The Fed acted to save all the ordinary people whose finances would have been decimated by this. The Fed didn’t give a crap which big financial institution got a windfall, but they only had one choice because only one institution was willing to commit to a deal on such short notice. This was an emergency caused by Bear Stearns, which for all practical purposes no longer exists (i.e. the guilty reaped what they sowed).
JP Morgan will probably end up with a nice fat profit on this, but nowhere near the amount that the individual taxpayers would have lost had the deal not been done. The Fed may well not end up spending a penny of taxpayer money on the deal — they gave a guarantee to pay IF Bear and its counterparties end up unable to pay. But even if the Fed ends up having to pay out the whole $29 billion of the guarantee, that’s a drop in the bucket compared to the hit that ordinary taxpayers would have taken without this deal.
To use a simplified scenario, the Fed was faced with a choice of 1) promising to tax you an extra $100 dollars IF the guarantee ever needed to be paid, in order to get the JPM deal done, or 2) sitting back and watching the global financial system undergo a total collapse, which would cause the value of your house to drop by about 50%, the value of your retirement savings to drop at least that much, and the unemployment rate to skyrocket, possibly costing you your job. Would you really have preferred that they choose option 2?
If the "value" of our investments can be wiped out that easily, then it is not a real valuation. It is a fantasy and will find it's true valuation in short order. You think there aren't many more Bear Stearns out there that just have not come to terms with reality yet? You think the mortgage crisis is over? How can the global economy be so robust and strong and yet so fragile at the same time?
It can't. It is an illusion. It is just a matter of time.
You are obviously not a student of any past depression. You also missed some testimony. JPM was the ONLY bank offered the opportunity to buy BSC. Wonder why, or you don’t care ? Did you know that Jamie Dimon is a governor of the NY Fed ? Do you know who he is ? Did you think to ask what side of the table he sat on during the “negotiations” ?
Even that idiot Dodd got it right - What the Fed is doing is privatizing the profits, socializing the losses. We are living under a fascist economy, and it won’t change when the next administration takes office. Both the Republicans and the Dems are in it up to their eyeballs.
And yes, option 2 is far preferable IF it means we can finally get the transparency that is so necessary in our financial system. Don’t you care about life, liberty and the pursuit of happiness ? Or are you more interested in your comfortable existence where you eat your hamburger every nite and fall asleep to American Idol ? As the Founders said, if we trade freedom for security, we are lost. Your post is proof of that mentality - just let the Fed hide the bad stuff so you don’t have to bother your pretty little head over it.
And finally, the average American’s retirement and everything else they hold as an asset is already under assault. Inflation is heating up in the energy and commodity sectors, house prices are dropping like crazy, and the demographics of the boomers will ensure the market doesn’t recover in the next 10 years or more, unless you favor a greatly inflated immigration in years to come. You can’t trade the market because it is so manipulated by the Fed and other major institutional insiders that it has become quite irrational. Explain Tuesday’s 400 pt rally. What fundamentals or news showed up on Monday or Tuesday to justify such a thing ? Social Security and Medicare are a joke, especially after this year when every one of the Presidential candidates favors amnesty and giving SS and Medicare to the illegals.
No, unless we get back to no corporate welfare, allow those highly leveraged individuals and institutions to fail and take their losses, and start promoting honesty and ethical action, there is no USA. We are no better than the USSR. Welcome to socialism, comrade.
My house has already dropped maybe 10%, my retirement is as secure as I can make it because I’ve paid attention to the economy, I have no debt because I don’t live above my means, and I know we would suffer short term pain but long term we wold be so much better off.
Short term pain, long term gain. Instead, just like Japan we’ll have short term “stability” with maximum long term pain.