Total BS on Wall St.
The story of what’s happening on Wall St. is really pretty straightforward. It’s a classic bank run, this time on the investment bank formerly know as Bear Sterns, which we’ll just call by the apt acronym BS.
Over the past few months, folks who’d lent money to BS started to get worried that BS had made some bad bets with that money, and might not be able to pay them back. So they started calling in their IOUs.
When it started to look like those folks might be right—BS might not be able to meet the “margin calls”—the Feds got nervous that the firm could fail, and helped to orchestrate a bail out. Meanwhile, the firm went from being worth billions to being almost worthless in a matter of weeks.
There are many good articles out on this if you want to read up it. Go here, here, and in case you had a little residual love for BS in your heart, go here to get it expunged.
As for my contribution, I offer this primer.
Here’s what happened:
First, some firms that lend money made some big, risky home loans. The loans were risky because they ended up with lots of people who would only be able to pay them if house prices kept rising.
But the lenders weren’t that worried about the quality of loans because they didn’t hold on to them. They securitized them, meaning they packaged them with other loans and sold them to other investors.
Then the bubble burst and prices started to tank.
Then the loans started to go bad, but because they were squirreled away who knows where, no one knew quite what to do. So the part of the economy that provides credit froze up, and without free-flowing credit, our economy can’t expand.
As the losses piled up, well…see the BS story above.
The Federal Reserve and the Treasury are trying to unfreeze the credit markets by injecting “liquidity”—making a lot more cash available. But it hasn’t worked because investors are too spooked to lend and borrowers don’t want to invest anyway right now, what with the economy heading south with a vengeance.
All of which raises some very big, very good questions: What’s the risk engendered by these bailouts for the rest of us? There’s a good argument to be made for the bailout (see Krugman today) but not if the fat cats get to skate on by unscathed. At the heart of the bailout is the Fed taking on the very smelliest part of the BS portfolio: the mortgatge debt. I’d like to know what we’re getting in return (and Mr. Paulson, the answer: “smoothly functioning markets” is unacceptable).
And lest we forget, none of this had to happen. Market capitalism, once again, totally overshot, taking a fine idea—providing credit so that folks who aren’t rich can own homes—and slicing and dicing it until no one understood the financial Frankenstein they’d created. The government and the Fed turned a blind eye, which was fine with the “innovators.” Now that the monster has turned on them, they’re running back to the gov’t to bail them out.
My friends, we have a lot of cleaning up to do.
Jared,
Thanks for this post.
PS: Your links are not active...
March 17, 2008 9:41 AM | Reply | Permalink
Thanks--links now active.
March 17, 2008 9:47 AM | Reply | Permalink
Hey we have another Vietnam War in Iraq and now we got another Savings and Loan crisis on Wall Street complete with a taxpayer bailout!
Whoa, its like I'm having a bad acid flashback dude.
The more things change, the more things stay the same...
March 17, 2008 10:08 AM | Reply | Permalink
Okay, here are the questions that come to my mind that nobody seems to be answering. Perhaps you can help.
First, why are we only seeing the rich guys getting a bailout and no one is even discussing helping all the homeowners who are losing their homes to stay in them? Seems to me that no one helps to bail out heroin pushers when they get caught at their dirty business. The addicts always are provided some help. The borrowers who cannot afford to pay their mortgages now were lured in by the unrestrained greed of mortgage pushers who sold them homes and loans that were only within their reach if the unusual circumstances of the past few years prevailed forever. In others words, the borrowers involvement was mostly innocent and they got hoodwinked, taken for a ride and effectively robbed. Shouldn't it be the homeowners we help first?
Second, why is there no discussion of who is responsible for this mess both in the aggregate in terms of government policy and specifically in terms of the bad actors who led the way on this whole mortgage securities scam? Personally, I would like to see some executives and their Boards of Directors investigated and prosecuted for neglecting their fiduciary responsibilities.
