Monday, March 17, 2008

Bear Bottom

As someone who keeps a casual eye on the stock market (and who, of course, wants a functioning economy upon graduation), obviously I'm concerned with Bear Stearns sudden collapse. When a titan that big falls, the shock waves are going to be massive no matter how swiftly the government moves to stem the damage. One hopes that our public institutions are up to that task -- but the track record of this administration hardly inspires confidence in that respect.

But the other thought that persistently nagged on me was the very fact that Bear Stearns (through J.P. Morgan and the U.S. Federal Government) was getting bailed out in the first place. Obviously, I superficially see why this is so -- if they didn't, we'd be faced with a massive economic meltdown. But something rings uncomfortable to me that the powerful are insulated from the risks that they take by virtue of their power. If I kidnap folks and enslave them, I face life in prison at least. If a corporation does it, they're faced with a fine. A stiff fine, perhaps -- but shouldn't the executives and officials who concocted this deal also face criminal charges? Cigarette companies knowingly released a poison on the market without telling anyone of the risks. Yes, they get sued -- but the CEOs aren't being arraigned for manslaughter. Powerful actors consistently get to privatize the gains and publicize the busts. It's only the little people who have to worry about their own skin.

Like Darren Hutchinson, I'm not opposed to the Bear Stearns bail-out per se. But when I see it juxtaposed against strident opposition to public aid for other folks, who haven't behaved nearly as irresponsibly as Bear Stearns and whose mistakes have not wreaked nearly the havoc on American society, I grow white with anger. All this talk about "personal responsibility" and "welfare queens" and "no hand-outs", it's utter bogus. If you matter enough, the government will be there to back you up in the end. It's merely a question of who we think matters.


Mark said...

You do realize that many if not most B. Stearns employees will be not retained (finding a new job in today's banking market will be, uhm, interesting) and that the selling price might be a poorer compensation than bankruptcy proceedings might have been for the stockholders.

PG said...

I'm confused by your ideas about powerful individuals and the corporate form. Corporations are legal, though not natural, persons under the law. Though they have no physical bodies to punish, they can be fined and destroyed (by dissolution of their state charters). When you talk about "the powerful," do you mean the powerful individuals who head the corporations? Because this is supposed to be a bailout of Bear Stearns -- not of its executives. Indeed, with much of their wealth tied to the company, chairman Cayne and CEO Schwartz also are taking a hit.

I myself am doubtful that BS is such a significant player in the U.S. economy that the government must quasi-bail it out. But I do think the Fed is acting in the good faith belief that allowing BS to collapse rather than fold quietly into another firm would have too negative an effect on confidence in the American securities/ capital markets. Maybe worrying about those markets is itself an elitist concern, when so many Americans have lost their homes and many more will do so before this finishes playing out. But it is an institutional concern, not a personal one. The Fed acts to help institutions, not individuals.

Anonymous said...

I'll agree with the others that this is in no way a bailout for Bear. The shareholders are getting (virtually) wiped out and the senior executives will be fired and have seen their extensive BSC stock portfolios demolished. The Fed is simply making sure that a Bear bankruptcy doesn't occur, because that could cause some serious disruption in the financial system -- which translates into lost jobs and income for everyone. This is exactly what we want to see happen in this situation.

I do agree that it would be better if the administration paid more attention to the economic problems in the rest of the country -- but the Fed is independent of the administration, and economic policy would be much better if we had politically independent technocrats in charge of the rest of economic policy, not just monetary policy. Unfortunately, that's hard to arrange... I assure you that if the Fed had been in charge of the economy during the last 10 years, you might not agree with them perfectly, but it would be a _lot_ better...