A Fed Bailout Crosses a Line

The New York Times:

WHAT are the consequences of a world in which regulators rescue even the financial institutions whose recklessness and greed helped create the titanic credit mess we are in? Will the consequences be an even weaker currency, rampant inflation, a continuation of the slow bleed that we have witnessed at banks and brokerage firms for the past year?

Or all of the above?

Stick around, because we'll soon find out. And it's not going to be pretty.

Agreeing to guarantee a 28-day credit line to Bear Stearns, by way of JPMorgan Chase, the Federal Reserve Bank of New York conceded last Friday that no sizable firm with a book of mortgage securities or loans out to mortgage issuers could be allowed to fail right now. It was the most explicit sign yet of the Fed's "Rescues 'R' Us" doctrine that already helped to force the marriage of Bank of America and Countrywide.

But why save Bear Stearns? The beneficiary of this bailout, remember, has often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach. Until regulators came along in 1996, Bear Stearns was happy to provide its balance sheet and imprimatur to bucket-shop brokerages like Stratton Oakmont and A. R. Baron, clearing dubious stock trades.

And as one of the biggest players in the mortgage securities business on Wall Street, Bear provided munificent lines of credit to public-spirited subprime lenders like New Century (now bankrupt). It is also the owner of EMC Mortgage Servicing, one of the most aggressive subprime mortgage servicers out there.

Bear's default rates on so-called Alt-A mortgages that it underwrote also indicates that its lending practices were especially lax during the real estate boom. As of February, according to Bloomberg data, 15 percent of these loans in its underwritten securities were delinquent by more than 60 days or in foreclosure. That compares with an industry average of 8.4 percent.

Keep reading.

Read the whole story: The New York Times

Comments

[itmaybetoolate]

10:47 AM on 03/17/2008

I have some credit card debt they can cover. Who do I call? Debtbusters! (aka US government).

[abbiehoffmansghost]

10:04 AM on 03/17/2008

I must be a sadistic bastard: America is dying right before my eyes and I am laughing.

[gevan]

11:26 PM on 03/16/2008

Hey! If I run out of money, I would expect the Fed to bail me out, too. That's what a governmment is for, is it not?

[ibsteve2u]

11:02 PM on 03/16/2008

Can't be bailing out the small homeowners, though - that would destroy our "free market".

You'd think these financial wheels and this Administration would be smart enough to understand that not everybody in America is as stupid as they are trying to play us for.

In fact, most aren't.

[HmblDog]

09:21 AM on 03/17/2008

If that were only true. We live in a world where PT Barnum leads us wherever he wants us to go.

[smokeystover39]

10:47 PM on 03/16/2008

If I go crazy with MY finances where do I sign up for "Fed's "Rescues 'R' Us" ????????

[civilbehavior]

09:26 PM on 03/16/2008

We're getting closer to financial ruin for the big plantation owners.

Let them eat dirt.

[jerrypenguin]

09:17 PM on 03/16/2008

“This is the perfect time to set an example, but they are not interested in setting an example. We are Bailout Nation.” - William A. Fleckenstein

Look who is getting bailed out. Is there not any possibility of anger among citizens of the once great United States of America? Don't you realize the "compensation" figures relating to our poor, hat in hand, executives is measured in TENS TO HUNDREDS OF MILLIONS OF DOLLARS!

James E Cayne CEO Bear Stearns Cos - 28.40 $MIL Annual Compensation, 132.14 $MIL Five Year Compensation, 903.9 $MIL Shares Owned.

For the Bear Stearns Board of Directors, we have the following people:
http://investing.businessweek.com/businessweek/research/stocks/people/people.asp?symbol=BSC

These dull numbers are a matter of public record. As added perquisites, they get private corporate jets, parties, jumbo expense accounts, accommodations, golf outings, travel, etc.

Sui Bono? Follow the power. Follow the people. Wake up! These bastards have already taken from education, health care, environment, economic stability, pensions, and on, and on, and on. You grunts are paying and will pay.

