As a recent investor in Bear Stearns, whose foray into leveraged bond funds backed by subprime mortgages has turned into disaster, you'd think I'd be delighted with the US government's 30 billion dollar bail out that took the form of a credit line to entice JP Morgan to pick up the pieces. The pieces came at two bucks a share.
You, Gentle Reader, might wonder why TWC made such an idiotic decision. After all, investing in Bear Stearns seems sheer folly. Here's the strategy: Your government made my investment decision for me without asking. We taxpayers are on the hook and there will be absolutely no return on investment for any of us.
The Fed also essentially made the takeover risk-free by saying it would guarantee up to $30 billion of the troubled mortgage and other assets that got the nation's fifth-largest investment bank into trouble.
Smells like corporate welfare to me.
And here's your Econ 101 lesson for the day:
In a free market economy those who make bad economic decisions fail. They go broke, they go out of business, they lose their money, they lose their retirement, they don't get to go to Jamaica on vacay and the MBZ goes back to the bank. Failure and correction is what keeps a market economy on a relatively even keel.
A THIRTY BILLION DOLLAR bail out is NOT capitalism. It is NOT the free market. It is government intervention in the market place that benefits a proportionally few investors and stockholders who voluntarily took a huge financial risk because the promised return was tantalizing. To be charitable, they bet against the come and lost.
As the Old Man used to say, Tough Bounce.