Here is another great entry by
Written before the $2 buyout.
<<< So, the government has stepped in and orchestrated a bailout of a for-profit broker/investment bank that is not a member of the Fed, nor a bank - and yet the Fed is now acting as though they are. This sort of brings us full circle to where we were several years ago, when I predicted that the dangerous risks and illegal behavior of the Wall Street predators gets passed off to the taxpayer, at a level that makes the S&L crisis look like jaywalking.
And here we are.<br />
But what is significant is not so much that, but that JP Morgan is in the mix. Why is that significant? Because JP Morgan does a lot of clearing for Bear, which means that the massive NSS exposure Bear has would then likely take down JP Morgan, in a heartbeat, as it became obvious that Morgan's assets were also dwarfed by off balance sheet liabilities (if I'm right, which I believe I am). Because if BS went onto the auction block, then potential buyers would get a good look at all its assets and liabilities, which would then give visibility to Morgan's exposure, which I'm guessing is considerable.
You think a $500 billion or so drop in asset value is bad? Try what I'm guessing could be multiples of that number in off balance sheet liabilities arising from massive counterfeiting of securities, spanning decades. How would you like that to come out? Nope, best to bring in the government, circle the wagons, and prop up a for-profit player who got caught with vapor assets.
In the real world, if you take outsized risks, you get slammed when you lose. On Wall Street, you pocket billions in bonuses every year, even as you're aware that your paper is worthless crap, and then call in the cavalry when you get caught - because you are too important to fail.
Here's an idea that will never be discussed in the mainstream press: If you and I have to work for the next decades to pay for the Bears of the world, how about now that we are sponsoring them, we get a look at how our newly-subsidized wunderkind have run their business, specifically, what are the level of fails, ex clearing fails, repo-agreement fails, etc.? Mary pointed out correctly in the last blogs' comments that we still were never told what the size of the Refco fails were - that just sort of got swept under the rug. Hey, if you can kill all the companies shorted, problem solved, right? But now that we are footing the bill for Bear's mismanagement or larceny, how about we get some scrutiny of what it is we're sponsoring?
That will never happen. JP Morgan can't afford it. The political system can't afford it. The financial system can't afford it. Byrne and I have been talking systemic meltdown arising out of this sort of arrogant trampling of the 1934 Act for years, and here we start seeing it, in slow motion.
You think lying about what your paper is worth sucks? How about carrying a liability that is so large that there isn't enough money in the system to cover all the counterfeited stock?
Which is why the country will now have its standard of living reduced by a significant amount, to protect the criminals who operate the system. That's how it played in 1929 - we got a paper tiger regulator created to appease the outrage of a country, run by one of the biggest crooks of the era as his personal retribution machine, and the rest of the population got the dust bowl. History has a way of repeating.<br />
Why is JP Morgan bailing out Bear with the Fed? Because the cancer Bear has is rotting Morgan, and it can't afford the size of the decay to be known, or tomorrow morning, there won't be any market.