Monday, March 24, 2008



Like most others who have even the slightest inkling of what’s going on in financial news, the Insightful Pontificator has been following the Bear Stearns story closely. (See my 3/15 post “HILLARY CLINTON WAS RIGHT,” my 3/17 post “STILL A BAILOUT,” and, more generally, my 3/21 post “THERE HAS TO BE SOMETHING AROUND HERE WE CAN HOCK!”.)

In that already seminal 3/15 post, I stated

“Bear’s stock (BSC) fell 47% yesterday to close at $30.00. Perhaps this is putting it too simplistically, but if BSC does not eventually go to zero, or close to it, then we will know that this bailout, ostensibly to help the innocent investor in money market funds exposed to Bear repos and/or to avert the collapse of the financial system, was really designed to help out those poor souls, like Jimmy Cayne and Alan Schwartz, who run, and are heavily invested in, Bear.”

After the $2 Bear deal was announced, I stated (3/17)

“This is still a bailout, not so much for Bear holders (though $2.00 is infinitely more than $0), but for those who lent Bear money and those who did business with Bear.”

Apparently, in an effort to appear more good-natured, I put my realism, which some still insist is cynicism, aside too easily. This morning we all read that the bid for Bear is being increased to $10, so Jimmy Cayne, Joe Lewis, and the boys will not do as badly as some people thought, courtesy of you, the taxpayer. Had I not put my realism aside, I would not only have not had to reassess my 3/15 post on 3/17, I would have bought BSC with a $3 handle on Monday morning, as my realism was advising.

Did the Fed, by the way, think that they could sneak this naked bailout for Bear holders by us after only a week? Perhaps Jamie Dimon and his friend and benefactor Obsequious Ben Bernanke have been spending the last week watching American prime time television and have concluded, probably correctly, that the American people are a bunch of brain-addled dolts anyway whose attention span is so incredibly short that we can take their money, give it to ourselves and other members of our club, and the suckers won’t notice. After all, March madness is on and people have other things on their minds. Every pickpocket knows that distraction is his best friend.

Think about today’s action. JPM was going to pay about $236mm for Bear’s equity until the increase in the bid to $10, which brought the total price of the equity to about $1,180mm, an increase of about $944mm. One would think that if Jamie Dimon had another billion dollars or so of his shareholders’ money to thrown at Jimmy Cayne and the boys, he should have a few bucks around for the taxpayers who are being forced to backstop the deal. And he does, almost literally. According to the revised deal, instead of assuming $30b of BSC’s liabilities, the Fed will only have to assume $29b; JPM will be on the hook for the first $1b of losses that the Fed would have been forced to take under the former deal. Wow. Big deal.

So the money goes from the Fed (you, ultimately. See my 3/21/08 post.) to Jamie Dimon to Jimmy Cayne, et. al., all in the interests of “smooth functioning of the markets,” of course, not in the interests of saving jobs for the poverty stricken friends of Jim Cramer on Wall Street. Everyone avoids getting his or her toe stubbed, stays rich, and you are stuck with a bigger federal deficit, lower returns on your money market accounts, a plummeting dollar and attendant high inflation, and, probably, a bill for your neighbor’s mortgage. You know, the guy driving the Mercedes, which he bought with that same mortgage you are being forced to pick up, and laughing at you in your Ford.

You can hear the tough, self-reliant, smartest guys on Wall Street now:

Moral hazard be damned! Full speed ahead, and, if there are problems, stick that guy with the bill. So what if the ultimate bill increases exponentially? . Hell, it’s only my money when it’s coming in. It’s that guy’s when it’s going out After all, he’s asking for it, and he can always pass it along to his kids anyway.

Your government at work, leaving no Wall Street billionaire or careless, overpaid money manager behind. But, to haul out this paraphrase from H.L. Mencken again, the American people get the government they deserve, and they get it good.

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