Question: Did the fed orchestrate a bailout of Bear Stearns or provide a huge subsidy to J. P. Morgan, Chase?
Once again, the current administration, the world's cheerleader for private enterprise has provided a huge taxpayer subsidy to a giant, private bank. There's enough public information out there to raise some serious questions.
Two days before the announcement of the proposed deal, the Fed offered to extend enough credit to Bear Steans to give it one month to stabilize its situation.
Two days before the deal was announced Bear Stearns stock was trading in the vicinity of $30 per share. This was the last publicly traded price, arguably the best indicator of value.
The proposed deal includes massive Fed guaranties to protect the purchaser against unforeseen liabilities.
To the extent that the value of the enterprise is in excess of the $2 per share price, the Fed has orchestrated a transfer of wealth from the Bear Stearns shareholders to the shareholders of JP Morgan, Chase.
By offering to swap treasury securities for the lower rated debt that undermined Bear and is threatening other Wall Street banks, is the Fed guaranteeing an indeterminate amount of liabilities? How much is the Fed worth? What is the extent of this exposure in the financial markets?
What is the public benefit from the Fed's actions? Phrases like "insuring the stability and orderly functioning of the financial markets" need to be explained.
Has our government considered guaranteeing the mortgage exposure of homeowners with sub-prime loans? Why not? Are homeowners more culpable for their excess borrowing than the financial wizards who constructed the sub-prime securities and derivatives, or than those who traded in these instruments?
Please send me your views.
