Bear Sterns Gets Bailed Out by the Federal Reserve

Over the weekend, JPMorgan Chase, the Federal Government, and Bear Sterns all came to an agreement that JPMorgan would purchase Bear Sterns for a mere $270 million ($2 per share), with the Federal Reserve guaranteeing all of the obligations that JPMorgan will assume from Bear Sterns.

Well, I don't know how you feel about it, but I'm certainly not okay with the fact that the government is bailing out Bear Sterns.

Granted, I understand that Bear Sterns is the fifth largest investment bank in the nation, and they are a tremendous asset to our economy, but the bail out of that company is quite contradictory to what I have heard from this administration time and time again.

Correct me if I am wrong, but all I ever hear from the government is how imperative it is that we allow the economy to run its course (where have we heard that one before...?). The President, Greenspan, and to some extent present Fed Chief Ben Bernanke, have been preaching about how private enterprise will lead us out of the recession. That was supposed to be the message behind their stimulus plan and tax reimbursement checks they are sending out, in that the extra $600 is supposed to be used in buying American products and boosting private enterprises.

Yet, that is not the message they are sending out when they help Bear Sterns out of a jam.

In fact, they are sending out the exact opposite message. They are saying that given the extremities of the times and the "slowing economy" that the government will do whatever it can to save the economy from ruin, even if that means (heaven forbid) getting involved in doing something like backing a loan or purchase.

However, that message doesn't apply to the mom and pop stores that are being gutted, abandoned, bought out and eventually eliminated across this nation. No, if they get in trouble, they can't even get financing from their local Savings & Loan if their credit has been damaged by their lack of business. Yet now, a company like Bear Sterns, who invested in one of the biggest financial follies of the past quarter century, is getting a pick-me up.

Now I understand that bailing Bear Sterns out was pretty much necessary. And it is not that I am not in favor of bail outs, because in the end it will hopefully save jobs. That said, this particular bail out won't save the right people. With Bear Sterns essentially selling the clothes off their back for a penny on the dollar, there will naturally be some layoffs on their way, despite the federal government's involvement.

And that's where I have the real issue. If taxpayer dollars/paper-money/credit or whatever you want to call it is going to support this transaction, then it should support all of the taxpayers who work at these companies, and not just the shareholders, officers, and board directors who got them in this mess. But that is what's happening here, because with the $270 million coming to the shareholders of Bear Sterns, they are getting something out of their fledgling investment, and officers will still get to exercise their stock options, all the while workers and the people on Main Street suffer the consequences.

If the Fed wants to bail out companies, I suggest they come up with a new way of doing it, because this isn't it. JPMorgan, Bear Sterns, and the Fed, each get something out of this, while many of Bear Sterns employees don't get anything. I don't know what to suggest (a favorite columnist of mine Paul Krugman does), but I wills offer this. And that is that the government needs to start helping out the taxpayers before it starts helping out the institutions. If the government continues at this extreme macro level instead of trying to fix this problem in the states and communities where the economic troubles can't be fixed by paper money, then this system of bailing out large institutions will ultimately fail the majority of Americans.