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Over the weekend, the Federal Reserve committed $30 billion to facilitate the takeover of ailing Wall Street firm Bear Stearns by JP Morgan Chase. On Friday, the Fed had provided a bailout to Bear through Morgan. The Fed has utterly ignored the concept of moral hazard: if an institution gets bailed out of mistakes, it will keep making bigger ones. The takeover at a mere $2 a share was a big boon to Morgan, whose stock soared both Monday and today (Tuesday). Sen. Chris Dodd, head of the Senate Banking Committee, lauded the Fed, but he and Rep. Barney Frank, head of the House Financial Services Committee, pressed for legislation to help consumers facing mortgage foreclosure. Dodd and Frank should be challenging the legality of the Fed's committing of $30 billion to facilitate a Stearns bailout and Morgan windfall, according to Mike Aguirre, city attorney and a securities lawyer while in private practice. "Does the Federal Reserve have the legal authority to unilaterally accept Bear Stearns's collateral to support a $30 billion loan package when it couldn't possibly have done due diligence to see if the collateral is good?" asks Aguirre. Frank and Dodd should both launch investigations, he says. Groups such as the National Community Reinvestment Coalition have said the billions of dollars should have gone to consumers. Aguirre agrees. Over the weekend, the Fed also suddenly allowed securities firms to borrow from the central bank. But did the Fed have the authority to do this? Today, the stock market roared upward. There were several reasons: the Fed slashed interest rates, and the earnings of Lehman Bros. were better than expected. But I personally wonder if one reason isn't that Wall Street now knows that no matter how irresponsibly it throws money away, the Fed will come to its rescue.

Comments
14

Response to post #8: Please tell us what Cramer said tonight. He can't possibly have expressed any sympathy with workers whose lives are destroyed while the fat cats rake in the subsidies from government or the central bank. What did he say? Best, Don Bauder

March 20, 2008

The gov has broad powers to do what they did. I think it is 100% WRONG, so does every single person I know.

But from a legal stand point, all the government needs is a "rational basis" for their move-and that low standard is met about 99.999999% of the time. It is met here.

As for a due dilligence-come on-those sub prime mortgage backed securities are probably worthless, or close to it. Anyone with half a brain knows that. It would be IMPOSSIBLE for the Feds not to know that.

It is a taxpayer funded bailout of billionaire brokers, hedgefunds, private equity firms and Wall Street Investment Banks. It is really sickening.

Remember, in Washinton, money talks, everything else walks.

March 18, 2008

Response to post #1: When billionaires want corporate welfare, they always claim that the world will collapse if they don't get it. I do believe Bear had a lot of derivatives on which it couldn't uphold its end of the bargain. This might have started a chain reaction. But possibly the entities on the other ends of the contracts -- hedge funds, pension funds -- deserve to get a spanking, too. Do you trust Paulson or Bernanke to tell the truth? I don't. Best, Don Bauder

March 18, 2008

Do you trust Paulson or Bernanke to tell the truth? I don't. Best, Don Bauder


LOL, of course not. Old Ben looks for short term gains which cause long term losses.

Interst rates have been too low for 5-8 years, Greeenspan was the part of that.

March 19, 2008

Can't wait for my federal "Stimulus" check to arrive so I can buy a mattress to put it in. This place (US and San Diego) is in the dumper.

March 19, 2008

Response to post #3: The Fed bailed out Bear because it feared that derivatives, particularly credit default swaps, would unwind all over the world, because Bear couldn't meet its part of the bargain. But now that Bear has been bailed out, derivatives will mushroom even more; Wall Street will figure that the Fed will always bail it out. So the next crisis could be the one that tosses the world off its axis. So let Bear go into bankruptcy now and see what happens. Best, Don Bauder

March 19, 2008

Response to post #4: There is one thing you should do with that government check: put it into your savings -- exactly what the government does not want you to do. Do NOT spend it. Best, Don Bauder

March 19, 2008

New definition of JPMorgan Chase;

Private profits, socialized risks.

America is now the Russia of Wall Street risk.

March 20, 2008

Gee Johnny, watch Jim Cramer tonight?

As it turns out, I agree with you. When CEO's are making in the hundreds of millions while simultaneously destroying their worker's lives, something is wrong.

March 20, 2008

Response to post #7: Yes, the U.S.'s motto should be Socialism for the Rich, Capitalism for the Poor. San Diego is a classic example of the genre: the real estate deals -- particularly the stadium giveaways -- represent socialization of the risk and privatization of the gain. This is not what Adam Smith had in mind. This is NOT what capitalism is supposed to be. But every member of the Lincoln Club boasts about his or her deep commitent to free enterprise. They all believe that goverment should stay out of business until business wants a handout. Then government should give the massive handout and get out of the way -- that is, not see that it gets a return on its investment. What a joke. Best, Don Bauder

March 20, 2008

I never watch that Jim Cramer, in fact I make it a point NOT to watch him.

He just annoys me to no end. I see him jumping up and down like a circus chimp and I want to throw my lamp at the TV.

I only watch Lou Dobbs, 4PM CNN. Me and Lou are like me and Mike Aguirre (and Don Bauder!)-we agree on 90+% of the issues.

March 21, 2008

Response to post #11: I agree on Cramer. The show is like fingernails scratching against a blackboard. My teeth curl up. He has a pretty lousy batting average, too. I remember back in late 2006 he was touting stocks of nonbank firms pumping out subprime mortgages. One was a San Diego subprime lender that eventually had to be rescued by a forced merger -- at a price about 60 percent lower than where Cramer had touted it. Best, Don Bauder

March 21, 2008

Response to post #13: Yes, the gap between the rich and the middle class (and poor) is the worst it has been since Robber Baron days. Those days precede the 1920s. One good thing about what is happening today: the leveraged buyout boys, the takeover bandits, the private equity groups, are hurting. They can't get junk bond financing for their depredations. The business press is weeping big tears for these crooks. Their misery is one of the best things about today's grim situation. Best, Don Bauder

March 21, 2008

On Lou Dobbs today there was a statement that the gap between the rich and the poor in America is at its widest gap since the 1920's.

The roaring 20's gave way to the great depression.

About 15 years ago two reporters from the Philadelphia Inquirer did a multi part Pulitzer prize winning series of articles on the problems with America and how the rich were getting richer and the poor getting poorer. Focused on leverage buy outs and how the raiders of these LBO’s would then dismantle the companies and sell it piece meal, and basically destroy the company to profit off the pieces.

That series was then turned into a book called "America, What Went Wrong". Those problems have now been magnified and are getting worse everyday.

In any event, if you have a chance, get that book and read it-it is just as valid today as it was when it was written years ago. Excellent book. Really opened my eyes to the greed of some of these fat cats.

Good read.

March 21, 2008

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