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Bear Stearns—Government Hypocrisy 2008 March 18 © 2008, Libertiny Financial LLC
Hours after I wrote that Blog, we all awoke to find that under pressure from our government, J.P. Morgan Chase was asked to purchase the failing Bear Stearns. Lots of guarantees from the federal government helped to close the deal before the Asian markets opened on Monday morning.
Hypocrisy on our government’s part.
Last time that I checked, America remained firmly capitalistic. That means that people and the people that run businesses get to take responsibility for their actions—good and bad. There’s no question that this can be painful, especially when we’re in a recession. But a government bailout? What’s the incentive to make sound decisions when you know that “mother America” will come and save you when you screw up?
I’d like that same kind of safety net for my personal finances. I could use all of my possessions as collateral in a stock brokerage account, buy risky stocks and not have to worry about a margin call. After all, our government would be there to cut everyone a check and make me, as well as the brokerage firm, whole should I make a mistake. Right?
The owners of Bear Stearns, including a large percentage of their employees, should be outraged. At the US$2 per share purchase price, folks have said that the Bear Stearns building in Manhattan is worth more. How does this forced acquisition serve the stockholders of Bear Stearns?
Bear Stearns should have been forced to do what all of us would face in a similar situation: File for bankruptcy. We can only hope that the shareholders of Bear Stearns will vote to overturn the acquisition of their company. Or perhaps there’s yet another federal bailout on the way, this time for the individual shareholders.
Would the bankruptcy of Bear Stearns have caused the markets to tumble? Most likely. After all, we are without a doubt in a recession—something I’ve been saying for over a year now. During recessions, things get devalued. People who have made investment mistakes lose money.
Because of the Great Depression and the number of failed banks that occurred during that time, we have had the Federal Deposit Insurance Company (FDIC) since 1933. So if your money is held in a financial institution covered by the FDIC, you won’t go completely bankrupt. Granted, this wouldn’t have helped folks with investment based accounts like those at Bear Stearns. But the reason why you should be getting a better return on your money when you invest in riskier investments then those available through a regular savings account is because you’re getting paid to take on a higher level of risk. If you can’t afford the risk, then keep your money in a safer investment portfolio with an institution covered by the FDIC. How much more of a safety net do we need?
Bottom Line: Here are the clichés that absolutely apply to this situation: When the market is up, you make more money. When the market is down, you loose money if you’ve stayed in the market. Buy low, sell high. If you don’t understand what you’re buying, don’t buy it. Take responsibility for your actions--it’s that simple.
In a capitalistic society, government bailouts should not be allowed. Shame on our government and Bear Stearns for being hypocrites. |
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