Bailing Out a Big Gamble
Where’s the outrage? That’s the question I kept asking as I heard that the Federal Reserve Bank had bailed out Bear Stearns by offering to take on $30 billion of its riskiest assets so JP Morgan could buy the rest of the firm on a “fire sale.” Bear Stearns was known on Wall Street for being a “survival of the fittest” type place where highly levered hedge funds gambled with the money of wealthy investors. And now that the gamblers have gone broke, the Federal government is bailing them out. Yes, that’s the same federal government too concerned with fiscal prudence to fund the S-CHIP program that insures kids have health care.
As taxpayers, you and I are literally paying the over-stretched salaries of Wall Streeters. Here’s how this works. Every time, a Wall Street firm makes an investment, they take a salary and pay their investors based on the difference between the expected value of the asset they take on and the value they paid. Over the last few years, these firms have been wildly overvaluing the worth of mortgage-backed securities. They took large bonuses on these over-sized valuations. Now, that the real value is turning out to be much less than expected, the Federal Reserve is taking on these assets by printing U.S. dollars to cover them, literally devaluing the greenbacks you and I have in our wallets to fund the past bonuses of wealthy executives.
I understand the argument that this bail-out was necessary in this single case to help insure we don’t have a much broader liquidity crisis. I’m even willing to go along that the Fed made the right move in this particular case in authorizing the bailout. But at the least, the Fed should be making a clear statement along with its generous gift of money that our country needs regulations in place in the future so this kind of extreme leverage does not happen again. And the Fed should be making clear it is not going to be there for investment banks in the future so they should watch their balance sheets more closely. Unfortunately, the Fed made the bail out without even a statement on the grotesque unfairness of what is taking place and without a statement that this should not happen again.
All this, of course, is two more blows to America’s economic security. First, our sinking dollar only further undermines our economic might in the world. Our economy’s ability to compete with the EU and China has been hit hard – just compare our dollar to the Euro. And, second, our country’s unfairness and continuing divide between rich and poor undermines the social fabric that makes this country so great, so proud and so free. Americans say overwhelmingly today that they’re unhappy with the direction this country is headed. It is easy to see why.
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Yes I am outraged. What about the people that are being thrown out of their homes, and I’m not talking about the scum that just buy and flip properties to make a quick buck and drive up the prices of homes so normal working people can’t afford to buy them. It’s no wonder all this is such a mess. I think it all boils down to this, it’s about trying to get something for nothing. Trying to make money off of money. Well the buck has to stop somewhere. I don’t think these bail outs should be taking place. Some correction is needed. Let the markets take care of themselves with adjustments. Personally I don’t think we would be paying so much for things (food, gas, clothing, etc.) if it were not for the speculators driving up the prices. It seems when the speculators ruin one thing by driving up the price too high they start looking for something else to trash (Oil is a real good example of their handy work).
Comment on March 18, 2008 @ 10:22 am
I am in agreement to a point. I am not so outraged at people being thrown out of their houses. It is wrong that I, as well as my kids, my grand kids, and more than likely my Great Grand kids will have to pay higher taxes for the rest of our lives. It is stupid that this is happening. We has US citizens will be stupid if we let this government bail out pass. Why do I, as well as future generations to come, as well as all the other taxpayers have to bail these people out? I pay my bills. Its hard to do at times, but my wife and I find a way to raise our kids have a “not comfortable” good life. We are not to the point, as other are by having to justify not paying the bills in order to buy gas for work, or groceries to feed the kids. We could have been lumped into the several thousand of land or housing speculators, but we were raised up by our parents to not over budget. In other words not to live beyond our means. Grand Maw said it best. “If it looks like the best thing since sliced bread, look closer, it’s just plain old bread on the inside.” So now instead of being rewarded for doing the right thing, we are severely penalized. It would be great to wake up tomorrow and find out that the government has paid off my mortgage, credit cards, car payments, school loans, and while they were at it, add a million or so to the kids college funds.
I saw it happened here in North Georgia when the snow birds (ie; Floridians/Dam Yankee’s) found out about the peaceful life we had here. Land went from $600 to $28,000 per acres in a few short years. The retirees flocked here in droves. As well as, the influx of land speculators was phenomenal. Now as it stands, most everyone that is born here cannot afford to live here. Most are forced to move off to a more suitable working environment, or stay here and drudge out a life by living in a week, by week existence.
I’m sick to death at the form of government we have. Its not only the Bush administration, but the US Government as a whole has been going down the drain for a long time.
Just a thought, it sure would be a good time for the south to look into secession again.
Yours Truly,
Don Terry
Comment on September 22, 2008 @ 4:47 pm
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