Bear Stearns Bailout

[kandrathe]

I've been thinking about the economy, and we all may have been. I'm struck by the almost total silence that has surrounded the bail out of Bear Stearns, with a Federal Reserve brokered deal to have JP Morgan Chase cover their bad debt. Had Bear Stearns been allowed to fail, there would have been massive suffering and the house of cards we call our international monetary system would have come crashing down.

The Federal Reserve issued a non-recourse loan of $30 billion in order to cover losses in Bear Stearns' investments in mortgage-backed securities and exotic investment paper, with collateral to be managed by BlackRock. Federal Reserve Chairman Ben S. Bernanke testified before the Joint Economic Committee of the U.S. Congress that there most likely would have been "severe consequences" to the default of Bear Stearns, leading to a possible systemic financial crisis. Many viewed the Federal Reserve's actions as a government bailout of an investment bank. One week later, JP Morgan Chase increased the value of its purchase stock swap from $2.00/share to $10.00/share and reduced the loan from the Fed by $1 billion. Wikipedia

Here is when sheep and shepherd make sense. Most of the sheep in the world don't have a clue about what is really happening, and probably could care less until they find themselves starving in the street. Here is an obvious example where the wealthy individuals who control the government, and the world monetary policy converge to steer the economy away from the cliff, and few people on the bus even take notice.

[Occhidiangela]

I've been thinking about the economy, and we all may have been. I'm struck by the almost total silence that has surrounded the bail out of Bear Stearns, with a Federal Reserve brokered deal to have JP Morgan Chase cover their bad debt. Had Bear Stearns been allowed to fail, there would have been massive suffering and the house of cards we call our international monetary system would have come crashing down.

The Federal Reserve issued a non-recourse loan of $30 billion in order to cover losses in Bear Stearns' investments in mortgage-backed securities and exotic investment paper, with collateral to be managed by BlackRock. Federal Reserve Chairman Ben S. Bernanke testified before the Joint Economic Committee of the U.S. Congress that there most likely would have been "severe consequences" to the default of Bear Stearns, leading to a possible systemic financial crisis. Many viewed the Federal Reserve's actions as a government bailout of an investment bank. One week later, JP Morgan Chase increased the value of its purchase stock swap from $2.00/share to $10.00/share and reduced the loan from the Fed by $1 billion. Wikipedia

Here is when sheep and shepherd make sense. Most of the sheep in the world don't have a clue about what is really happening, and probably could care less until they find themselves starving in the street. Here is an obvious example where the wealthy individuals who control the government, and the world monetary policy converge to steer the economy away from the cliff, and few people on the bus even take notice.

Savings and loan bailout, part two, and all the evidence Ron Paul and his supporters need to scream about the plutocracy, etcetera, ad nauseum.

[eppie]

Here is when sheep and shepherd make sense. Most of the sheep in the world don't have a clue about what is really happening, and probably could care less until they find themselves starving in the street. Here is an obvious example where the wealthy individuals who control the government, and the world monetary policy converge to steer the economy away from the cliff, and few people on the bus even take notice.

I read the story. But I don't understand what you are pointing at now ( I would like both to agree and disagree with you, but before writing for 10 minutes I should ask this).
You say it is a good thing that the FED bailed out Bear Stearns? Or a bad thing?
And you usually are against government interference right?

[kandrathe]

I read the story. But I don't understand what you are pointing at now ( I would like both to agree and disagree with you, but before writing for 10 minutes I should ask this). You say it is a good thing that the FED bailed out Bear Stearns? Or a bad thing? And you usually are against government interference right?

I guess I think they are both bad. In this case it's like who do you blame, the heroin addict or the dealer? Do you bail your friend out of jail, and loan him the $100 to make his rent payment?

Bear Stearns should suffer for their mistakes, and people who borrowed money which they cannot repay should suffer for their bad decisions, which is the pure statement of Capitalism. On the other hand, if the failure of one of the largest investment houses in the world destabilizes the world enough it would cause starvation and war everywhere. I guess in this case, I need to swallow my principles and accept that stabilizing the world is a good thing. But, I fault the dependency as much as I fault the dependents.

If we are to have learned anything from WWII it is that there is a link between economic stability and national security. George Marshall was visionary here for post WWII reconstruction in Europe. Other lessons would be that capitulation to ruthless dictators gets you nothing, you cannot have a lukewarm ally like Stalin for long, in a war of attrition the one with the larger population wins, nationalism bites, and the next war will not be fought with the last wars equipment.

[eppie]

I guess I think they are both bad. In this case it's like who do you blame, the heroin addict or the dealer? Do you bail your friend out of jail, and loan him the $100 to make his rent payment?

OK I see what you mean. I am just afraid that such a bail out (or eg the interest rate lowerings when the economy is sloppy) will get back at you. We had a small crisis, it seems to have ended now, but if people keep lending money, and/or if investor find another bubble to put their money in, the crash will likely be bigger. Many experts actually think that will happen in the near future.....but then again, other think it will not.