Third, why do we not see Democrats in Congress or the two still in the Presidential race responding to this crisis? I believe that both Clinton and Obama are so beholden to the very interests that brought this crisis upon us that they are in no position to even speak truthfully about it. Clinton's debt to big corporate interests is well known, but Obama's popularity on Wall Street is not so well known. I think it's telling that solutions for this obvious economic collapse isn't even on the lips of either candidate. Instead, they wish to carp at eachother over Clinton's taxes and Obama's preacher. This is only more evidence IMO that both, as a result of their corporate/centrist allegiances, are completely out of touch with the reality of average Americans. What will it take to get them to realize the extent of this disaster for average people and at least start discussing how we alleviate the crisis?
Have we no real Democrats even in the Congress left to speak up for the common man and woman who, after all is said and done, will be the one's paying the bill for it all and bearing most of the pain?
Any illumination you might provide on these questions would be very welcome indeed.
March 17, 2008 10:12 AM | Reply | Permalink
The extremely articulate Rep. Barney Frank, chairman of the House Committee on Financial Services, has consistently preached oversight on the on the subprime mortgage and predatory lending issues -- mostly to deaf ears.
He recently wrote an editorial in the Washington Post that made a case for assisting borrowers and suppressing foreclosures:
http://www.house.gov/frank/housing030608.html
March 17, 2008 10:50 AM | Reply | Permalink
I am a Democrat and I work on Wall Street. Here's my stab at your questions.
1. Individuals who are under water on their mortgages and Wall Street are two separate issues. They're obviously reacting to the same stimulus, but they are different. The immediate concern, since it spills into the whole economy, is the credit crunch (Wall Street's reaction to the RE bubble burst). A recession is defined as two consecutive quarters of negative growth. The economy cannot grow without available capital, so a credit crunch is a sure way to recession. A recession would impact all participants in the economy—not just those who got burned with a bad mortgage deal. So if we need to triage, the credit crunch needs to be addressed before the individuals with the negative amortized mortgage.
2. Finger pointing is imminent. We’ll see some legislation and accounting standards both here and abroad in the next few years. I expect a SOX-like thing coming, as well as some FASB changes. I have some opinions about who’s to blame, but I’ll hold off until things shake out a bit more. Interesting irony about legislation/standards: Last time we had a slate of accounting scandals the rules were supp’d up via SOX and BASEL II. One result of the additional scrutiny is that banks invested heavily into their market risk management tools. A good thing, right? Maybe not so much… After the investments in market risk paid off, Banks had lower capital charges (Think of a casino that needs to keep $X in their cashiers booth to cover their worst case scenario. The casino re-calibrates their slots for fewer winners, resulting in less cash required in the cashiers booth). Now we have a credit crunch, and the cash reserves are lower because of more effective market risk. Ooops! Of course mortgage-backed instruments are not part of market-risk management (they’re part of credit-risk management, the state of the art of which is in the dark-ages). If they had been, this fiasco might have been avoided or minimized.
3. Who would want to touch this thing if they didn’t have to? I see your point that one of our candidates should say something, but the whole mess is very toxic. On one hand talking about punishing the banks is counter-productive since you really cannot target the banks. Talking about helping the folks burned by their mortgages appeals only to a small part of the electorate (namely those with bad mortgages or real estate deals). In a perverse way, to be a populist in this debate might make you look like a corporate stooge.
Let me leave you with a sense of how complicated fixing the problem could be. First off, you need to understand that the capital markets are like an amorphous blob. If you try to mess with one part, the whole thing acts like jello. It’s hard to target specific things without unintended consequences. For example, a market risk measure looks at 18,000 different factors in it’s monte carlo simulation (a what-if calculation that uses current market data to predict many future results, and then summarizes the results as a risk measure). That means any one or two things in the 18,000 data points can effect any number of outcomes. It’s a gamble of unintended consequences. Like I alluded to before, when the banks were forced to fix their market risk practices the result was that they could put more of their capital at risk. No they’re getting burned in the credit markets, have less capital on hand, and a credit crunch that prevents them from borrowing.
