March 17, 2008
Today, the Fed and JPMorgan Chase are in the process of bailing out Bear-Stearns, a sub-prime lender facing serious failure. Apparently, JPMorgan Chase is buying the bank for 2% of market value and the government is tossing in 30 billion taxpayer dollars to make things go smoother. Charles R. Morris writes in the Huffington Post:
Over the last few months, [Fed Chairman Ben Bernanke] has opened up the Fed’s coffers for banks and brokerages to the tune of hundreds of billions, and is accepting riskier loan collateral than ever before. Last week, he threw his body — or, more accurately, ours — over the railroad tracks to slow an onrushing Bear Stearns trainwreck….
Why did the the Fed think it had to pay to make a deal happen, instead of just letting the market take its course? According to Bernanke and Treasury Secretary Hank Paulson, who made the rounds of the Sunday talk shows, it is because Bear is at the center of a web of other funds that look a lot like Bear – heavily leveraged and holding lots of mortgage-backed paper. If the Fed didn’t act, a lot of them, perhaps most of them, would also fail.
The hard truth is that a decade of flooding markets with easy money enabled greedy and stupid lending, and probably a good deal of conscious fraud. Houses, like most other leveraged assets, are now grossly overpriced relative to home-buyers’ ability to pay. Home prices have perhaps another 15-20 percent to fall – maybe even more as the recession starts to bite.
“Placing a floor under home prices” benefits nobody but the banks and hedge funds, and will delay essential market adjustments. It’s time to start letting the dominoes fall. (Read full post)
Here is another shining example of socialism for the rich and rich alone. Admittedly, bank failure is good for no one, but why all of the taxpayer money going to rich guys who took bad bets. Can I start gambling my money away and when the dice come up craps get the government to pay my markers? That would be absurd! It’s not like these guys are hurting for money. They have angrily demanded on the editorial pages of the Wall Street Journal that the government needs to stay out of their business for years. I think there are really 2 good courses of action here. First option, if JPMC wants the goodies of this deal, they have to take the sewage as well. Pay off the shareholders of the bank at fair, free market value and cover the debts. This is not likely to happen. Financial papers everywhere are acting like JPM is getting a hell of a deal, and they are, but not on share prices. BS at this point is probably only worth $2 a share at this point, because most of its’ assets are locked up in mortgages that are almost as likely to be repaid as money loaned to an out-of-state brother-in-law. The second idea is that the executives at BS be required to put up some of their personal fortunes as assets to cover this bad debt that exists in the bank they are about to sell. Their assets should be used like assets are used in bankruptcy courts for all of us average joes; you get to keep one house, one car and if you get caught hiding anything, you go to jail. This would reduce some of what the American taxpayer would have to put up to prevent (or at least, forestall) this crisis and mandate some of that personal responsibility that conservatives and libertarians like to talk so much about.
Make no mistake about it, these are the people that are responsible for this crisis. These are the free market fundamentalists that have spent the last 28 years spouting the deregulation verses from Atlas Shrugged and financially suicide-bombing our economy and government. We are now in what Thom Hartmann calls “the cancer stage of capitalism”. What the hell do we do about it? For starters, we need some protection in our trade policies. The international corporatists have managed to find a way to export our jobs and take our money. But this bail-out shows that they don’t want deregulation. What they want is for the government to let them gamble any way they want and then bail them out when things go pancake shaped. These rich men have caused most of the problems that we are seeing now by tarnishing the American name and the American dollar, making both worthless to the rest of the world.
Bread, peace, and freedom.