Tom Jacobs

Setting the Record Straight: Taxpayers Not Funding JP Morgan's Bear Buyout

I agree with prior two posters that revenue not received is a cost to taxpayers. Further, the moral hazard created lets investors ride on the government and taxpayers in charging less for debt instruments in the market for similar firms since there is now "quasi-insurance" in the form of an expectation that firms with no regulatory mandate within the banking system such as MS, GS, MER, LEH, etc. can expect "help" if needed. While the shareholders of Bear only received $10 all debt holders were fully covered as a result of the help. That is, investors will pay too much for debt of these entities due to the implicit government and, therefore, taxpayer subsidy.