Last thought. It’s no longer about sub-prime instruments. Last week Carlisle got calls from their banks on their heavily mortgage-backed leveraged positions. Carlisle’s inventory was all AAA. They may now be forced to dump all these AAA’s which will result is AAA values plummeting because of too much inventory, no buyers, and no credit for those who would like to buy, but do not have the cash.
A perfect storm is brewing.
March 17, 2008 11:53 AM | Reply | Permalink
Mr. Flynn - great post above, but do you remember when we started discussing this stuff in August last year?
This is way worse than what I anticipated - and I felt I was pretty bearish back when the ugliness of the losses was just becoming apparent - and the rumors kicking about today are scary.
The SEC and other regulators around the world have been camped out on the dealing floors, trying to see minute to minute what is happening, who's in the market, who's getting pounded. Never seen this before in my life, certainly it is no way to calm the markets.
March 17, 2008 12:13 PM | Reply | Permalink
Let me ruin your day. This is the worst I've ever seen it.
I do recall some discussion last August and I too was bearish back then. The hope was that a couple of big writedowns would purge the system of subprime and we'd move on.
My tune has changed recently. The Carlyle Capitals calls scared the sh*t out of me and now BS... . I just heard a rumor that my firm has(d) $500M in BS stock.
We're going to start looking good to some sovereign funds in the next four months when the market thinks it's reached the bottom.
March 17, 2008 2:45 PM | Reply | Permalink
My hope back then was that the risk had been widely disseminated through the system. Now I am coming to the view that there was more risk than the system could handle.
I'm sat on a dealing floor right now. We are on death watch here, the rumors circulating today are unrepeatable, and I have had several meetings with out-of-their-depth regulators explaining what a total fucking mess the credit markets are at the moment. It's not possible to overstate this crisis, and my feeling is the bottom is nowhere near in sight.
I thought we could lose a big bank this year. I didn't think it would be this soon, and I didn't think it would be Bear. But there you have it, and now the markets are only betting on who's next.
March 17, 2008 3:21 PM | Reply | Permalink
Hang tight. This is one event I wouldn't want to have a front row seat to.
March 17, 2008 5:45 PM | Reply | Permalink
I'll be grateful to have a seat, any seat, for as long as this drama unfolds.
March 18, 2008 7:46 AM | Reply | Permalink
As a Dem, did you get any solace that so many former Republicans are linked to Carlyle?
March 17, 2008 3:58 PM | Reply | Permalink
I always thought schaudenfraud was a Republican thing.
Am I wrong?
March 17, 2008 5:46 PM | Reply | Permalink
So the part of the economy that provides credit froze up, and without free-flowing credit, our economy can’t expand. Jared Bernstein
Can you explain exactly what Bear, Stearns does (did) that is critical to the functioning of the economy?
And additionally, other than an opportunity to give the market a "slap in the face," was the Fed really concerned with the Bear's demise or was it simply taking advantage of the Street's biggest bad boy to send a message?
March 17, 2008 10:23 AM | Reply | Permalink
The text books would say BS efficiently allocated capital toward its most productive use. Um, I think we can put that aside for now.
They borrowed and lent money. We need that, right? But they did it badly, excessively, riskily, will little oversight, and now lots of people lost and will keep losing.
The question re the bailout is, was BS too big to fail? IE, if we let them crash and burn would the benefits (avoiding moral hazard, meting out market discipline, clearing the market of bad loans) be worth the costs?
Krugman seems to think not, and he's usually right. I'm not so sure. I might have let 'em fry.
March 17, 2008 10:41 AM | Reply | Permalink
Jared,
if we don't let them fry, they'll be back tomorrow with more Edsels to sell to the woefully
unsophisticated.