[PacificGatePost]

09:14 PM on 03/16/2008

It's not hard to figure out a fix is badly needed. Start at the top.....

Time to do something about it.

"WE THE SHAREHOLDERS OF YOUR COMPANIES...... 

http://pacificgatepost.blogspot.com/2008/03/letter-to-ceos-of-fortune-1000-cos.html


.....pass it on.

[PPatt]

08:49 PM on 03/16/2008

This type of thing really puts a damper on conservative memes regarding free market, winners, and and those who deserve to win. Doesn't this provide undeserved assistance to one firm that was less prudent than the rest? Isn't this unfair to Bear Stearns next closest competitor? Isn't this rewarding failure?

What does this say about our free enterprise system if it means that big government will be there to bail out the reckless?.

[SamEllison]

08:44 PM on 03/16/2008

I'm starting to like this guy Cayne, this from Sat FT;
"Mr Cayne......was followed by revelations that he had regularly left the office to play golf and compete in bridge tournaments while the crisis was unfolding. Mr Cayne, who is rarely seen without a cigar, was revealed to have a taste for marijuana,"
http://www.ft.com/cms/s/0/38787526-f1fc-11dc-9b45-0000779fd2ac,dwp_uuid=8cd8eda0-f1d7-11dc-9b45-0000779fd2ac.html?nclick_check=1
Of course he didn't lose any of my money.

[Purple Girl]

08:29 PM on 03/16/2008

let them fail and make them pay their own gambling debts.
Help the buyers who were actaully just wanting a home- let the house flipping fast buck buyers eat it.
Dismantle th eFedral Reserve they have failed as Employees - the are not asociated with our Gov't - they are private banking Firms (independent contractors) playing with our economy for their own gains.
E front their Gambling money and get stuck with the bill- we never see a Dividend Check for Our investment- the exorbinate interest rates they charge US to borrow our own money. Money laundering and Racketeering- The Mafia.

[ute]

08:27 PM on 03/16/2008

Conservatives and Libertarians make the claim that real Americans are rugged individualists who make their own way, good or bad, in this big evil world. They are against anything that smacks of government interference or assistance in any way, shape or form - SOCIALISM!

Corporate socialism, of course, is perfectly OK in their warped, hypocritical worldview because god forbid if their stock portfolio should take a hit!

heh.

[ruddie]

08:17 PM on 03/16/2008

Socialism for the rich

[ForRichardorPoorer]

08:15 PM on 03/16/2008

Last November I posted these comments on Huff.

I can see it now. The world has been on the dollar standard. The world will change to the Euro Currencies as the standard world wide currency. The farquaad bush dynasty has produced mountains of debt, two wars, the most corrupt white house in decades if not a century. Besides the world changing to another standard, look for a recession in the beginning of the 2nd quarter. people won't be able to make credit card payments from holiday spending, heating bills, gasoline bills, etc. posted 11/07/2007 at 19:57:03

We are in for some deep hurt and most likely a deep recession. Pain that we haven't seen for a quarter of a century. Early next year when the credit card bills come due for the holiday purchasing. The Iraq war, the division of the United States vs Russia and China. Gas prices, food prices, heating prices will increase. Greedy corporate executives, the current white house administration, a no nothing congress and the rest of the elite have-mores, are killing the american economy. The have and have-nots won't be able to hang on. Watch it happen! posted 11/01/2007 at 12:37:29

As it stands now, (3/16/08 @ 8:14 am) if the market opened, it would open down 98 points.

[darker]

08:05 PM on 03/16/2008

hey, what happened to the Republican ideall of LETTING THE MARKET DEAL WITH IT?
WHY are they rescuing mega-corporations--the new welfare queens--with middle-income
Americans' tax money?

All the Republican market talk was bullsh*t?

If you care, DON'T VOTE REPUBLICAN EVER AGAIN.

They showed that they are capable of a cabal to crash the economy, country, world.Trust them with NOTHING. Because that's exactly WHAT THEY'LL GIVE YOU.