This is true because of the fact that any time a private entity needs a government loan guarantee, it means it cannot get a loan from the private sector. Of course, the main reason for a private entity not being able to get a loan in the private sector is because the private sector doesn't believe the entity is capable of paying back the loan (in a perfect world, at least).
Bear Stearns should have been allowed to collapse. The short-term economic pain would have been far less than the long-term economic pain we will now be enduring because we've decided to take the Soviet approach to bailing out failing companies.
You simply have no idea what you’re talking about. Had BS been allowed to collapse, there would have been a massive and hysteric “run on the banks” (and all other investment houses) that could have easily thrown the world into a depression. The “Fed” is in place to make sure these things don’t happen. BS has failed...shareholders have lost money....management has been fired.....but the good news is that the “economic wheels” of the Country and World are still on the bus.
Who has a loan guarantee?
we've decided to take the Soviet approach to bailing out failing companies.
Let me know when the Bear Stearns employees start cashing pay checks from the government.
“Any government loan guarantee is a bailout.”
Not necessarily. JP Morgan has to pay back the loan from the gov’t, don’t they? I did not read that they were off the hook in re-paying this loan. It sounds similar to when the gov’t gave loan guarantees to Chrysler (20 yrs ago maybe) - Chrysler paid it back and successfully moved forward.
I agree with the Fed’s response- a “run” on the investment banks would have been much worse.