Hey, maybe we can have a second round of 80s type leveraged buyouts ala Gordon Gecko in Wall Street
March 17, 2008 11:03 AM | Reply | Permalink
Jared:
Letting them burn ignores the fact that the subprime infection has spread to AAA instruments. So now even safe mortgage-backs are no longer safe. It's no longer the case that we can let bad-loans burn off without impacting good ones. For example:
http://online.wsj.com/article/SB120572975692141167.html?mod=googlenews_wsj
There are little options left for a targeted punishing of the bad. The problems have metastasized and will impact both the rich bank president and the state employee pension fund participant.
March 17, 2008 12:05 PM | Reply | Permalink
For months, I've been watching, what I consider a counter-intuitive drop in treasury rates, caused by the advice: "Flee to quality". People have been warning that money market accounts could end up with losses, so go only for treasury backed bond accounts.
Now... with the dollar in free fall, the US in hock up to its ears, and the inflation that the Fed is adding to with its current methods, what do you think is going to happen to treasuries in the not too distant future???
March 17, 2008 1:11 PM | Reply | Permalink
I think T-bills will be fine. Let's face it, we're not the ones buying them. The free fall of the dollar should dampen Chinese appetite for T-Bills, but probably not since the Chinese government is authoritarian, and they have set their priorities to cool in country growth by spending their coffers over here at the T-Bill auctions.
We're damaged goods, but still a safe bet.
March 17, 2008 3:03 PM | Reply | Permalink
All quite true; the thing that worries me long-term (substantially longer term than the current credit problems!) is: "what happens when China decides it's in China's interest to pull out of Treasuries"...
March 17, 2008 5:36 PM | Reply | Permalink
I'm hoping it's like the gambling addict who doubles down when he cannot afford to do so; he gets so in over his head that to walk away could prove more costly than riding it out.
March 17, 2008 5:49 PM | Reply | Permalink
I've heard it said that "hope" is not a strategy.
March 17, 2008 8:22 PM | Reply | Permalink
I work on Wall Street. Hope is all we know.
March 17, 2008 8:46 PM | Reply | Permalink
Jared:
Letting them burn ignores the fact that the subprime infection has spread to AAA instruments. So now even safe mortgage-backs are no longer safe. It's no longer the case that we can let bad-loans burn off without impacting good ones. For example:
http://online.wsj.com/article/SB120572975692141167.html?mod=googlenews_wsj
There are little options left for a targeted punishing of the bad. The problems have metastasized and will impact both the rich bank president and the state employee pension fund participant.
March 17, 2008 12:05 PM | Reply | Permalink
Can you explain exactly what Bear Stearns does (did) that is critical to the functioning of the economy?
Major player in the repo and fixed income derivatives business, and would have left one god-awful mess had it gone bust.
Remember how LTCM could not be allowed to fail? This was of a similar order of magnitude, except private money alone was not going to get the job done.
March 17, 2008 12:19 PM | Reply | Permalink
Jared,
explain the following me:
"The loans were risky because they ended up with lots of people who would only be able to pay them if house prices kept rising."
How can rising house prices help make people's mortgages easier to pay?
Or am I misunderstanding what you said?
On another note;
Is this about right?
We have sharks on Wall Street who created vehicles as a way to earn lots of money for themselves. Here they obviously sold mortgages to many unqualified people, sold the notes to others and walked away with a hefty profit. Then we had a second round of sharks who bundled them and sold
the bundles to others, and this second round of sharks also walked away with a hefty profit.
And now the general public pays the bill as the sharks loll on a beach in the Caribbean with a Spitzer type hooker and a colorful drink with an umbrella in the glass.
March 17, 2008 10:58 AM | Reply | Permalink
I'm not an expert by any means, but I did stay at a Holiday Inn Express last night so I'll take a stab at your first question.
When home prices continually rise, people buy property that they can't afford in hopes of cashing in when they resell. When the home value falls, they still can't afford it and now they can no longer resell it. Rising home prices help people pay their mortgages in the sense that they can sell the property and pay off the debt.
March 17, 2008 12:57 PM | Reply | Permalink
I'm not an expert by any means, but I did stay at a Holiday Inn Express last night so I'll take a stab at your first question.
