The propaganda machine of the Monetary-Financial Complex that
runs along the New York-Washington, D.C. axis is running at high
r.p.m. propagating the myth that the government-backed J.P.
Morgan/Chase sweetheart buyout of Bear Stearns was not a bailout.
After all, didn’t Bear stockholders lose virtually everything, and
didn’t Bear employees, who own 30 percent of the stock, not only
lose their investments but probably also their jobs? Doesn’t this
all go to prove that those who engage in risky financial behavior
must pay the consequences, no matter who they are?
Well, yes and no. Some people paid (Bear stockholders and
employees) so that others could be bailed out (investors in Bear’s
$30 billion worth of mortgage-backed securities) and still others
could make a killing (J.P. Morgan/Chase). So maybe “bailout” isn’t
really the right word. How about “pillage and plunder”? Some must
perish so others may flourish.
Don’t fall for the Establishment’s “watch-the-birdie” gambit.
Bear is the birdie, and that birdie is meant to divert the public’s
attention from the long arm of the Wall Street-D.C.
Monetary-Financial Complex slipping its hand into the Fed’s pocket
to the tune of at least $30 billion. The House of Morgan got to
cherry pick Bear’s performing assets for pennies on the dollar
while it off loaded Bear’s degraded assets and growing liabilities
onto the Federal Reserve System. This all has the creepy feeling of
a mafia story where one made man never sees the bullet coming from
his mob buddy while the crooked cop is the cleaner seeing to it
that the mess gets quietly swept under the rug.
Don’t forget, someone invested in that $30 billion pile of risky
“structured securities” that J.P. Morgan/Chase refused to take onto
its books unprotected, which the Fed agreed to guarantee. If that’s
not a “bailout,” I don’t know what is. Those someones expect to
continue receiving their quarterly envelopes containing payments on
their investment in the securities, which had required increasing
subsidization from Bear’s other revenue centers as the performance
of the underlying mortgages meant to finance the payments to
investors in the securities deteriorated. Indeed, the securities
had become so devalued Bear couldn’t even sell some of them to
raise cash to cover the obligations created by the rest of
them.
To paraphrase Faye Dunaway in Chinatown, “It was a
liquidity problem, a solvency problem, a liquidity problem caused
by a solvency problem,” and Bear’s problem was a lot like Faye’s:
coping with the consequences of being stuck in the middle of an
incestuous daisy chain of counterparties inside the
Monetary-Financial Complex. Bear was the unfortunate fall guy who
took the bullet for everyone else — but it’s only Wall Street. The
question now is will the Complex go to the mattresses in an all-out
civil war?
HAD THE GOVERNMENT stayed out of it, the market would have
liquidated Bear on its own. Assets would have been sold off at
something close to real market value, and everyone involved (not
only Bear-Stearns stockholders and employees but also investors in
the $30 billion pile of collateralized securities) would have taken
their losses.
But the Monetary-Financial Complex couldn’t abide allowing the
market to work. So, it created the specter of a financial meltdown,
a doomsday scenario complete with superhero bureaucrats and bankers
racing to the rescue. All the doomsday rhetoric, however, sounds
suspiciously like the over-heated, imminent-danger rhetoric we
heard after the sickening spectacle of the Twin Towers collapsing.
It is a classic fear monger designed to expand the scope and reach
of government in the aftermath of a crisis that the
Monetary-Financial Complex itself created in the first place. In
this case, it wasn’t a preemptive attack on another country that
was called for in response; it was a preemptive hit on another
financial wise guy. Everyone is expendable to protect the
family.
The big lie in this case isn’t that Saddam has weapons of mass
destruction that he is just hankering to drop on America; it is
that weapons of financial destruction (derivatives of various
mega-tonnage) are set to detonate and bring down America’s
financial structure unless some bad guy takes a bullet. The Bear
got caught in the cross hairs.
The average person has been conditioned to accept the bank-run
analogy, i.e., a mere liquidity problem requiring the central bank
to act as a lender of last resort to stem the stampede of a bank
run. The real problem, however, isn’t a classic liquidity problem
where fundamentally sound institutions are experiencing a run
against ill-liquid but financially solid assets; it’s a solvency
problem that was created when prices got way out of whack. (Does
anyone really believe these mortgage-backed securities are
fundamentally sound assets that will rebound in price anytime
soon?) Or to paraphrase Monty Python, this parrot isn’t
experiencing temporary breathing problems brought on by a bad-ozone
day, “This parrot is dead.”
Never, never, never take your eye off the source of the problem.
Boiled down to its essence, the problem is this: Prices were
allowed to get way out of whack. (We can argue about how and why
but there is no doubt about the fact.) The only solution to solve
the problem, the only way to get the economy back on track is to
allow prices to fall to market-clearing levels. And, if you believe
in government-engineered “soft landings,” I’ve got a bridge to sell
you that I just bought from Alan Greenspan yesterday.
Remember, the only reason the Great Depression spiraled out of
control and went on for so long is that prices (including the price
of labor) were not allowed to fall to market clearing levels.
The other thing to keep asking yourself while experiencing the
financial terrors implanted in your brain by the Monetary-Financial
Complex is no matter how scared you may be, do you really want to
put your faith in politicians, bureaucrats and hungry bankers to
solve the problem they created? Beware of predacious do-gooders on
the hunt.
