In the past week, the venerable Bear Stearns brokerage trading house in Manhattan saw it's business unravel like a whirling dirvish, with an eventual sale to JP Morgan Chase at a 93% discount to its last stock price. Why do I bring this up, given one could chalk it up to a casualty of the credit malaise? Alongside JP Morgan Chase, there sits the Federal Reserve Bank of New York backing the bloody deal to the tune of $30 Billion of tax payer funds. The idea is akin to Vietnam being the domino for Communism: should Bear fall, so would the rest of the financial system.
The rub here is that the Fed NEVER leant to a BROKER before! Only to banks...What does this translate to: Here is yet another case where big money privatizes profits and socializes loses. For years, as the hailstorm of derivatives, collateralized debt obligations, mortgage backed securities, and home prices swirled magnificently, bankers and brokers have pocketed massive fees, incentives, bonuses, and seen the balance sheets of their institutions report record profits.
The name of the game was "repackage anything and everything" into a tradable product, and for this, thousands of these financial players made a killing. Goldman Sachs traders even made a fortune by betting that the very products being sold by another arm at Goldman would go sour. That is unconscionable.
The web of all of these products, however, has become so convoluted and intertwined, the very people who created the problem, now get to cry to Uncle Sam for a publicly funded bailout!
It is bullshit that the private sector regularly gets bailed out by public funds when they NEVER share in the profits with the public, unless the public is a shareholder via a pension fund, etc.
Where is Congress now, who should be demanding that these bankers individually give back the fees they made on these products, that the brokerage houses punish their bankers for making this mess? Instead the public itself again 'has to pay for protection' to the financial mafia!
It is akin to Jed Bush, as Governor of Florida, creating a State-owned insurance company that writes policies for million-dollar-homes on the waterfront: if the owner sells, they get all the profit but if a storm destroys the house, the State will pay them the full value of the loss. Socializing losses while privatizing gains.
The US taxpayer continues to be the hedge against risk that big business needs to rack up more profits. The key is for business to create such a huge disaster that they can't be blamed for it and that 'the whole party will end if our individual company is not saved'.
In this case, Wall Street's continued classless greed will cost the tax payer dearly, again.
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