When home prices continually rise, people buy property that they can't afford in hopes of cashing in when they resell. When the home value falls, they still can't afford it and now they can no longer resell it. Rising home prices help people pay their mortgages in the sense that they can sell the property and pay off the debt.
March 17, 2008 12:57 PM | Reply | Permalink
I'm not an expert by any means, but I did stay at a Holiday Inn Express last night so I'll take a stab at your first question.
When home prices continually rise, people buy property that they can't afford in hopes of cashing in when they resell. When the home value falls, they still can't afford it and now they can no longer resell it. Rising home prices help people pay their mortgages in the sense that they can sell the property and pay off the debt.
March 17, 2008 12:57 PM | Reply | Permalink
It sounds like you stayed in an Echo Chamber and not a Holiday Inn. :-)
Thanks for the info.
March 17, 2008 1:08 PM | Reply | Permalink
JohnW--good ? re how rising home prices keep this scheme afloat.
Say you take out a loan you can't afford to buy a home you can't afford. This home is now your asset and if it appreciates, you're wealthier. You can extract some of that wealth by taking out a bigger loan (refi) against the increased value of your asset. You can use some of that money to pay off principal, and maybe lock in a lower rate, so you save on monthly payments too.
In reverse, the whole thing unwinds. Lots of folks are finding themselves 'underwater,' owing more on the mortgage than the value of the home.
March 17, 2008 4:07 PM | Reply | Permalink
It's worth noting that we don't have the M3 money supply measure anymore, and if we did, we might be able to see the credit contraction clearly.
March 17, 2008 5:43 PM | Reply | Permalink
At its base, isn't this the same mark to market accounting as Enron -- betting on future earnings to be certain when they're anything but?
What's the answer? Re-institute Glass-Steagall? I've no idea. Obviously, when abused, this accounting practice continues to have dire consequences.
March 17, 2008 11:49 AM | Reply | Permalink
Not quite like Enron. The instruments being traded are fixed income, not securities. As such they are more durable. The sub prime instruments carry more risk, which is hedged by higher interest rates.
Also, the mark-to-market requirements on fixed income is lighter than securities--for now, at any rate. It's fuzzier as to when you have to or how you declare impairment on fix incomes.
A lot of this grayness is fueling the fears on Wall Street. If we were talking about securities the rules are clearer (as a result of Enron, Worldcom, etc).
March 17, 2008 12:13 PM | Reply | Permalink
Why were the banks unable to fully hedge the risk of these mortgage-backed securities? It looks like the trading in credit derivatives was too thin and not public and not transparent. Thus there was no brake on the ability of the banks to package and sell the risky mortgages. There was no broad market evaluation of how risky the mortgage securities actually were. The rating services had no clue...
March 17, 2008 1:22 PM | Reply | Permalink
One could argue that the subprime loans were hedged appropriately--i.e. the rates were high to cover defaults. What escaped the hedge, however, were that the subprimes were packaged with AAA's in a way that provided no transparency. When subprime hit the skids no one knew where the might be hiding, so exposure was difficult to guess; therefore ALL mortgage backed securities were suspect. Once all mortgage backed instruments were suspect, credit dried up for them and the markets started to fall in the more leveraged locales: Florida, Nevada, etc. Once some markets started to decline the operating assumption was that all markets would decline, making credit even more constricted and becoming a self-fulfilling prophecy (one of Wall Street's less attractive sports).
As for rating agencies, their bread and butter (and expertise) is publically traded securities, and other transparent entities (States, companies, pension funds etc.) Mortgage-backed funds do not belong to this space, and were also very popular with private equity (which is also not transparent to the general public). They simply did not know what to dow with a rating for these situations. They defaulted to the rating of the issuer, thereby obscuring the true risk. This is my read, at any rate. The truth will not come out for some time.
Hate to join today's chorus, but we're screwed. Not even cheap Fed money is satisfying this beast.
March 17, 2008 2:58 PM | Reply | Permalink
simply did not know what to dow with a rating for these situations. They defaulted to the rating of the issuer, thereby obscuring the true risk.
