Lions, & Tigers, & Bear Stearns, Oh My!

I have just one question…Where’s my bailout?

Fundamentally, I’m against bailouts. I like to believe in free markets to determine value. I have a finance degree, 20+ years of work experience on Wall Street, and am also a Realtor.

The recent bailout of Bear Stearns orchestrated by the Fed and JP Morgan is bad policy and is setting ever increasing bad precedent by the day, as now the price to shareholders is being increased to $10 from $2. It’s near impossible to be able to determine what value, if any, is left for shareholders but short of a bailout, value would’ve likely been determined by the market to be $0.

But for all my opposition to this bailout and its associated burden on taxpayers, it was absolutely necessary to prevent further calamity. Liquidity in the financial markets is already stressed and a bank failure of this magnitude would surely have set off a bank run and other giants would’ve fallen too. A collapse of the entire financial system would create Depression-like consequences the likes of which generations of Americans have never seen. The government had to step in or how ever ugly you and I think it is from a taxpayer’s view now, it would’ve been something unimaginably worse.

The real underlying problem here is where was the government when lending common-sense went out the window? Where was the government when derivatives were proliferated upon investors? The questions go on and on without adequate answers. There are varied and substantial layers of government regulation (Fed, SEC, FDIC, etc.) that facilitated this debacle by assuming a See No, Hear No, Speak No posture. They extended normal business cycles by allowing banks to play ever looser with the rules. It couldn’t last forever. They knew it but ignored it. We’re now imploding. We’ll see what the toll is, but many a little guy will be left holding the bag.

For now anyway, the bailout has succeeded in restoring confidence to the banking system and markets, as was the intention. Like it or not, we all need that confidence to sustain itself because if it doesn’t, we ain’t seen nothing yet.