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Wall Street welfare?
Was there any justification for the Fed’s guarantee of Bear Stearns’ bad debt? Discuss the fourth installment of this week's Dust-Up.
1.
Yes. It was necessary to avoid further collapse. However, no one seems to be talking about the real culprit--lack of regulation of the lending process in the first place. How did the mess get created in the first place? Who was "asleep at the regulatory switch?" Given the mindset of the Regan-to-Bush, et al. area of deregulation, why is anyone surprised with this fiasco? As Mr. Dallas points out in the article by Ms. Green, "free markets" need to be regulated. Otherwise, we will have more privatization of profits and socialization of losses.
2. Pt 5. The de-leveraging will lead to a painful process of new valuations for those grocery and drug stores, their inventory of food and drugs, the value of the apartments and homes, the rents and mortgage payments charged, and the wages we earn. But it’s far more likely those new valuations will be sustainable than what we have now. It will be most painful to the economic class that owns a disproportionate of America’s assets. Guess who they are.
3. Pt 4. About market meltdowns and over-valued stocks. Clearly Bear Stearns stock was never worth $170, though, thanks to market irrationality and exuberance, and a horrific lack of transparency, it did indeed trade at such lofty values. Had everyone known of BCS’s toxic assets, the stock would have been closer to $14 during 2006-08. Similarly, had we known of Enron’s accounting crimes, its stock never would have soared. Bear Stern’s stockholders did not lose valuations that had been legitimately earned. When the BSC stock went to $10, what was ‘lost’ had never legitimately earned by said stock.
4. Pt 3. So the scary market meltdown is really either a return to market valuations, a mark-to-market supported by transparency and which unwinds in a rapid, staggered or protracted fashion. Like sausage-making, e.g. an ugly perhaps nauseating process, but in the long-run, it will pave the way for an economy based on the transparent valuation of assets. The deleveraging and mark-to-market will not automatically – and is not pre-ordained to be - an event that strips food from every grocery shelf, strips drugs from every drugstore, and evicts every renter and homeowner from their home.
5. Pt 2. Just as many comments addressed relief that foreclosures (another form of margin calls) are finally making housing affordable to those who are prudent, the de-leveraging will force assets to be written down to their new market value. Not only will $600,000 plywood-n-stone-n-drywall houses be marked down to their more realistic value, so will over-sized gas-guzzling cars, as well as any of the following put up as loan collateral: over-valued office towers and shopping malls, over-priced strip malls & medical parks, and securities and equities.
6. Pt1. The phrase, “financial system meltdown”, stifles thinking and promotes emotional responses. Let’s instead think this through. Much of the American economy (housing, commercial loans, etc) operated like buying a stock on margin. This is now unwinding, i.e., the US is receiving a margin call. It’s also referred to as de-leveraging. Not such a bad thing. Why equate the unwinding to a market meltdown?
7. I have been in lending and collecting industry for nearly 40 years and as a common person see and the problems, understand what needs to be done. When is the government going to wake up and hire people from the working class to deal with the problem, instead of thinking they are smarter than everyone else and claim this is a a global problem and a guy like myself wouldn't undertsnad the problem. Talk to any business, it's getting back to the basics.
8. No Taxpayer dollars are going in the the pockets of wall street. This will only help the wronge people. Why am I not supprise!
9. First, Bear Stearns is not a bank subject to Fed regulation. Second, Morgan/Chase paid only $230 million and the Fed offered them a $30 billion guarantee on the purchase. I guess eventually we'll know more details about the negotiation process but judging by the reaction in the Morgan/Chase stock price they got a sweetheart deal. Were other offers solicited? Is the $30 billion guarantee the maximum Fed exposure? Does all the Fed have to do to justify weekend sweetheart deals outside it's normal scope of operation is shout "possible panic"? Where is the accountability of the Fed for their on-the-fly role expansion and deal brokering?
10. ginna, as for "helping" homeowners in need - i think you're missing the bigger picture. the problem is less the "risky" mortgages these buyers got involved with - it was more the price of the home these buyers agreed to pay. most of those in trouble can't afford the home they bought (or equity they withdrew), regardless of the terms of the mortgage. sorry for those that got caught up in the euphoria of the bubble and over extended themselves. but they're merely losing homes they never should have been able to buy in the first place.