That, and, any wiggle room they felt they had would generally be biased to the upside. After all, if BSC wanted to sell the next billion in CDOs, and rating agency X wanted to rate today's billion lower than rating agency Y, Y would get the future business. The message is clear enough: "when in doubt, rate it higher."
March 17, 2008 5:42 PM | Reply | Permalink
I came across this article today, Tuesday, on how the price of hedge instruments could have sent the warning signs the rating agencies needed - but the pricing was handled by the banks themselves.
http://www.informationclearinghouse.info/article19555.htm
It includes this quote: "The Feds effectively handed a Federal Reserve ATM card to JPMorgan to funnel your tax dollars to the teetering Bear Stearns brokerage firm to address counterparty risks that have been building for at least 4 years as the Feds snoozed. Counterparty risk is the trillions of dollars of insurance contracts (credit default swaps and other derivatives) taken out by Wall Street firms on each others (counterparty) bonds, bundled mortgage and commercial debt (collateralized debt obligations). The firms have used unregulated over-the-counter contracts to perform this risk transfer alchemy and funded their own company, Markit Group Ltd., to take the place of a regulated exchange for price discovery."
March 18, 2008 7:20 PM | Reply | Permalink
mcd410x presents a good question. Would Glass-Steagall have prevented this crisis from being as severe? In fact, how would its retention have impacted the whole mess? And what would reimposing it do?
I's see some pleasure just in shooting retired Sen. Phil Gramm, but that's not something you do because someone causes financial problems. Still... one can dream.
March 17, 2008 4:30 PM | Reply | Permalink
I'd be interested in Jared's view if G-S would have prevented the current situation. In one sense G-S used to keep the geniuses who cook up the instruments at arms length from the salesmen who sell them. Perhaps if G-S were still the rule some of these packagings would not have occurred; or may not have been sold.
I may be wrong on this, but, my understanding is that most of the packaging was done by institutional banks and not the issuers of the mortgages, so I am not concerned that there was a ponzy-scheme, as it were. Still I am not sure if G-S would have prevented a JP Morgan from packaging and then work with a Chase Manhattan to move the product.
I'll leave it to the experts in banking history...
March 17, 2008 5:55 PM | Reply | Permalink
This isn't a shareholder bailout. Those investors lost everything at the $2 sales price. And the fund investors can't be out of the woods either - it isn't even certain that JP Morgan can actually manage Bear Stearns liabilities - or else you wouldn't need the Fed standing behind them, right?
I think the response is appropriate - but I wonder how the public should be rewarded when JP Morgan makes a killing on the acquisition over the next 10 years.
March 17, 2008 11:57 AM | Reply | Permalink
I agree, this is no bail out. The deal was cobbled together over a weekend, so JPMorganChase has only a couple of hours for due diligence. The Fed financing was the grease to get the deal done, and to samhell's point, there's no way of knowing (especially with only 48-hours) if the deal covers the liabilities.
What I want to see is BS's CEO's words in the days leading up to this parsed carefully. Such a huge problem does not happen overnight. I heard on NPR that he was making statements as late as last week that they had liquidity in reserve.
If he said this, or any other misleading statement, then he's going to jail.
March 17, 2008 6:01 PM | Reply | Permalink
Capitalism without risk isn't. This is a mass, informal, invisible, quickie bankruptcy proceeding for the investor. Without the 1099s, the stigma, the debt counseling, the 341 meeting.... or so much as a filing fee.
We're all playing in a casino where the house covers the whales' losses by lowering the payout on everyone else.
March 17, 2008 11:57 AM | Reply | Permalink
Aren't these the same people who wanted our Social Security honeypot a few years ago?
Keep this in mind the next time they ask;>
March 17, 2008 12:28 PM | Reply | Permalink
derrikbill (?) --
Is right. $2/s is a thinly disguised quicky bankruptcy, and avoids all of the delays and whoopla that would attend going through the formalities in court. The boys at Merril, Carlysle, et al. can read this loud and clear. My question is to JPM: how can your lawyers deflate the parachutes of the arrogant execs at BS as they fire them. That I would like to watch.
March 17, 2008 12:28 PM | Reply | Permalink
I still don't think I quite understand what would happen if we just let the bastards fail. Is the impact merely psychological? Does our economy really depend upon the fear level of bankers? (I know, I'm naive and uninformed)
Regardless, if we're going to do a bailout, I suppose I could get behind an RTC type solution as Krugman suggests. Any critiques of the RTC out there? How successful was that program? Perhaps I should ask how big a giveaway was it.
Ed
March 17, 2008 1:33 PM | Reply | Permalink
By all means, let's bail out the wealthy speculators on Wall Street again. Our lives are nothing, unless we can know that hordes of lazy parasites in business suits will always have enough of our hard-earned money to gamble with. Though the will never work or produce anything, we couldn't do without their superior sense of entitlement, and the cute way they celebrate every time workers lose their jobs. The day that rich speculators have to sell their second home in Spain because of a lousy investment, is the day that this is no longer America.
March 17, 2008 1:34 PM | Reply | Permalink
Such a fine snarkiness sensibility. I salute you.
March 17, 2008 3:14 PM | Reply | Permalink
In case anyone is interested. I don't have an economics/conspiracy theorist background deep enough to see if this is true, but it damn well scares me.
March 17, 2008 1:53 PM | Reply | Permalink
stupid link not working. http://www.gregpalast.com/elliot-spitzer-gets-nailed/
March 17, 2008 1:58 PM | Reply | Permalink
I have a feeling that this means that my Chase credit card interest rate will substantially increase so they can make back some of their money.
So, once again the little guy who can barely pay his bills will end up paying - but the CEOs will be laughing at us from their mansions and yachts that they bought with ill-gotten gains.
March 17, 2008 2:45 PM | Reply | Permalink
In my lifetime there have been too many bailouts to suit me. The same old thing occurs over and over. Taxpayers take a screwing both ways all the time. Screwed by having to fork over billions to keep mismanaged public entities from going belly up and screwed by those same entities when things are going OK.
It is definitely time to just let them fail and introduce some much needed discipline into the marketplace. We have this mess because there is none. This is a whole lot about a bunch of spoiled Harvard grads looking out for one another. It's an exclusive club with an ultra-tiny membership which has unbridled power and no accountability.
March 17, 2008 3:40 PM | Reply | Permalink
Hey Jared is the lesson in all of this that in American Capitalism we socialize risk and privatize profit? I've heard rumblings of this cozy and convenient financial relationship and I'm wondering if this is a clear example of it.
If only I made enough money to play too... ;-)
March 17, 2008 5:13 PM | Reply | Permalink
Re: a good argument to be made for the bailout (see Krugman today) but not if the fat cats get to skate on by unscathed.
They aren't exactly unscathed. A stock decline of 97% has wiped out a huge chunk of their wealth. In addition the company officers may (probably will) face lawsuits, and if the closets yield any real skeletons, possible criminal charges.
Re: First, why are we only seeing the rich guys getting a bailout and no one is even discussing helping all the homeowners who are losing their homes to stay in them?
There are a number of programs in place or being worked on to help distressed homeowners.
Re: Third, why do we not see Democrats in Congress or the two still in the Presidential race responding to this crisis?
Agreed. It would nice if they'd talk about something other than Hillary's taxes and Obama's preacher.
Re: I might have let 'em fry.
Assuming you don't actually want to electrocute people, you seem to be missing the fact that Bear Sterns has gone under-- it has (or soon will) ceased to exist as an independent entity, most of its workforce will probably be pink slipped and its assets will be liquidated. The Fed did not "bail out" Bear Sterns. It simply presided over its last rites.
March 17, 2008 6:27 PM | Reply | Permalink
So I was just hired at Bear last week...
Not looking like such a great offer anymore
March 18, 2008 8:46 AM | Reply | Permalink