Welcome to Ocala.com Blogs - Congressman wants answers about Bear Stearns bailout

Opinion

Ocala.com Bloggers

Search Blogs



KeywordsPhrase

Blog Archives

Archive

July 2008

Sun

Mon

Tue

Wed

Thu

Fri

Sat

Monthly

July, 2008

June, 2008

May, 2008

April, 2008

March, 2008

February, 2008

January, 2008

December, 2007

November, 2007

October, 2007

Congressman wants answers about Bear Stearns bailout

Location: Blogs Marion Politics
Posted by: Ocala.com Election Coverage	4/16/2008 4:49 PM
U.S. Rep. Cliff Stearns, R-Ocala, expressed concern Wednesday about the proposed bailout of troubled Bear Stearns, which would cost taxpayers at least $30 billion. In a letter to Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson, Stearns said he was concerned that the Fed had taken "unilateral action" in providing about $30 billion in loan guarantees to J.P. Morgan Chase to take over Bear Stearns. See the letter here. Stearns letter.pdf -- Tom McNiff

Permalink \| Trackback

Comments (1) Add Comment

Re: Congressman wants answers about Bear Stearns bailout

By Matt Zweil on 5/14/2008 9:12 PM

Let's clarify a few points: The Federal government extended a loan to JP Morgan. JP Morgan provided collateral in the form of investment holdings worth approximately $29B. JP Morgan is being charged an annual interest rate of 2.5% on this loan. This is, by no means, a Federal handout! That said, the reason that this move by the Fed is suspect is that the securites that JP Morgan provides as collateral, are the same defaulting mortgage-backed notes that Bear Stearns was going bankrupt for holding (i.e. losing money on). This does not concern me as much as it could, if any other organization besides JP Morgan were involved. Consider this: the expectation is that JP Morgan would not deliberately enter into an agreement to borrow $30B to buy Bear Stearns unless they have a carefully analyzed expectation that the purchase will result in profits for JP Morgan. They already KNOW that the securities were performing badly. This would argue that a conservative estimate of the true worth and expected yield of the Bear Stearns investments would have been used in the pricing of the buyout. In other words, they priced in the expected loss into the buyout agreement. Furthermore, considering the economic climate, the Fed acted to protect the economic stability of the US as a whole by shielding us from a $30B investor sell-off and collapse of one of the oldest and most respected financial institutions on the planet. My analysis of the Fed's actions: Nothing short of brilliant. Now let's hope it works out. Regards, Matt Zweil.

Your name:
Title:
Comment:

Security Code Enter the code shown above in the box below
Add Comment Cancel