The Bailout's Pathetic - Here's Who To Blame 29 comments
Henry Blodget
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Get ready. Now that Bear Stearns (BSC) has been forced to run hat in hand to the Fed and whimper that it's "too big to fail," the mewling is about to begin:
- It's not our fault! It's a run on the bank!
- We never could have seen this coming!
- Blame those jerks who stopped lending us money!
Give us a break. If Bear Stearns goes to zero, there will only be one party to blame: Bear Stearns management.
Yes, companies that live and die on short-term loans (such as every brokerage firm on earth, along with Enron) depend on the cooperation of third-parties. And, yes, when those companies can't roll over their short-term paper, the folks who actually deliver the death-blow are those that refuse to lend them any more money.
But the first responsibility of any brokerage firm management team is to ensure that under no circumstances can the firm be put in a position where its short-term financiers might lose confidence. This is why there is ultimately only a couple of people who are responsible for the Bear firesale: Bear's CEO Alan D. Schwartz and former CEO Jimmy Cayne.*
Meanwhile, who will pay for this bailout?
Do you really have to ask?
The Fed has promised Bear Stearns savior JP Morgan (JPM) that it will guarantee the value of whatever crap Bear has piled onto its balance sheet. In other words, the Fed is effectively assuming the liabilities of Bear Stearns. And the Fed's source of capital, ultimately, is you.
* UPDATE: I had originally laid this all at Alan's feet, but a smart reader is right: Cayne deserves a lot (most) of the blame.
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This article has 29 comments:
Before rushing into one of my usual American Indian rants, Henry, are not you pleased as punch Eliot is being "keelhauled" just as he keelhauled you, back when Eliot was attorney general? Boy howdy, what goes around, comes around.
This is what is happening to Wall Street and CEO types; go around, come around. You are a CEO type, yes? You understand the primary purpose of Wall Street is to defraud the American public of their money so CEO types can drive Mercedes Benz cars and live a lavish lifestyle within an upper New York state vast estate.
Henry, dear boy, this is not a bailout of Bear Sterns. This is a bailout from our American public panic. Roll down your driver's seat Porsche window then have a look at the streets. No, I am not writing Wall Street, I am writing Main Street, Hometown, America. Take a look around. Open your eyes. What I see out here, from my 1952 Chevy pickup rust bucket, is American families in a world of financial hurt.
I see American parents wondering if they will be able to buy food to feed their children until the next paycheck arrives. This is not a problem for Jaguar driving, estate living Wall Street tycoons, yes?
America is in a panic. America is being foreclosed out of its home. America is visiting Check-Into-Cash to finance a few gallons of gasoline. America is not bothering to balance its checkbook; no money.
America is in a panic and this is what the Bear Sterns bailout is all about. This chimpanzee in the Oval Office, those boys at the fed bank, are not at all concerned about Bear Sterns. This is all a circus show with intent to persuade Americans to not form past history long lines at bank doors to withdraw what little cash they have.
Americans are to blame for borrowing more money than can be afforded. Wall Street is to blame for easy lending to people who those lenders knew could not afford those loans. Americans are placed in a position of needing to borrow because of Wall Street defrauding money from our public simply for financial greed.
Americans are hurting because we have a chimpanzee in the Oval Office and we have crooks residing on Wall Street.
This Bear Sterns bailout is a federally sponsored three ring circus act to entertain Americans, to divert America's attention from Wall Street corruption and bad federal economic policy.
Should Bear Sterns go down, so will our American economy and our entire world economy. This is a chimpanzee led circus act to prevent our public panic from becoming a hanging noose carrying, torch bearing lynch mob howling at the doors of the White House, with has a street address on Wall Street.
While I have significant compassion for our American families, I am truly delighted to watch Wall Street fall to a status of Skid Row, Los Angeles, shame. This is justice for decades of Wall Street financial crime. Sadly, Americans are being punished for crimes of Wall Street crooks.
Okpulot Taha
Choctaw Nation
Unless there is a bailout to put a floor on the mortgage mortgage market, there is no bottom.
I hate to think about bailouts, and it hard to define the terms, who should be helped and who should be allowed to die on the vine is a big question. It seems to me that those who have the best potential to recover should be helped, but those who really jumped in whole hog and invested in the flip notion should not be helped in any way. So investors take the hit, honest hard working Americans should be given a helping hand. It is hard to figure how to deal with the mortgage reset question that is hidden in small print and not explained to the borrower. That is the rub. I really would like to help those poor slobs who won't read the fine print, but how?
The trick is to encourage banks to exend the helping hand to the right profile and not play politics, so that there is enough money to go around. Only then can there be a bottom to the mortgage mess.
Lets face it, this problem will lead to a depression of major scale and it could last 10 years (1929-1941)?
Unless there is a bailout to put a floor on the mortgage mortgage market, there is no bottom.
