In the Senate Finance Committee hearing today it has been reported that Senator Bunning referred to the Fed's actions to prevent the train wreck from Bear Stearns going down the tube as "socialism". What can I say? Socialism? Naturally, giving oil companies tax breaks is not socialism. Right! This comment represents a kind of stupidity that works for the American people in the Congress. I pity the poor people of Kentucky, they deserve better.
How do you explain, to people that have half a brain at best, what an implosion of the financial system would look like? To call the actions of the Fed, with regards to the Bear Stearn/JP Morgan situation, socialism, is irresponsible and less than a half-brained accusation. Why stop there? Why not call Chairman Bernanke and his fellow Fed associates, or comrades, a bunch of communists and say what you really feel. Let's get out those old red baiting slogans and dust them off. How about a nice conspiracy theory for dessert?
One thing good people learn real quick when they leave the private sector and bring their skills and knowledge to the government is that politics rules. Under the right set of circumstances no one is exempt, anyone can be thrown under the bus.
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3 comments:
Spoken like a banker, Fred. If all of these investment banks are allowed to make trades that are leveraged 32-1 and reap the rewards of such risk....oh, I see. The reason that they can leverage to that degree is not unlike Fanny and Freddy, they are "too big to fail." Like the precedent set with the Black-Scholes hedge fund gurus, the bailout was indeed a foregone conclusion.
The resulting margin calls from a Bear bailout would have brought us to what we already thought on paper was true, a trillion dollar writedown. The Fed has put up 1/3 of our treasuries to liquify our system. When should that stop, when the dollar is worth 50 yen, or even worse, 5 yuan? The real collapse would come if the Chinese decide our treasuries are worthless, a direction we're heading with increasing speed....
ax,
I am not going to argue with you as you make some good points. And I can appreciate where you are coming from. I am concerned with the collateral damage, people that did nothing wrong and would be brought down by a Bear Stearns bankruptcy. The bond portfolio that the Fed got in exchange for the "bailout" will be managed by Blackrock. I know Blackrock, I worked with them when I was at Ohio BWC. Blackrock can take their time and work the Fed's way out of the bonds. This bond portfolio has value, and in time will pay all principle and interest. The problem now is that traders don't know what they are bidding on and so there is no bid. I don't fault you for your conclusions, they may very well happen. I still prefer the road the Fed took, I only hope that Congress gets their head in the game and does the right thing.
I agree with you about the moral hazards of collateral damage. I'm not rooting for Americans to lose jobs or for our banks to fail. I guess you could argue that there has been some punishment for Bear's decisions; job losses and millions of on-paper money. Perhaps I'm a bit bitter that my puts didn't reap even better rewards under the circumstances.
But where do we draw the line? If the Dodd-homeowner bill passes, the 2 bigggest culprits in the housing boom-bust will be rewarded. Homebuilders in the form of a $6.2 billion tax credit and flippers who get a new loan under better terms. How's about the people like me, a two-income, fixed mortgage family who have lost home equity as well? I doubt I'll be first in line to get a reduced equity loan....
While the Senator from Kentucky was a bit overboard, he was right about one thing. In capitalism, some people do fail.
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