Mugged on Wall Street--How You and I Made J.P. Morgan Rich(Er)
Fed Takes Broad Action to Avert Financial Crisis Central Bank Backs Sale of Bear Stearns, Cuts Key Interest Rate, Extends New Credit
By Neil Irwin and David Cho Washington Post Staff Writers Monday, March 17, 2008; A01
The Federal Reserve took dramatic action on multiple fronts last night to avert a crisis of the global financial system, backing the acquisition of wounded investment firm Bear Stearns and increasing the flow of money to other banks squeezed for credit.
. . . As part of the deal, J.P. Morgan Chase, a major Wall Street bank, will buy Bear Stearns for a bargain-basement price, paying $2 a share for an institution that still plays a central role in executing financial transactions. Bear Stearns stock closed at $57 on Thursday and $30 on Friday. J.P. Morgan was unwilling to assume the risk of many of Bear Stearns's mortgage and other complicated assets, so the Federal Reserve agreed to take on the risk of about $30 billion worth of those investments.
Uh, huh. You and I (presuming we have any money in the market), along with pension funds and other institutional investors, valued Bear Stearns at $57 just four days ago. J.P. Morgan, who actually got a look at the books, bought them for $2 a share and this smooth bit of alchemy was achieved by tagging you and I (even if we're not in the market and happen to be losing our homes) for $30 billion.
The Fed "is working to promote l s, which are essential for economic growth," Chairman Ben S. Bernanke said in a conference call with reporters last night. Treasury Secretary Henry M. Paulson Jr., who was deeply involved in the talks though not a formal party to them, indicated support for the Iactions.
Your economic growth and my economic growth have been declining steadily for thirty years or more, so Ben & Henry (not to e confused with the ice-cream company) must be talking about someone else's economic growth.
If you bought a share or two of Bear Stearns last week, shame on you. If you've been sucked into that old fairy-story about 'letting the market work,' shame on you as well.
The market 'works' when it drives Investment Bank Ceo salaries from those half-million dollar high-water marks of yesteryear to the everybody-else-underwater $100 million patchecks of today. Alan Schwartz, chairman of Bear Stearns picked up a nifty $88,642,322.00 for supervising the Bank on its way to the sewer.
Ben & Henry made sure no other high-flying CEO would make the same mistake by punishing Bear Stearns. The punishment was rough. If you run up thirty-thousand million dollars ($30 billion) worth of fraud, bond-laundering, outright theft and misappropriation of your fiduciary duties--we're going to teach you a lesson.
The lesson is not jail. The lesson is not bankruptcy. We save jail and bankruptcy for single-moms with two jobs. The lesson is . . .
. . . the Fed will guarantee all the shit the Bear left in the bed and allow another insider to take over. Not just take over, but take over with a 95% discount, a hugely improved balance sheet as well as those other sheets (the ones on the Bear's bed) all laundered and starchy.
That's what Ben and Henry call a liquid, well-functioning financial market. Any decent, well disciplined and independent legal firm would call it massive bank fraud, bring all the single moms and minor offenders home from prison and make room for Al Capone and Company, who have been given the keys to Wall Street.
Paulson welcomed the deal. "Last Friday, I said that market participants are addressing challenges and I am pleased with recent developments. I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets," he said in a statement.
Once again, the sheep have been sheared and nary a bleat was heard.