I hate to think about bailouts, and it hard to define the terms, who should be helped and who should be allowed to die on the vine is a big question. It seems to me that those who have the best potential to recover should be helped, but those who really jumped in whole hog and invested in the flip notion should not be helped in any way. So investors take the hit, honest hard working Americans should be given a helping hand. It is hard to figure how to deal with the mortgage reset question that is hidden in small print and not explained to the borrower. That is the rub. I really would like to help those poor slobs who won't read the fine print, but how?
The trick is to encourage banks to exend the helping hand to the right profile and not play politics, so that there is enough money to go around. Only then can there be a bottom to the mortgage mess.
Lets face it, this problem will lead to a depression of major scale and it could last 10 years (1929-1941)?
Tell you what, I'll keep investing in equities, and you put the money in the mattress. How many frantic losers post on these boards. Find me a "no men wanted" sign and I'll start thinking the doom and gloom has a point.
These days the market doesn't know how to value the derivative, collateralized obligations and other assets that Bear deals in.
So it is correct to say that firms are afraid to do business, but only because they don't know how to value the underlying assets. Many financial institutions are terminating their deals with Bear. Because these deals are in-the-money to these other firms, Bear needs to pay large termination amounts. That's why there is a sudden liquidity problem at Bear- financials terminating deals (because they don't want exposure to Bear) and receiving large sums of money.
But I think the underlying premise- that there is unwarranted panic (and not just with Bear but in the past with the subprime and in the future with other firms), is true. Though no one knows for certain. Lastly, I will say that I do believe these assets are overvalued and a downward correction is needed, but I think most of the downward price pressure is unwarranted.
You keep investing in equities- a savvy investor can make money whether the market goes up or down. And I think when there are big swings in the market, then there is more money to be made than in a market that steadily increases.
As foreigners grasp the reality of the $USD base they either ask a lot more of them in exchange or dump them for something more tangible. "Fixing" the financial sector will do little more than prevent immediate collapse. The ultimate fix is a return to the realities of supply and demand and a return to honest GDP and productivity statistics. It may well be our future lies in making things people want rather than those things they can be conned into buying.
America is basically a plutocray and it sure looks after its members.
Charlie on CNBC has started making a big thing over how much money these people are losing. And it is very sad. Some of them are going to have to get by on hundreds of millions instead of billions.
Anyway, your rants are amusing. Hope you like mine. :)
PS - was that your own $100k, or the tribe's?
"Okpulot Taha of the Choctaw Nation, I certainly have my issues with Wall Street, as you do, but I detect a shrillness in your rhetoric which smacks of glee."
Ha! Ha! Damn straight, Bubba. I am an English professor who simply delights in masturbating my ego through shrill stirring it up. Lots of fun is found in eliciting emotional responses from readers. Doing so, also prompts readers to do a bit of thinking, and a bit of thinking is sorely needed here in America.
I must be firm but fair. This is a bit of thinking lacking amongst both the American public and amongst those of Wall Street. Our American public is not thinking, well evidenced by living beyond our financial means. Americans have not accepted responsibility for keeping strict family budgets. Wall Street is not thinking, well evidenced by these exotic sub-prime loans. Americans knew, beforehand, they could not afford those loans, just as Wall Street knew, beforehand, a significant percentage of those loans would default.
Everyone, from our public to the elitist crooks of Wall Street are stuck in the right now, and all want everything, right now. This is not how life operates; there is a future and future planning should be the right now thinking.
Many are looking to blame someone. True blame belongs to all of us.
Well, almost all save for our family. We were born to poverty on a rural Oklahoma farm, then scratched and clawed our way to financial security. We behaved responsibly and are rewarded for our willingness to "do without" in exchange for a secure future. No doubt there are very many other families out there who are just as successful, more successful, because those families also worked hard, saved their money and behaved with responsibility; they lived a lifestyle well within their means.
I am not too worried about this financial meltdown. Personally, I find all of this rather entertaining. Reads to be a rather cruel attitude but you get what you earn. I hold people accountable.
Yes, there is horrific abuse of American families by Wall Street and by our government. This is not new, annoying but not new. People simply need to plan ahead for being ripped off by the so called ruling class over on Wall Street and on Capital Hill.
Of course, Sammy, there is glee in my written voice. I am delighting in watching both Wall Street crooks and politicians being paraded around the streets, buck ass naked for all to see. I am not delighting is seeing so many American families being harmed. Nonetheless, this is the nature of reality.
Entertainment is found in watching all these talking heads popping up here at this website, in the press, on the radio, on television, all over Wall Street and Capital Hill. Almost all are simply making fools of themselves through offering convoluted explanations for what is happening and what truly is happening is a lot of ass covering and self ego masturbation, quite impotently at that.
What is truly happening is we are paying the price for living beyond our financial means.