Submitted by: J. Nevotti
2. Pt 5. The de-leveraging will lead to a painful process of new valuations for those grocery and drug stores, their inventory of food and drugs, the value of the apartments and homes, the rents and mortgage payments charged, and the wages we earn. But it’s far more likely those new valuations will be sustainable than what we have now. It will be most painful to the economic class that owns a disproportionate of America’s assets. Guess who they are.
Submitted by: Greg S
3. Pt 4. About market meltdowns and over-valued stocks. Clearly Bear Stearns stock was never worth $170, though, thanks to market irrationality and exuberance, and a horrific lack of transparency, it did indeed trade at such lofty values. Had everyone known of BCS’s toxic assets, the stock would have been closer to $14 during 2006-08. Similarly, had we known of Enron’s accounting crimes, its stock never would have soared. Bear Stern’s stockholders did not lose valuations that had been legitimately earned. When the BSC stock went to $10, what was ‘lost’ had never legitimately earned by said stock.
Submitted by: Greg S
4. Pt 3. So the scary market meltdown is really either a return to market valuations, a mark-to-market supported by transparency and which unwinds in a rapid, staggered or protracted fashion. Like sausage-making, e.g. an ugly perhaps nauseating process, but in the long-run, it will pave the way for an economy based on the transparent valuation of assets. The deleveraging and mark-to-market will not automatically – and is not pre-ordained to be - an event that strips food from every grocery shelf, strips drugs from every drugstore, and evicts every renter and homeowner from their home.
Submitted by: Greg S
5. Pt 2. Just as many comments addressed relief that foreclosures (another form of margin calls) are finally making housing affordable to those who are prudent, the de-leveraging will force assets to be written down to their new market value. Not only will $600,000 plywood-n-stone-n-drywall houses be marked down to their more realistic value, so will over-sized gas-guzzling cars, as well as any of the following put up as loan collateral: over-valued office towers and shopping malls, over-priced strip malls & medical parks, and securities and equities.
Submitted by: Greg S
6. Pt1. The phrase, “financial system meltdown”, stifles thinking and promotes emotional responses. Let’s instead think this through. Much of the American economy (housing, commercial loans, etc) operated like buying a stock on margin. This is now unwinding, i.e., the US is receiving a margin call. It’s also referred to as de-leveraging. Not such a bad thing. Why equate the unwinding to a market meltdown?
Submitted by: Greg S
7. I have been in lending and collecting industry for nearly 40 years and as a common person see and the problems, understand what needs to be done. When is the government going to wake up and hire people from the working class to deal with the problem, instead of thinking they are smarter than everyone else and claim this is a a global problem and a guy like myself wouldn't undertsnad the problem. Talk to any business, it's getting back to the basics.
Submitted by: fred malatesta
8. No Taxpayer dollars are going in the the pockets of wall street. This will only help the wronge people. Why am I not supprise!
Submitted by: fred malatesta
9. First, Bear Stearns is not a bank subject to Fed regulation. Second, Morgan/Chase paid only $230 million and the Fed offered them a $30 billion guarantee on the purchase. I guess eventually we'll know more details about the negotiation process but judging by the reaction in the Morgan/Chase stock price they got a sweetheart deal. Were other offers solicited? Is the $30 billion guarantee the maximum Fed exposure? Does all the Fed have to do to justify weekend sweetheart deals outside it's normal scope of operation is shout "possible panic"? Where is the accountability of the Fed for their on-the-fly role expansion and deal brokering?
Submitted by: JC
10. ginna, as for "helping" homeowners in need - i think you're missing the bigger picture. the problem is less the "risky" mortgages these buyers got involved with - it was more the price of the home these buyers agreed to pay. most of those in trouble can't afford the home they bought (or equity they withdrew), regardless of the terms of the mortgage. sorry for those that got caught up in the euphoria of the bubble and over extended themselves. but they're merely losing homes they never should have been able to buy in the first place.
Submitted by: alvin
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