Why the Three-Way Rescue of Bear?

On the heels of yesterday's Spitzering of Bear Stearns, some are wondering why the U.S. didn't just acquire the ailing Wall Street firm itself, rather than handing what many believe is a substantial windfall to JPMorgan. While it is hard to know for sure, here are some possible reasons for the central bankers' approach:

• They wanted to reinforce the fiction that the market is healing itself through private-sector solutions, which policymakers assume will inspire a greater sense of confidence than direct bailouts would
• They didn't want to open up the can of worms associated with the government effectively setting market prices, because it might have the unintended consequence of making investors and others even more uncertain about valuations, more worried about counterparties' health, and more defensive in terms of their investment strategies than they were previously
• They wanted to avoid ratifying the suddenly popular belief that large and troubled financial firms will be bailed out, hoping to minimize moral hazard implications that would almost certainly be worse following a direct acquisition
• They are (still) hopeful that the current crisis is a sudden squall that will soon blow over, so there is no need to think past stopgap measures

In the end, though, these efforts will turn out to be nothing more than a band-aid on a gaping knife wound as other large and well known financial operators eventually find themselves in the same straits as Bear.

Comments

[Concerns4Retirement]

This is a repeat of 1907 according to FDIC.gov's history link, http://www.fdic.gov/about/learn/learning/when/19-1919.html.

At the above link, the same page that defined JP Morgan to be a well known Robber Baron, stated that President Roosevelt gave tax dollars to JP Morgan. JP Morgan, a Robber Baron, single handedly decided which banks are to be rescued and which banks to fail...eventually rescued wall street....Citigroup & JP Morgan were favored then & seem to continue that relationship w/ the Fed as the Fed itself is part gov & part private....The same page details the birth of the Fed Reserve system in 1913. Note that 1913 also happened to be the year our current income tax law were first put in place, annuities/life policies tax-favored & lawsuit favored, bank accounts to be taxed, etc.

Then at http://www.fdic.gov/about/learn/learning/when/1920s.html, you can read how the roaring 20's read so much like our current bull years....then followed by the great depression. Hmmm?

Who said we can't learn from history?

[Concerns4Retirement]

This is a repeat of 1907 according to FDIC.gov's history link, http://www.fdic.gov/about/learn/learning/when/19-1919.html.

At the above link, the same page that defined JP Morgan to be a well known Robber Baron, stated that President Roosevelt gave tax dollars to JP Morgan. JP Morgan, a Robber Baron, single handedly decided which banks are to be rescued and which banks to fail...eventually rescued wall street....Citigroup & JP Morgan were favored then & seem to continue that relationship w/ the Fed as the Fed itself is part gov & part private....The same page details the birth of the Fed Reserve system in 1913. Note that 1913 also happened to be the year our current income tax law were first put in place, annuities/life policies tax-favored & lawsuit favored, bank accounts to be taxed, etc.

Then at http://www.fdic.gov/about/learn/learning/when/1920s.html, you can read how the roaring 20's read so much like our current bull years....then followed by the great depression. Hmmm?

Who said we can't learn from history?

[Concerns4Retirement]

It appears that Bear Sterns buy out by JP Morgan to be diplomatic act of “bankruptcy”. Many shareholders and employees' retirement portfolios practically to be wiped out if the $2 per share is sealed! Read about this at http://www.investorsinsight.com/otb_print.aspx.