Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
The US Interest Rate Hawks Surrender - 22nd Jan 19
The Specialist Lending Renaissance - 22nd Jan 19
The 5 Rules of Real Estate Investment - 22nd Jan 19
Semiconductor Sector – Watch the Early Bird in 2019 - 21st Jan 19
From ASEAN Economic Development to Militarization - 21st Jan 19
Will China Surprise The Us Stock Market? - 21st Jan 19
Tips to Keep Your Finances Healthy in 2019 and Beyond - 21st Jan 19
Tips for Writing Assignment in Hurry - 21st Jan 19
UK House Prices, Immigration, and Population Growth Mega Trend Forecast - 21st Jan 19
REMAIN Parliament to Subvert BrExit with Peoples Vote FIXED 2nd EU Referendum - 21st Jan 19
Pay Attention To The Russell Stocks Index and Financial Sectors - 20th Jan 19
Hyperinflation - Zimbabwe's Monetary Death Spiral - 20th Jan 19
Stock Market Counter-trend Extends - 20th Jan 19
The News About Fake News Is Fake - 20th Jan 19
Stock Market Bull Trap? January 22 Top Likely - 19th Jan 19
After the Crash, the Stock Market Made a V-shaped Recovery. What’s Next - 19th Jan 19
David Morgan: Expect Stagflation and Silver Outperformance in 2019 - 19th Jan 19
Why Brampton Manor Academy State School 41 Oxbridge Offers is Nothing to Celebrate! - 19th Jan 19
REMAIN Parliament Prepares to Subvert BrExit with Peoples Vote FIXED 2nd EU Referendum - 19th Jan 19
Gold Surges on Stock Selloff - 18th Jan 19
Crude Oil Price Will Find Strong Resistance Between $52~55 - 18th Jan 19
Stock Market’s Medium Term is No Longer Bullish. It is Now Mixed - 18th Jan 19
SPX and Gold; Pivotal Points at Hand - 18th Jan 19
Fable Media Launches New GoWin Online Casino Affiliate Site in UK - 18th Jan 19
The End of Apple! - 18th Jan 19
Debt, Division, Dysfunction, and the March to National Bankruptcy - 18th Jan 19
Creating the Best Office Space - 18th Jan 19
S&P 500 at Resistance Level, Downward Correction Ahead? - 17th Jan 19
Mauldin: My 2019 Economic Outlook - 17th Jan 19
Macro Could Weaken After US Government Shutdown. What This Means for Stocks - 17th Jan 19
US Stock Market Indexes Reaches Fibonacci Target Zone – Where to Next? - 17th Jan 19
How 2018 Was For The UK Casino Industry - 17th Jan 19
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19

Market Oracle FREE Newsletter

UK House Prices, Immigration, and Population Growth Trend Forecast

Bear Stearns Bailout and My Outrage

Politics / Credit Crisis 2008 Mar 25, 2008 - 05:54 AM GMT

By: Fake_Ben

Politics

Best Financial Markets Analysis ArticleI have been a longtime critic of the Fed, but the latest moves by the Fed are beyond even my most cynical estimations.

Bear Stearns was one of the most aggressive banks in facilitating the excessive lending that helped create the mortgage mess. This mortgage mess is impoverishing millions of Americans and affecting us all through a lower dollar and higher gasoline prices.


Bear Stearns bet heavily on the mortgage market, made billions in profits on the way up, and rewarded employees and executives with hundreds of millions of dollars in bonuses. However, once the bubble burst, Bear Stearns was proven to have been too aggressive in pushing mortgages. The value of its assets fell so far that they could not cover the company's liabilities. Bear Stearns was bankrupt, and no one wanted to buy them.

The bankruptcy of risky and irresponsible companies is an important part of capitalism. This creative destruction eliminates waste and fraud and ensures appropriate amounts of risk taking during the next business cycle.

For companies and individuals, insolvency leads to bankruptcy. However, in the banking sector, the insolvency of a major bank can lead to a domino effect, with other banks, which are owed money by failing bank, falling into bankruptcy. As a result, insolvent banks are nationalized, as happened to Northern Rock in England recently or many S&Ls in the U.S. in the 1980s. The government prevents a domino effect by guaranteeing payment to counterparties.

Why didn't the U.S. government simply nationalize and wind down Bear Stearns? If the government is in the bailout business, Hillary Clinton is now asking, why can't the U.S. government bailout homeowners, too?

Of course, the Fed claims there was no bailout, but the facts are obvious. Bear Stearns shareholders, holding a company that no one wanted to buy, received over $2 billion. JPMorgan, the buyer, received all the most valuable assets of Bear Stearns, which may be worth tens of billions, if not more, in the future. And we, the people of the United States of America ?

According to BusinessWeek, “In essence, the New York Fed [essentially, the government and therefore the people] will create a special company that will hold the $30 billion in Bear assets. It will lend the unit $29 billion at 3.25% interest and JPMorgan itself will lend the unit $1 billion. When the assets are liquidated, JPMorgan won't get back its $1 billion until after the Fed has been fully repaid with interest. And if there's any money left over from the liquidation after all the loans have been repaid, the Fed will get to keep it.” In other words, the risky, nearly worthless $30 billion in assets that were bogging down Bear Stearns have been handed to you and me. If somehow these securities end up being worth something we profit. If not, which is what the market is currently saying, all of the liability (except for $1 billion) will be borne by us, the people. And worse still, this portfolio of $30 billion in bonds will not be managed by the government, but will be managed --- at a high cost --- by one of the original creators of the type of exotic mortgage products that helped create this mess in the first place.

Why did the government hand all the upside of Bear Stearns over to JPMorgan without any calm auction process? Why did the government assume nearly all of the risk? And what do you think the chances are that Ben Bernanke, upon leaving the Fed, will get an extremely high-paid job at JPMorgan (after all, that's what happened to a lot of the Fed managers who helped bailout Long-term Capital) [participate in our poll at fakeben.com].

Please visit fakeben.com and help us to stop these continued and flagrant abuses of our system.

The Fed must be stopped before it totally destroys the dollar and impoverishes hardworking Americans through policies that encourage too much debt, not enough savings, and banking excesses.

By Charles Zentay
http:// www.FakeBen.com

FakeBen is a blog to monitor the Fed and its actions and encourage community participation. At FakeBen, we believe that the Fed policy of the last two decades has created a credit bubble as large as that created in the 1920s. This bubble will lead to either inflation, a recession, or both.

We believe that the Fed's policy of lowering interest rates to encourage more credit creation is misguided, will eventually lead to 0% interest rates, and will not solve the long-term problem, which is too much credit relative to GDP.

Copyright © 2008 by Charles Zentay. All rights reserved.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.

Fake Ben Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Mom
05 Apr 08, 10:41
Bear Stearns

this is great!


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules