So, the government bailed out investment bank Bear Stearns today, with a healthy assist from JPMorgan.

NEW YORK - Bear Stearns Cos., one of the most venerable names on Wall Street, turned to a rival bank and the federal government for a last-minute bailout Friday to prevent it from collapsing.

The Federal Reserve responded swiftly to pleas from Bear Stearns that its coffers had "significantly deteriorated" within a 24-hour period as rumors about the bank's situation fueled the Wall Street version of a run on the bank. Central bankers tapped a rarely used Depression-era provision to provide loans, and said they were ready to provide extra resources to combat an erosion of confidence in America's biggest financial institutions.

Nearly half the value of Bear Stearns, or about $5.7 billion, was wiped out in a matter of minutes as investors felt the bailout signaled that the credit crisis has reached a more serious stage, and now threatens to undermine the broader financial system — and the U.S. economy.

"My guess is by next week, there will be rumors of other large, familiar institutions" that might be in financial trouble similar to Bear Stearns, said Anil Kashyap, a professor at the Graduate School of Business at the University of Chicago.

Bear Stearns, the nation's fifth-largest investment bank, made its fortune dealing in opaque mortgage-backed securities — a strategy that backfired amid the worst housing slump in a quarter century. The bank has racked up $2.75 billion in write-downs since last year, and releases first-quarter results on Monday that could show more losses.{...}

Ok, so riddle me this, joker: a business listed on the stock exchange, made some faulty gambles by buying up mortgage-backed securities and is now in trouble, so they go running to the government to bail them out. And guess what? The government helps them out by floating them some cash.

I have one question: how does this help anyone out in the long run?

I am not an economist. I don't claim to have a good grasp on the wheel-running hamster that is "the market," but I don't see how funding a business which made bad decisions should be bailed out by the taxpayers of this country. Particularly not when, undoubtedly, despite already having written off $2.8 BILLION in losses, the fat cats at the top were undoubtedly well-compensated with bonuses and dividends.

I understand about keeping our financial system working, but, and let's face it kids, it's time to separate the wheat from the chaff. Perhaps Bear Stearns needs to crash, so that the market can be come healthier? Perhaps this might, when the dust has settled, boost the dollar out of the basement and get speculators out of the oil market, so the cost of living can go down and I can stop paying through the nose for things like eggs and milk. I don't know. Again, I'm not an economist. But I do know this much: I'm getting tired, as a taxpayer, of funding businesses who bought securities that were faulty in the first place. Anyone with half a brain knows that ARM-interest only mortgages were a bad idea. Why, gee willikers, sir, you're trying to sell me a loan where I only pay the interest on said loan, and that rate is adjustable, meaning it's just as likely to go up as well as down, in an overinflated real estate market? Why, thank you, sir, but no. If people didn't figure it out, well, sorry, kids. That's just the way the ball bounces. {Insert Mr. Brady explaining the Latin phrase 'Caveat Emptor' here} Why didn't the MBA geniuses on Wall Street figure out that buying securities based, in part, on these mortgages was a bad idea?

I guess it comes down to this: I'm tired of bailing out stupid people. Whether they be your average subprime mortgage customer who got in over their head, or fat cat MBA's on Wall Street, who should have known better than to bet the farm on these securities. I've got the feeling that all this government intervention is just putting off the inevitable.

Posted by: Kathy at 01:05 PM | No Comments | Add Comment
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