A Big Bronx Cheer For Pathetic Bear Stearns

Get ready. Now that Bear Stearns (BSC) has been forced to run hat in hand to the Fed and whimper that it's "too big to fail," the mewling is about to begin:

* It's not our fault! It's a run on the bank!
* We never could have seen this coming!
* Blame the people who stopped lending us money!

Give me a break. If Bear Stearns goes to zero, there will only be one party to blame: Bear Stearns management.

Yes, companies that live and die on short-term loans (such as every brokerage firm on earth, along with Enron) depend on the cooperation of third-parties. And, yes, when those companies can't roll over their short-term paper, the folks who actually deliver the death-blow are those that refuse to lend them any more money.

But the first responsibility of any brokerage firm management team is to ensure that under no circumstances can the firm be put in a position where it's short-term financiers might lose confidence. This is why there is ultimately only a few people responsible for the Bear firesale: Bear's CEO Alan Schwartz and Chairman Jimmy Cayne.

Meanwhile, who will pay for this bailout?

Do you really have to ask?

The Fed has promised Bear Stearns savior JP Morgan (JPM) that it will guarantee the value of whatever crap Bear has piled onto its beleaguered balance sheet. In other words, the Fed is effectively assuming the liabilities of Bear Stearns. And the Fed's source of capital, ultimately, is you.

Follow Henry Blodget on Twitter: www.twitter.com/hblodget

Comments

[wilhelmR]

Still Larry Kudlow, Joe Scarborough, and many others say that the "economy in on sound grounds and we trust the inguinity of the American people to come out of this." What a BS! I would love to force all these pundits to put ALL their assets into the stock market NOW!

[klondiker]

This is really sick.

We can't afford "socialized medicine", but we can afford to bail out rogue firms like Bear Stearns?

And, by the way, if this is bailout is happening with Fed money, why have they refused to release the terms of the loan? Don't we have a right to know?

[aigeanta]

"Virtually the entire "new economy" has relied heavily on the military cover to socialize risk and cost and privatize profit" - Noam Chomsky, http://www.chomsky.info/interviews/20040731.htm

[texanna]

Maybe they should've turned first to all the people that got those really obscene bonuses this year, starting with the CEO! And, what happened to all that rhetoric from the NeoCons about responsibility? I mean, investing has risks and maybe they should've read the fine print and all, so why should the investors expect a bail out? Isn't that who's really getting the bail out - the big money investors? I guess if you're a realllllly expensive nanny, it's OK for the govt to be one. Meanwhile, all of us caught up in the real day-to-day problems these yahoos at the top created get a few hundred dollars from the govt to whom we pay much more in tax dollars as a per centage of our income than do the whiners at the tipppy tipppy top. It would've been more appropo for the govt to just send out some nice-sized slices of cake to all of us schmucks out here in the real world.

[Purple Girl]

And theri compadres of the Federal Reerve will pass the Bill to US, as Usual.
Does no one else see the circular screwing we are taking with the consistent help from this psuedo 'federal' entity?
they gamble our money away on Paper and Promises- and when Guido shows up at the door they use US as theri sheild and WE take the Beating- while they slip out the back door with all the cash?
What makes this NOT A CRIMINAL ENTERPRISE?
The private banking Firms who disguise them selves as the 'federal reserve' should be thrown of thisGravey Train they have been riding. The Bailout of the Depression was only for these entities- not the citizens. the 'federal reserve' was a scam then and is a scam now, taking all OUR money inbetween. Enough of this Bullshit Mafia Organization along with theri little dog the IRS! Labor for Wages does not consititute a Profit!

[Novista]

The real 'devil in the details' is: the 1913 adoption of the [not]Federal [no] Reserves so-called System, essentially a bastard form of privatization, whose output is Federal Reserve Notes [promising nothing!]

From the Bank of North America to the Bank of the United States, and then the Second Bank of the United States, those wonderful government chartered entities, the public has always been ripped off. In a way, the Fed brought you World War One (with a little help from J.P. Morgan) oh, and Woodrow Wilson, that isolationist prexy with an agenda. And a secret treaty with Great Britain to insert American into WW1.

Then, in 1920, an agreement to prop up the British pound, unleashing easy credit into the economy. And that inflated the stock market and Black Thursday happened. Tsk.

Fast forward to 1946, when America owned 80% of the gold reserves of the world. Part from war reparations and much from repayment of loans to 'the allies'. World War Two did not pull the U.S. out of the Great Depression. It was deficit spending, up to 38% of GDP and the knowledge that that 'barbaric relic' was "coming home", so to speak.

