Monday, March 17, 2008

Fed bails out Bear Stearns: welfare for Wall Street!

In light of the Fed's announcement that it will bail out Bear Sterns, Dean Baker, the co-director of the Center for Economic and Policy Research (CEPR) asks:

"Why is the Fed, an agency of the government, using our tax dollars to keep Bear Stearns and its rich managers and shareholders above water?

Baker continues: After all, the government supposedly doesn't have enough money to provide kids with health care and childcare, to guarantee families decent housing or to meet a long list of other needs. Why do we have the money to lend tens of billions of dollars to Bear Stearns at below market interest rates?

There are two points about this bailout that should be clear. First, this is a bailout - we are handing money to Bear Stearns. Second, we don't have to hand tens of billions of dollars to the country's richest people to save the financial system.

The politicians will try to do their best to obscure the first point. They say, "we aren't giving them money - we're lending money and we're getting interest, so the government can make a profit."

This is what politicians tell people who they think are stupid. No private bank would lend money to Bear Stearns at the same interest rate and under the same terms as the Fed. (We know this for certain; otherwise, Bear Stearns would not have run to the Fed.) When the government makes a loan at below market interest rates, it is giving away money. People on Wall Street know this very well, that is how they got to be fabulously rich: They borrow money at a lower interest rate than they lend it out.

If they can't get away with the "no bailout" nonsense, the Wall Street welfare boys will then try the route of claiming we have to bail them out in order to prevent the whole financial system from collapsing. Such a collapse could turn the recession into a depression leaving millions unemployed for years.

This is also nonsense."

Read the entire column


Anonymous said...

$2 a share for Bear Stearns when it was selling for $150 a share just 14 months ago is not a bailout you fool!

Michael Rosen said...

The fact that Bear Stearns stock price has fallen do dramatically doesn't mean this is not a bailout if the word has any meaning at all. It simply means the price has fallen form the inflated price you sight.

Not only has the Fed lent J.P. Morgan thirty billion to take over Bear Stearns, but starting today, securities dealers can borrow money from the Fed on about the same low terms as member banks. The Fed also lowered the rate charged on such loans, and extended the repayment deadline to three months (from one). We haven’t witnessed this scale of bailout since the 1930s.

Anonymous said...

it is funny that the Fed is able and willing to provide money for a billion dollar investment arm, yet when unemployment is on the rise, there is a housing crisis, and people havent seen their wages increase in years and the action they take will take months to be implemented. what a tragedy

John P said...

Let me start out by saying that I am a conservative, and I usually disagree 99.9% of the time with Mr. Rosen. However, I am disgusted that the Fed would loan money to Bear Stearns at a below market rate of interest. This is just crap. We need to let the markets work and not have government intervention. If B.S, made bad choices then they should have to suffer the consequences. Didnt this firm give out million dollar bonuses last christmas? Government welfare at all levels needs to stop.