Bailing out the rich: Your $$ and Bear Stearns

PHOTO: Bear Stearns Building

CNBC is reporting that the Treasury has offered to pay the Fed for any losses they incur in the Bear Stearns buyout. (h/t Shaun Mullen)

So let’s get this straight, some investment banks made a bunch of risky deals, essentially investing in worthless loans. Those deals went south, and now, instead of the market doing it’s job by punishing their reckless and stupid behavior, the U.S. taxpayer and consumer will make sure these companies don’t “fail.” All in the name of preventing a recession.

As successful investor Jim Rogers says, recessions aren’t necessarily bad. Recessions return the economy to a sound foundation. By bailing out these companies involved in subprime lending, we are rewarding them for their bad behavior. So, what’s going to stop them from doing the same sorts of things in the future?

Flickr photo of the Bear Stearns building by C R

One Comment

  1. Ian

    I’ve heard this argument before. I am not really an expert on economics, but I have been reading up on this. First, there is an incorrect assumption here:

    “All in the name of preventing a recession.”

    They aren’t trying to prevent a recession, since a recession is already here. A Harvard economics professor (I’d quote him directly but my Time is in the car) said the best case scenario here is a recession with a slow recovery. They are trying to prevent mass panic in the market that would result in what happened to Bear Sterns happening to other banks.

    “So, what’s going to stop them from doing the same sorts of things in the future?”

    How about the once strong Bear Sterns stock dropping to $2 a share? Thats a cautionary tale for investors. I’m not defending the governments current handling of the situation, although most on Wall Street think it was a good thing. Bear Sterns deserved to go under and they did. You want to toss around blame, then blame those who let this situation occur. Greenspan and the Bush Administration are just as responsible as these companies. Even the people who signed up for these loans are just as responsible for trying to live beyond what their means allow. We are a pretty stupid society in how we handle debt and spend what we don’t have.