On why Bear Stearns was bailed out: You know the reason they did it this way was because, if Bear Stearns had to declare bankruptcy, you'd realize that Bear Stearns paid out billions of dollars in bonuses in January - six weeks ago. If he let them go into bankruptcy, they all would have had to send back their bonuses. This is what they're doing, they're doing it so they don't have to give back their bonuses. That's why they didn't put them into bankruptcy. Jamie Dimon has gotten a great deal because the Federal Reserve is paying for it. The Federal Reserve is using taxpayer money to buy a bunch of Bear Stearns traders' Mazeratis.
Excellent point and I think you're on to something. Bear's creditors would surely sue for fraudulent conveyance and come after those bonuses.
The reason I ask is because - isn't it odd that they would be paying bonuses at this time of year? Especially when there was this Dec 19th 2007 dated Reuters story http://www.reuters.com/article/bankingFinancial/idUSN1854782820071219 "NEW YORK (Reuters) - Top executives at Bear Stearns Cos (BSC.N: Quote, Profile, Research), including Chief Executive James Cayne, will forgo bonuses for this year in an acknowledgment of the difficult period facing the company, according to The Wall Street Journal." So they didn't take 2007 bonuses, but got them early 2008??? Edit: Re-reading it, maybe only the top execs didn't take bonuses. But, that would mean the "billions" in bonuses went all to lower-tier guys?
My opinion has always been that Bear knew its ship was sinking and tried to delay that as long as possible. Obviously the market, in its infinite wisdom, got wind of the severity of Bear's problems and hence, the run on the bank. Remember, the market is always right. So Bear claims their financial postion turned ugly virtually overnight as a cover story to make it seem all was well prior to the run. That's a tough one to swallow. Why? Because no other Wall St. bank had a run or a rumour of troubles like Bear did. Bear was toast anyway and the run simply forced the inevitable. Paying out $billions in bonuses when you know your financial situation is rapidly deteriorating and you are facing huge contingent liabilities on your portfolio is really criminal.
"Investment Banks have been going bankrupt since the beginning of time. So what?" Is this what they mean by "moral hazard" - that no large investment bank can ever be allowed to go bankrupt again because it would "hurt the economy" too much? If so, just have the Fed pass them money directly - why go through the convoluted process anymore?
I disagree bankruptcy is way worse then what happened. The bond holders are getting paid on this and in bankruptcy they might not. Also the markets would have blown up if Bear went bankrupt. I do think Bears billion of bonuses should have to be paid back but I donât think JP should get it.
Many corporates have become the legal tool to loot the average working Americans, since most people in their 401k, IRA have invested in the mutual funds which inevitably have these companies in their portfolios.