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Bob Brinker discussed the Bear Stearn's bailout several times this past weekend on Moneytalk, and became indignant with a couple of callers who said that it was a "government" bailout.
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Brinker insisted that it was NOT a government bailout. He claimed that it was just a matter of Bear Stearns' shareholders being compensated with J.P. Morgan stock at $10 per share. Brinker repeatedly criticized Hillary Clinton for calling it a "government bailout.'
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However, he did admit that the Fed had absorbed $29BILLION of Bear Stearns' debt. Is this Orwellian double-speak? I think so, but that's just my opinion. 8^)
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Here are some excerpts from my March 29th Moneytalk Commentary :
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Caller: Opposed to any kind of government bail-out, such as with Bear Stearns. Brinker explained that the government did not bail out Bear Stearns with tax money – rather, the Bear Stearns stock holders will be receiving J.P. Morgan stock. Brinker again touted the use of Keynesian economics and the advantages of government intervention when it is needed to help the economy. Brinker also said that he had heard Hillary Clinton mistakenly refer to Bear Stearns as a government bailout.
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Caller: Second time today a caller referred to the “government bail-out of Bear Stearns.” It would have been understandable if Brinker felt some exasperation as he explained again that Bear Stearns shareholders are being paid with J.P. Morgan common stock and it was NOT a government bail-out. He also repeated that Hillary Clinton had made the same mistake this week.
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Here is an excerpt of David Korn's interpretation of Brinker's Bear Stearns' comments:
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Caller: Another caller objected to the government bail outHe [Bernanke] also told lawmakers the Fed's agreement to provide an emergency loan to Bear Stearns Cos. followed a March 13 warning by the company it ``would have to file for Chapter 11 bankruptcy the next day.''
of Bear Stearns. This set off Bob and he said it is wrong
to call it a bail out, and even Hillary Clinton is making
this mistake! The caller pointed out that the Federal
Reserve was willing to absorb up to $29 billion of Bear
Stearns bad debt. Bob conceded that point, but noted
that it was not done to protect the shareholders of Bear
Stearns but rather to protect the system. The caller said
the government is acting like the big brother in the event
bad loans or investments are made because they are
willing to back up these institutions. Don't you think
that in a capitalistic system if you make a mistake you
should have to pay for it without the government stepping in?
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Bob turned the question around on the caller and asked him
whether he thought a 94% decline in Bear Stearns stock price
wasn't enough. In addition, it was JP Morgan's decision to
pay $10 a share and they are taking the first billion of risk
in the securities and the next $28 billion of risk goes to
the Fed and then after that it goes to JP Morgan.
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http://david-korn.blogspot.com/
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This from Bloomberg regarding Bernanke's
testimony this morning:
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Emergency Move
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The Fed, in an emergency decision on Sunday, March 16, voted to authorize a loan against $29 billion of Bear Stearns assets, including mortgage-backed securities, so JPMorgan Chase & Co. would buy the company. The central bank also expanded its powers by opening up lending directly to Wall Street investment banks. In addition, the Fed cut the interest rate on loans to banks, and now securities firms, by a quarter point.
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Two days later, the Federal Open Market Committee cut the main lending rate to 2.25 percent and said the ``outlook for economic activity has weakened further.'' Officials also showed renewed concern about inflation, making a smaller reduction than traders anticipated. Two policy makers dissented in favor of ``less aggressive action.''
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The Fed agreed to the emergency Bear Stearns loan to ``prevent a disorderly failure'' of the company and the ``unpredictable but likely severe consequences of such a failure for market functioning and the broader economy,'' Bernanke said.
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Bear Collateral
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The Fed hasn't disclosed details of the Bear Stearns assets taken as collateral. The Treasury Department has said that they include mortgage bonds and ``related hedge investments'' and that any losses may reduce the Fed's contribution to Treasury's general fund, according to documents released yesterday.
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The Banking Committee and Senate Finance Committee have launched separate inquiries into the transaction, raising questions about the role of the regulators in facilitating it.
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The Fed set up a new company to manage and sell $30 billion of Bear Stearns assets and hired BlackRock Inc. for that purpose. The Fed last week said JPMorgan will shoulder the first $1 billion of any losses.
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``With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions'' and ``could have severely shaken confidence,'' the Fed chief said.
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http://www.bloomberg.com/apps/news?pid=20601087&sid=aCRwxTrOcSM8&refer=home
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"Brinker is full of soup when he says that the government didn't bail out Bear Sterns. The Fed assumed the risk on $29 billion of questionable mortgage paper."
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Marc Andreessen: You're Paying the Bills for Bear Stearns CEO
By Dylan Tweney March 28, 2008 | 10:38:01
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It took Netscape founder Marc Andreessen to point out that U.S. taxpayers are footing the bill for Bear Stearns chairman Jimmy Caynes's pot-smoking, bridge-playing lifestyle.
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Caynes netted $60.1 million in cash this week by dumping his entire stake in the foundering firm at $10.84 a share.
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The Bear Stearns bailout deal includes a $29 billion loan guarantee from the federal government to help cover Bear's crummy subprime mortgage-based investments. Andreessen, who is turning out to be a hardheaded and opinionated market commentator as well as a highly successful tech entrepreneur (Netscape, Opsware, Ning), explains the implications:
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Without that $29 billion of taxpayer money, Jimmy Cayne's stock would be worth $0/share, and if you multiply that by 5.66 million shares, the total would be $0. ...
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It is virtually certain that taxpayers are going to take some loss on that $29 billion loan.
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When we do, we will have the immense satisfaction of knowing that the first $61.3 million of those losses represent a direct cash transfer from US taxpayers to Jimmy Cayne.
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Cayne's lifestyle, the WSJ wrote last year, reportedly includes pot smoking, playing bridge, and generally fiddling around while his company burns to the ground. (During the weekend in which the Bear Stearns bailout was being hammered out, Cayne was at a bridge tournament.)
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http://blog.wired.com/business/2008/03/marc-andreessen.html
Honeybee in edit: Jim Cramer just interviewed Hillary Clinton on CNBC (Wednesday 3:15pm). He asked her if she thought the Fed made the right decision to help with the Bear Stearns bailout. Opps....wonder if Bob Brinker was watching. He doesn't have much good to say about Hillary and he refuses to use Cramer's name on his program. LOL!
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