Friday, March 14, 2008

Henry Blodget on the Bear Stearns Bailout

Pathetic Bear Stearns Bailout: Who to Blame

Posted Mar 14, 2008 11:44am EDT by Henry Blodget in Newsmakers, Recession
Related: BSC, JPM

From Silicon Alley Insider, March 14, 2008:

Get ready. Now that Bear Stearns (BSC) has been forced to run hat in hand to the Fed and whimper that it's "too big to fail," the mewling is about to begin:

• It's not our fault! It's a run on the bank!

• We never could have seen this coming!

• Blame those jerks who stopped lending us money!

Give us a break. If Bear Stearns goes to zero, there will only be one party to blame: Bear Stearns management.

Yes, companies that live and die on short-term loans (such as every brokerage firm on earth, along with Enron) depend on the cooperation of third-parties. And, yes, when those companies can't roll over their short-term paper, the folks who actually deliver the death-blow are those that refuse to lend them any more money.

But the first responsibility of any brokerage firm management team is to ensure that under no circumstances can the firm be put in a position where its short-term financiers might lose confidence. This is why there is ultimately only one person who is responsible for the Bear firesale: Bear's CEO Alan D. Schwartz.

Meanwhile, who will pay for this bailout? Do you really have to ask?


The Fed has promised Bear Stearns savior JP Morgan (JPM) that it will guarantee the value of whatever crap Bear has piled onto its balance sheet. In other words, the Fed is effectively assuming the liabilities of Bear Stearns. And the Fed's source of capital, ultimately, is you.


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