Time passes and those gold reserves are being depleted, having funded a generation of affluence for Americans. Rise of OPEC, unanticipated economic threat, and Tricky Dick screws Bretton Woods, repudiates the gold standard finally, floats the dollar on a sea of oil, as it were.

Here we are now, massive national debt, the trust in the U.S.$ as a global currency is shaky (to say the least) in a nation whose best export is armanents, little manufacturing infrastructure, a population of no savings sitting on top of a deflating housing and credit bubble, are you feeling lucky?

[dadw5boys]

Exactly where does it say the taxpayers have to repay the Federal Reserve if they bail out a Pirvate Investor???????? PLUS INTEREST????

[CharlesMac]

The authors of this tragedy have now run out of prose. I want to liken this latest mass insanity to the similar broken mental clockwork that got us into Iraq. In that one, we were pissed, we wanted revenge on somebody (preferably in the ME), and we would believe anything that furthered that end.


Once again, whole masses of people are believing something that is patently false. Entire cadres of economists and financial pundits believe that this bailout of Bears is a "great idea". They fear the instability that a failure would cause. They speak of all of the jobs which would be lost.


A great idea because The Fed is out of bullets. We actually know how much money the Fed has put up for auction already. They know they are going to get called on that. Lowering rates continues to kill the dollar. And raising them to ward off the real inflation we all have been quite aware of in our daily lives for at least a year.... is going to bring the whole economy to a halt.


So we listen to these financial wizards say it's a "great idea". What they don't say out loud is that it is still handing out our money. Except it is worse.


It is a money laundering scheme.


You take money which belongs to other people. Then you use a third party to take that money at very beneficial rates to them, and have them get it to the target operating partner. Us, to Fed, to JPM, to Bear.


The real money laundering begins when the Drug Lord Fed guarantees to cover the money lost by the massive incompetence, poor business practices, and outright excesses of Bear.


I guess I'm just repeating what Mr Blodget said. But it is the audacity of these champagne corksuckers to convince us it's a good idea because it will save jobs and keep the economy steady. Maybe it was bullshot financial schemes assisted by the cheap money Ponzi scheme over at the Drug Lord Fed which created those jobs. And maybe it was the cheap money that let Bear survive the minor recession of 2000-1 in the first place.


Maybe neither deserved to be..., in the first place.


Everybody has already pointed out the words that will fail those "free market capitalism" , shrimp forkin' iceholes. Yeah, "let the chips fall where they may." Until it's one of their chips. The great and painful thing about this is one of the concepts of fair markets and true capitalism..."the invisible hand". One of its simple principles is that you can't get something for nothing.


When something has value which is undeserved, The Hand comes after it. It does not stop until it gets it. And it usually takes extra back for its trouble. No matter where you try to hide unearned value, it will come after it, and after it. That's what it does. That's all it does.


The Fed, Wall Street, and the Banks can bail out all they want. It won't help them, and because they are using our money, our future, it will put a terrible hurtin' on us. Japan ha kept themselves in an 18 year recession by bailing out companies. Using the country's assets to prop up companies which consistently create no value for the economy. The People of Japan are the big losers.


On Tuesday Bernanke will cut the lending rate of the "free market". Affecting both the monetary and financial systems of our "capitalism" . We can't stop him. It's business as it has been for too long.


Just don't let anybody tell you the way they are going to bail out Bear is a "great idea". From now on, wait in the tall grass for anybody who wants to promote this style of "free market".


They are heretofore exposed as the poseurs and thieves, they truly are.

[larry278]

I thought that Bronx Cheer is the nickname of a cocktail called the Bronx. As I recall a Bronx is made of 6 parts of really cheap, rot gut blended whisky, aka rye, on the fetidly filthy coast & 1 part muskitel (the cheap kind that's at least 20% alcohol). Drinking 4 Bronxs in an evening will cause one to vomit one's toe nails through the nose.

[yowza1]

Well as we all know Republicans take care of each other and screw the nation and "the little folks" who("snicker, hmph") do things like pay taxes, work every day 8 hours at a job and seriously consider things like truth and goodness. When Republicans take over the White House and Congress they just open up the Federal treasury and let the other rich people rob it by tax breaks and outright thievery. So the current policy bailing out the securities market thieves is certainly no surprise coming from these patriotic flag wavin' freedom lovers.

