalism," & its financial institutions, etc. are a house of cards dying to respond to gravity's inevitable suction?"
Given that right wing extremists employ religion to incarnate their doomsday superstitions while the left wing resorts to economics, it is clear that you are a left wing extremist--although kudos on trying to reach across party lines with your biblical reference of Mammon. No doubt you are a Barak Obama supporter.
At any rate, I see that you have provided an excessively simple diagnosis to an issue of which you are completely ignorant. And you have also invoked the Left wing's perennial and identifiable villain: Capitalism.
Congratulations! You are among the true extremist of the times.
Nonetheless, would you not be more comfortable blogging at Bill Maher's website? I think you would feel so comfortable there that you just might be willing to sign your posts with your real name.
Re: The Fed gets nothing.
The Fed is holding the collateral. If BS defaults the Fed keeps the collateral which though undisclosed, must by law be high-grade stuff.
Re: Um, so? When big company fall down, big boom happens.
I presume you would like you bank account intact on Monday and you would like your pay check to arrive on time and be cahsable. Because we are talking a financial meltdown on a scale that could easily wipe out institutions and companies that have no direct connection to Bear Sterns and have done nothing wrong. And again, this is not a bailout. Bear Stern is going under and those of you who have an irrational hatred for Wall Street banks will be pleased that it will soon be no more. The Fed's action ensures that BS does not take the rest of us with it. Oh, and please educate yourselves: the Fed is not using one penny of taxpayer money in this. So toss that red herring back out to sea.
"I presume you would like you bank account intact on Monday and you would like your pay check to arrive on time and be cashable."--JonF
"...the Fed is not using one penny of taxpayer money in this."--JonF
JonF,
What is it that we use as "Cash"? Federal Reserve Notes, no? What happens to the value of FedRes Notes when they, the FedRes, issue, too many of them? They go down, in value, relative to goods & services, no?
Tell us, again, how "...the Fed is not using one penny of taxpayer money in this."
JonF, simply, you've got to be kidding us..
Re: JonF, simply, you've got to be kidding us..
I am not kidding you. Good grief all you have to do is educate yourself on the details of what was done here. The Fed issued a loan-- but it did not get that money from our taxes. Rather it created it ex nihilo. Which is what the Fed does, strange as it sounds. The Fed never spends tax money (other than to finance its own internal operations of course). And in 28 days when the loan is repaid (or if there is a default, when the collateral is cashed in) that money will be retired-- it will cease to exist. Not a dime of taxpayer money was used. Since that is will be canceled out by the deflationary impact that the Why is that so hard to understand?
Bear Sterns is a dying company. The Fed has not restored it to profitbility. It will most likely be acquired by some other firm (JP Morgan Chase is a good guess for that, given their odd role in this). Its shareholders will be lucky to get pennies on the dollar. Many of its employees will be laid off. It will enter the long, long list of failed American businesses. Why is that not enough for you? What do you neo-Jacobins want? The company officers publicly guillotined on the portico of the NYSE?
What do you neo-Jacobins want? The company officers publicly guillotined on the portico of the NYSE?
Good for a start, but I'd also like for their enablers, propagandists and apologists to have to climb the stairs as well.
Will you free marketeers & worshippers of Mammon ever admit that your entire structure of "capitalism," & its financial institutions, etc. are a house of cards dying to respond to gravity's inevitable suction?
What? And toss the 8000 sticks of incense and 55-gallon drum of silver polish I just bought at Costco last week?
Also, it's a "temple of cards". And here's a hint that you may feel free to use later: with just a few very small drops of 15-minute epoxy...
What I hate about this is not that it gives pain to the brokers themselves...
What I would like is an "excess bonus" tax of 90%, 70%, 50% on all the bonuses paid to all Bear executives on all bonuses over $500 000 (to rise with inflation over time to be 10 times the prior year's average IRS reported wage).
The basic problem is "not-rocket scientists" thinking up new financial instruments (securitization of home loans), and profitably applying them to a non-risky asset, the 20% down mortgage. And the 10% down, and the 0% down. oops. That 0% down for marginally unemployed wasn't really a profitable, non-risky asset! Who knew? Well, those who were getting the huge bonuses at Bear last year were claiming to know the risk... wrongly.
I'd also like the International Monetary Fund to start offering "systemic failure" insurance to all financial institutions whose size is such that their failure would cause such problems that the gov't would bail them out. Then they could collude with S&P and Moody's but the "premium" rating would become the main rating of riskiness. And when a new financial instrument is introduced, the higher risk would mean higher premium to cover the unexpected. Which, had it been applied for the last 10 years, would have been excellent profits for the IMF/ insurance side, with a horrible year this year -- but at least a defined institution with some assets to reduce the crises.
This IS a gov't bail-out, even it's fiat money that reduces the value of other fiat money, not exactly tax-payer money. (Why is counterfeiting illegal?)
And rate-cut led inflation is going to save the little guys from being evicted, as well as the banks, as the dollar/euro ratio sinks down. And exports improve!