Did the Fed “Bail Out” Bear Stearns?

Yahoo! Finance ^ | April 4, 2008 | Jeremy Siegel

[Toddsterpatriot]

Bear Stearns and the other firms involved were rewarded by being able to get loan guarantees that ordinary people could not get

I think guarantee is not the best word to use. They were going to pledge collateral and receive a loan.

Who pays the taxes that will be used to cover these loans should they fail to be repaid?

The loan is not funded with tax dollars.

[VegasCowboy]

That’s not what I said at all. There is a reason banks and investment companies are so highly regulated. Its because they are key to our financial system. Would you be willing to suffer through a prolonged depression to avoid having the Fed getting involved in a failing institution?

[Mr. Jeeves]

Reward every single private entity that makes bad investment choices with a bailout?

No, but the the major players have become quasi-governmental entities - allowing Bear Stearns to fail would have killed too many innocent bystanders. Yes, to an extent they have been indemnified against the consequences of their poor decisions - but not indemnifying them would have done to much damage to the US financial system.

It's like the fire department putting out the fire in an apartment unit containing a meth lab to save the rest of the building - you can argue that the fire department should have minded their own business because the meth cook deserved to have all of his stuff burn up, but that's cold comfort to the other residents. ;)

[Toddsterpatriot]

They bailed out the bond-holders, not the shareholders.

The bond holders are not Bear Stearns. If the firm was liquidated the bond holders wouldn't have received their money back? How do you know?

[Toddsterpatriot]

The bond holders won't get any money from the Fed.

[Soren]

If they are so highly regulated, how did we get to the point where BS was on the verge of bringing down the entire financial system?

[jiggyboy]

I read here on FR that JPM got $30 billion in free money hot off the Federal Reserve’s printing presses. Who to believe?

Nonsense. The Fed has begun a new chapter: this was not a loan, this was not a "liquidity injection", this was a direct investment in J.P. Morgan. The Fed is now directly investing in U.S. financial firms.

[Moonman62]

this was a direct investment in J.P. Morgan.

How do you figure that?

[Toddsterpatriot]

this was not a loan, this was not a "liquidity injection", this was a direct investment in J.P. Morgan.

The Fed bought shares in JP Morgan? How many?

[jiggyboy]

We can ignore the legal shell game of the “newly-created corporation”, if that’s your angle.

[jiggyboy]

Toddster! It’s me! Jiggyboy! Not some newbie who hasn’t yet figured out your debate-club tricks!

We all know I’ve called you out on your semantic and legalistic quibbling so many times I’ve gone hoarse.

[Night Hides Not]

If they are so highly regulated, how did we get to the point where BS was on the verge of bringing down the entire financial system?

Post of the day, IMHO! I'd much rather see our news organizations spend time on this, rather than Hillary ducking sniper fire.

[Moonman62]

I don’t want to ignore anything and I don’t have an angle. I want to know the answer to what I asked.

[Toddsterpatriot]

It’s me! Jiggyboy!

Oh goody!

Not some newbie who hasn’t yet figured out your debate-club tricks!

Great.

We all know I’ve called you out on your semantic and legalistic quibbling so many times I’ve gone hoarse.

Then it should be easy for you to explain how the Fed made a "direct investment in J.P. Morgan"

Unless you're too hoarse?

[jiggyboy]

My turn to just ask questions: Was this a loan?

[jiggyboy]

My turn to just ask questions: Was this a loan?

[Toddsterpatriot]

Yes. But not to Bear Stearns and not to JP Morgan.

[mysterio]

I knew you guys would shill for this. Shouldn't Bear Stearns have been allowed to go under? That would be the "free market" solution.

Personally, I believe you only support those principles insofar as they make you money. But if you can make money from the government jumping in here and there, that's fine and dandy. lol

[green iguana]

Who has a loan guarantee?

JP Morgan.

If the securities are worth less than the $29 billion the Fed has guaranteed, the Fed takes the hit.

[DuncanWaring]

Then to who was the loan made, and, if said borrower doesn’t pay it back, who’s out 29 gigabucks?