Topic: Economics
Bear Stearn's Bail-Out Treasury Sect. Henry Paulson answered questions about the FED’s coordinated bail-out with J.P. Morgan, to purchase Bear Stearn’s assets Monday, after issues with liquidity surfaced.by jposty
(Libertarian)
Monday, March 17, 2008
Treasury Sect. Henry Paulson answered questions about the FED's coordinated bail-out with J.P. Morgan, to purchase Bear Stearn's assets Monday, after issues with liquidity surfaced.
Many reporters were asking questions about possible preferential treatment to financial institutions over the borrower, although Paulson was correct that if you asked the shareholders of Bear Stearn, they would not consider this a bail-out or preferential treatment. This point of view is essentially correct albeit oversimplified, any shareholder would have a less than positive view on any policy after the stock went from $80 dollars to Monday's purchase price of $2 Dollars per share. What the Treasury Sect. neglected to address was the fact that the government is facilitating a private company in its purchase of a poor investment.
On [March 14] Bear Stearns [BSC 4.81 -25.19 (-83.97%) ] , the fifth largest U.S. investment bank, said a cash crunch forced it to turn to the Federal Reserve and JPMorgan for emergency funds, intensifying fears of a widening global credit crisis and driving its shares down as much as 50 percent.
If purchasing Bear Stearn, with all of its ‘liquidity' problems, was a sound investment there would have been a bidding war, rather than a government facilitated bail-out. The government has decided to expand their poor interventionist policies to investment banks as well. This is the definition of attempted central economic planning. A federal government can not, nor should not play macro-economics with the value of the dollars, private corporations assets and investment practices et al.
In a free-market the markets themselves would weed out the mal-investment and poor business practices. The FED is again propping up poor business practices, this time to a greater harm to the markets. Poor precedent aside, the FED is simply prolonging the inevitable market forest fire. Forest fires are a necessary role in clearing the undergrowth which allows for new stronger growth, just as the market's self correction with the weeding out of poor business models is to the free-markets.
The reporters however, all but stated that the government should be focusing on helping the American public get out from their own bad borrowing practices, while suggesting the government should not do it for the financial institutions. This logic is flawed at its base; Government intervention one way or the other is the reason for the current financial situation. The government has facilitated these poor lending / borrowing practices through the artificial manipulation of the interest rates and with the practice of increasing the actual money supply without a commodity to support the ever rising M3 rate.
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2008 jposty, all rights reserved.
Published: Monday, March 17, 2008
Last modified: Monday, March 17, 2008
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Yes the laws of Natural selection need not apply here in the United States. The Government needs to keep their hands out of such affairs. If the business was a flop it was a flop. Though as an investment firm I would imagine it is hard to measure your own benchmarks when the federal reserve is printing off money to control interest rates. It's making the investment firms balance a tight rope that is moving up and down. They are bound to fall. Though I respect the fact that the federal reserve is trying to hold down interest rates (It's like putting a bandaid on a leg infected with gangrene.) I would hate to see them rise, it would hurt alot of people. But I think in the long run It will only help if the federal reserve was to quit their crusade of keeping interest rates down. A free market economy needs to be free and everything will balance based on supply and demand. The sad thing about the housing market is that the demand really wasn't there. It's just that the interest rate was too good of a deal to pass up for alot of people.
The new mantra is "this was not a bail out of bear stearns" and that may be true as far as the share holders and employees of BS are concerned. However, the Fed did put 30 billion in the kitty for this deal to happen. So who is the beneficiary? J.P. Morgan and company.
Free Trade Capitalism is an illusion. It's a philosophical wedge/weapon being used against people who honestly believe in self sufficiency.
Posted By: Ivan from Oregon
Date: 2008-03-19 17:36:19
Let's not overlook that what Bernie did was criminal, if not outright treason. As I recall, it was only in January that many of the principals in BSC collected $billions in bonuses, etc., for their "stellar" performance. If the firm had been allowed to go bankrupt, these guys would have to have given back this money. The bailout secured their "walking away" money and stuck us with the bill. They should all be hanging from trees, or at the least looking forward to the rest of their lives in Stony Lonesome.
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2008 jposty, all rights reserved.