[abbiehoffmansghost]

Where are the trolls on this? I want to hear why it's good to save irresponsible banks with taxpayer funds when it's wrong to help poor people with food stamps or mother's aid. Let's hear about why it's not the governments job to take care of people in need or people with illnesses that don't have insurance. I want to know why a bank or corporation is deserving of welfare and the people who literally are this country deserve to be pushed aside or used for cannon fodder. Come on trolls--let's talk economics, let's talk business.

[TheyAllSuck]

I don't think either corporations or poor people (or fools who can't meet their ARMs) should be bailed out. And I don't think Bear Sterns is so big, they shouldn't fail. I think they should crash to the ground. Wake me up when its JPM/Chase or Citigroup.

[veracity]

Henry, I have been following the Right-Wing assault on America's treasury since at least Pizzo (et al's) book "The LOOTING OF AMERICA" in late 1980s. http://www.amazon.com/Inside-Job-Looting-Americas-Savings/dp/006098600X (The even more compelling story is here in the intro to "the Mafia, the CIA, and George H.W.Bush [Sr.], http://www.freerepublic.com/forum/a389b6a173e33.htm
which explicitly states that had Dukakis-Bentson won the '88 election, the books title would have had Bentsen's name instead of Bush... at the very top circles, Republicans and Democrats were interchangeable as far as the looting of the S&Ls went, billions of taxpayer dollars to insider, connected S&L operators.)
The problem is, #1. that at that level the Repubs and Democrats ARE interchangeable; and #2. the "big money" CONTROLS the media in general, and financial press in particular. No better example could be found than Ken Starr's fed. unlimited prosecutor powers, which made hapless JIM McDOUGAL the center of a vast S&L conspiracy, even though his Madison Guarantee S&L (Arkansas) was a tiny player compared to Keating's Lincoln S&L ($2 billion in losses) or Neil Bush's Silverado S&L (one billion in taxpayer bailed-out losses) etc. Jim McDougal died on a cold concrete floor, in max security prison, in isolation, despite his advanced age, and denied his heart medication. Starr was able to get away with being that ruthless, because the American press-media (and public) bought the Republican "WHITEWATER!" narrative as they bought into the "LINCOLN BEDROOM SCANDAL" narrative - both of them sheer bunk. (Just to drive the point home, Starr's other trophy convicition was Hillary legal partner, and Bill WH counsel WEB HUBBELL... convicted by Starr of "OVERBILLING clients and partners"?? That (to steal a line from Martin Sheen in Apocalypse Now) is like handing out speeding tickets at the Indy 500! By that standard of "justice" EVERYONE in the Bush administration, from Cheney on down, would be staying in the Greybar hotel, free of charge!).
Oh yeah - to my point. The above examples illustrate how easy it is for the press/media and even financial media to DERAIL common sense reporting. What we NEED is someone to KEEP TRACK of ALL the FEDERAL big-government SUBSIDIES and BAILOUTS of the Bush administration - and who benefitted from them. My quick list includes Airline execs (but not passengers or workers) bailed out by Bush after 9-11; the billion dollar rebates and subsidies going to the oil companies, and now Bernake and the Fed PRINTING MONEY as fast as the dollar printing presses at Treasury can spin.
Most folks don't understand that the Fed is a consortium of PRIVATE banks, and that when the ruling board of the fed "INJECTS LIQUIDITY" into the market, that means Treasury is printing money and depositing it into the bank vaults of member banks. (Actually, the initial process is all electronic; but the Treasury presses do indeed spin to create the greenbacks to consumate the new "production" of dollars.)
All that may be perhaps a bit complex, but someone needs to keep track of "200 billion for Bear Stearns" and "fifteen billion" for airline bailouts, and the previous $200 billion for "market liquidity" a week or three ago, etc. By my count, that is almost a half trillion dollars the fed has created and "injected" into the markets within the past month... and NO ONE IS KEEPING TRACK ????

[njdon]

yes, mr. reagan, there is a free lunch.

[jqcitizen]

Spitzer takes a dive and Wall Street soars. Next few hours Bear Stearns sinks and gets saved.

Where did all this come from? It couldn't possibly have been from foreign banks. Could it?

[handyallen1]

what happened to the scary line from reagen "im from the government and im here to help" i guess its not scary to these 30 to 1 leveraged so called bankers

[allwrite]

The nature of us. Careening from one irresponsible, greed generated fiscal disaster to another. Paying for foolish military adventures with credit. A population that is entirely interested in the short term. How can anyone have confidence in the future of this nation?

[BARRISTER]

I bet you that the Bear Stern Executives got multi-million dollar bonuses at year's end!!