Bummed about all the money you're losing on the value of your house? Don't worry about it! You live in Bailout Nation.
The Bear Stearns collapse was a tragedy for 14,000 hard-working Bear (BSC) employees, all of whom deserved a more vigilant/competent management team. It was also a major bummer for passive shareholders, who got their heads handed to them. But thanks to the generosity of Ben Bernanke, Hank Paulson, and U.S. taxpayers, both camps are walking away with about $10 more than they deserve.
Bernanke and Paulson tried to engineer the Bear Stearns bailout so it didn't look like a bailout -- by insisting on a deminimus $2 takeout price. But by guaranteeing $30 billion of Bear Stearns balance sheet assets, the Fed effectively transformed Bear Stearns into a Treasury Bill. This did a lot more than save Bear from bankruptcy: It made it worth vastly more than the zero it would have been worth had the government not stepped in. And Bear Stearns shareholders, understandably, jumped on this.
Bear Stearns shareholders still got poleaxed, so the Fed will still be able to parrot its "No Bailout" line. But actions speak louder than words. U.S. citizens who gambled on ever-rising home prices are a far more sympathetic lot than Bear Stearns traders and shareholders (and, more importantly, they wield a lot more voting power--especially in an election year).
So get ready for the Fed's next great taxpayer-funded bailout, which is now almost guaranteed: The $1+ Trillion U.S. Homeowner Rescue Plan.
(Wait--you're annoyed that you didn't behave irresponsibly and buy a house that you couldn't afford and you don't want your tax dollars going to help those who did? Tough!)
See Also:
More Moral Hazard: Now Let's Watch Bear and JP Morgan Play the Fed
SEC Saves Bear Stearns Alan Schwartz--Not a Liar!
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Which includes the Realtors, the Appraisers, the Mortgage Lenders and Brokers, the Wall Street investment bankers and brokers that all conspired to invent and sell for huge fees this new form of "securitized debt".
Let's add to the bail-out list the pension funds, investment funds, banks and individuals all around the world that unknowingly bought this"junk" and most of all the people of this country who depended once again on their government to protect them from just such a "perfect storm" as no regulation of the mortgage industry and no regulation of Wall Street and the "glut" of world wide savings which funded the scam.
The problem is too big and too perilous to play out everyone's petty dream of seeing people and families throughout our country and the world be punished for acts that for the most part were just bad judgment, hubris, and bad luck.
Millions and million of people that did not borrow money and yes, never missed a payment in their life are going to also lose their homes, their jobs and their dignity if this disaster is allowed to continue.
While you are out there beating the drum and war-whooping for your neighbor's demise--look in the mirror. You may be next.
Nevertheless, there is no more reason to protect debtholders than shareholders. At the end of the day, they have been paid a considerable premium for the risk of holding the debt of Bear Stearns. If the debtholders had wanted a risk-free investment they could have bought Treasuries, but they would have received much less interest over time. Sadly for everyone else, these fortunate investors received the best of both worlds -- excess return on what has become a government guaranteed investment. Shouldn't we all feel sheepish.
There really should be one simple rule. NO BAILOUTS. Investments are made with the expectation of earning more return than is available from a risk-free alternative. The downside is that you can lose money. If for any reason the resources of the American taxpayer are called upon to protect a private enterprise, as has been the case with Bear Stearns, the taxpayer should be compensated like any private investor. Let's all pretend we are Warren Buffett.
Bear was stuck with leveraged derivatives. Those derivatives probably only represented about $1 billion or less in actual mortgages. Am I right?
Ha ha! What?!
interest, I paid something like $ 165,000 back, and even with today's prices it would
never reach that estimate should I sell it and recoup what I put in it. The recent home prices are unreal, get thrown together in record time, in areas that are flood prone when
it rains heavily and the ground has not yet settled. Amazing.