Friday, March 14, 2008

Bear Stearns Gets Fed Bail-Out

By Cernig

Fester certainly called it earlier this morning when he wrote: "we could have a situation where a really nasty private sector debt crisis transforms itself into a really nasty public-private debt crisis".

He means like this:
JPMorgan Chase & Co (JPM.N) and the Federal Reserve Bank of New York on Friday agreed to provide emergency financing to Bear Stearns (BSC.N) after the investment bank said its cash position had deteriorated sharply, sending its shares into freefall.

Stock of the fifth-largest U.S. investment bank dropped as much as 50 percent in morning trading after the news, the latest in the Fed's efforts to soothe financial markets in response to a widening credit crisis spurred by rising mortgage defaults.

"Our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations," said Bear Stearns Chief Executive Alan Schwartz, in a statement.

...Bear Stearns has more exposure to the U.S. bond markets than its competitors, and has a large mortgage-backed securities business. It was among the first to disclose the impact of the subprime mortgage market meltdown when two of its leveraged hedge funds collapsed last summer, losing $1.6 billion.

"With the market's reaction, I'd say stick a fork in them, they're done," said James Ellman, portfolio manager at Seacliff Capital, a San Francisco-based hedge fund. "The company clearly has to choose from a set of unpalatable choices: sell a large amount of equity, sell the company outright or sell assets and try to hold on and hope for the best."

..."The situation is very much that Bear Stearns was very close to the edge and it was much worse than we all thought," said Michael Klawitter, currency strategist at Dresdner Kleinwort, Frankfurt.

"It raises severe concerns over other banks. (Bear Stearns) wasn't a small bank, it was the second largest underwriter of mortgages last year. For the situation to deteriorate in that way is not good news and it will add further to jitters," he added.
Now I'm not an economist, I don't even play one on the internet, but it seems to me that Bear Stearns has just been helped to a hefty chunk of corporate welfare on the taxpayer's dollar (that's you) as reward for a whole slew of bad investments. Bad investments that were, according to Nobel winning economist Joseph Stiglitz, encouraged by the Bush administration in a vain attempt to keep the U.S. economy afloat on deficit spending while three trillion bucks was poured into the Iraqi sandpit. Where's the "credit card act" for these people?

And since the Federal piggy-bank (that's you again) is empty, the only place the Fed can get the money for bail-outs like this is overseas (more deficit) - which Fester points out will only come with strings attached. I've written before that George Bush has the soul of an assett-stripper. This is the endgame, after all the good bits have been sold out from under the shareholders and employees (guess what, you again) to Dubya's own backers and just before the remaining shell of what was USA Inc. is declared non-viable and sold to some foreign buyer.


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