I am not worried because if Bear Sterns goes down, so does our American economy. Should America go down, so does the rest of the world, although virtually all of the world hates America. This will not happen. Money will come flooding in from all around the world to save our American economy, thus saving the world economy. Fat cats out there simply cannot make do without their lavish lifestyles, afforded by ripping off us pissants. Those fat cats are not out to save our world, no, they are out to save their opulence and power. All of this will pass in short order and there will be great improvements.
Some improvements will be found in Americans smartening up by being slapped down. Some improvements will be found in Wall Street fat cats realizing they will lose their ability to steal from the unwashed masses if they do not toss us slovenly servants a bit more bread and butter.
Much worthless rhetoric is being bantered about, talk of tougher regulations and laws. This is nonsense, this is a verbal placebo for us peons. There is no need for this. After recovery from this comical financial debacle, people are not about to make these mistakes again, both out here on our impoverished gasoline alley and on eloquent estates of Wall Street criminals.
No, this will resolve. Status quo must be maintained. We untouchables must continue to be victimized by Wall Street, and fat cats of Wall Street must continue to be fat and happy. This is the way of the world.
Okpulot Taha
Choctaw Nation
Do you think about America outsourcing it's defense? If you asked me this in 1990 you would have been laughed at as a conspiracy theorist. Reality is, the world will hate us more for ripping them off as of late causing political instability in their nations and fascism, military misadventure follows. Our country will grow weaker, we will withdraw troops and less educated and violent nations.beliefs will make up the difference in American wealth they were just starting to taste by attacking nations and creating plunder wealth.
This has repeated in history quite a few times, from the Roman Empire to English to French, modern superpowers, etc. Problem is now is the nuclear equation and once one nation starts using them... Well, St. John of the book Revelations, modern statistical probability seers (like myself) and Indian Prophet alike all know society must be leveled and as a race, we will unite by learning through pain to never repeat certain lessons. I don't want this to happen, human nature and thousands of variables tell me it will be so. Consider the Mayans predicted many events with two fixed variables and one environmental variable.
I'm sure most people will give up the few hundred dollars they have in the bank due to a bank default if they can have their house free & clear. It was a big scam - obvious to the most casual observer - and it should be the scammers that take the hit, not the scammed. remember, posession is 9/10 of the law. I'm just suggesting we make it 10/10 of the law.
because they were afraid their total collapse would have triggered
SIPC Insurance to save all the investors. What if because of this
credit crisis those SIPC insurance companies couldn't pay which would
cause even greater instability and panic.
The “smart guys” knew that housing prices would always go up, never down. So there was bound to be a “bigger sucker” just waiting to pay a higher price for your dream house. Best of all, mortgages were an even better investment, and your phony credit wouldn’t matter to the second, third or thirty-third buyer of your mortgage. Sounds too good to be true – doesn’t it. But what did Grandpa tell us about things that “sound too good to be true?” Well, kids, Grandpa was right. That piece of the American pie became just an ordinary “cow pie.”
Some of us had the good sense to “sell” when the prices were outrageously high in California and “buy” in more stable markets like Virginia. The “sucker” who bought my house in CA was a gynecologist - with a “smart” broker who got the good Dr a zero down, interest only mortgage and jacked up the “selling price” by $100,000 so there were funds for “payola” – or whatever.
Today, that same house would only bring $200,000 less than what I sold it for, $300,000 less than the good Dr’s “purchase price.” So, kids, who should get stuck with that $200-300K cow pie? To quote our old GWTW pal, Rhett – “frankly my dear, I don’t give a damn!” The good Dr. probably will walk away from his house, and have a big black mark on his credit reports. The bank, mortgage company or hedge fund that holds the now worthless mortgage will have to repo the house and write down the loss – that’s what they do. If they go belly up in the process, so be it, some of us will learn from their mistakes, even if they don’t.
So kids, here’s the lesson. Stupid actions have consequences. Speculation is just plain stupid. It’s proven millions of times every day. Now, what the Fed and JPM did to bail out Bear Stearns (BS, anyone?) was stupid speculation – that somehow, some way using taxpayers money to bail out a sinking ship will somehow succeed. Housing prices nationwide are continuing to correct. Shares of financial institutions continue to fall – as well they should. BS at $2 a share is still no bargain. Many of the same “whiz kids” who created this mess are still managing to hold onto their jobs ( or jump from their flaming aircraft with their golden parachutes) when they should be relegated to more logical trades as taxi drivers or fast food servers or bus boys.
Sound investment practices still make sense, so dump the losers, and hold on to the winners, but keep an eye on all of them. Yesterday’s losers will have to innovate, rejecting outmoded policies and practices – and today’s winners will have to do the same – so they continue to compete globally, and don’t become tomorrow’s losers. Patience and prudence will win the day. Speculation will just give you bigger and stinkier cow pies.