Bear Stearns bailout: nationalization in all but name
Market purists gasped when the British government nationalized mortgage lender Northern Rock last month. But how would you describe tonight's Bear Stearns bailout? It wears the costume of a market transaction. JP Morgan is "buying" Bear for $2 a share. But the Federal Reserve is taking the unprecedented step of seizing control of Bear's investment portfolio. And it is giving JP Morgan Chase a $30 billion loan to take Bear over. So the Fed is simultaneously financing the deal and managing the workout. Why not end the charade and hand Ben Bernanke the keys?
The central bank has already agreed to loan Treasury bonds in exchange for mortgage bonds. Now that it is plunging even deeper into the mortgage business, can calls from Congress to forgive Fed-controlled delinquent mortgages be far behind?
Comments
I'd say Adam Smith was rolling in his grave, but he must be getting tired by now.
Posted by: bryanintimonium | March 16, 2008 11:08 PM
Is the government nationalizing the risk, but letting JP Morgan keep all the potential for profit?
Posted by: newageblues | March 17, 2008 9:31 AM