Buddy, Can You Spare a Billion?

[babylonsister]

Buddy, Can You Spare a Billion?
By Dana Milbank
The Washington Post

Friday 04 April 2008


Meet Alan Schwartz, welfare recipient.

As the chief executive of Bear Stearns, he's getting rather more public assistance than your typical welfare mom - specifically, $30 billion in federal loan guarantees to help J.P. Morgan Chase take over his firm. But then, Schwartz has had rather more than his share of suffering of late.

As his firm collapsed, he was forced to forgo his entire 2007 bonus, leaving his compensation for the past five years at a paltry $141 million, according to Business Week. Things have become so bad that, the Wall Street Journal discovered, Schwartz has had to rent out his 7,850-square-foot home on the ninth green of a suburban New York golf course - leaving the poor fellow with only his 17-room, seven-acre home in Greenwich, his condo in Colorado and the athletic center he built for Duke University.

Schwartz's tale of woe tugs at the heartstrings all the more because he and his colleagues at Bear Stearns were, he believes, blameless for the bankruptcy of two hedge funds and the subsequent collapse of the 85-year-old investment bank. "I am saddened," Schwartz told the Senate banking committee yesterday. He was saddened that Bear Stearns was undone by "unfounded rumors and attendant speculation," despite its impeccable balance sheet.

"Due to the stressed condition of the credit market as a whole and the unprecedented speed at which rumors and speculation travel and echo through the modern financial media environment, the rumors and speculation became a self-fulfilling prophecy," Schwartz told the senators. "There was, simply put, a run on the bank."

Sen. Richard Shelby (R-Ala.) asked the corporate-welfare recipient whether he shares any blame for his indigent circumstances. "Do you believe that your management team has any responsibility for the company's collapse?"

Schwartz could think of no missteps - not even his decision to remain at a conference at the Breakers in Palm Beach while his firm was imploding. "I just simply have not been able to come up with anything, even with the benefit of hindsight," said the blameless chief executive, escorted into the hearing room by superlawyer Robert Bennett.

more...

http://www.truthout.org/docs_2006/040408F.shtml

[notesdev]

1. Tax 'em

The behavior of the investment banks calls for a 'moral hazard' tax to cover the nation's losses for any enterprise large enough to be 'too big to fail'. In investment banker terms, call it a 'hedge' against the activities of investment bankers.

[varelse]

2. Even though reading this is making me want to poke one of my eyes out

*sigh*

:nuke:
:grr:

Recommended and kicked. Thank you for posting it - I think :P

[babylonsister]

4. Jaw-dropping, isn't it. nt

[IowaGirl]

3. Great post! Thanks, babylonsister....

:kick:

[lib2DaBone]

5. But not a penny for Healthcare

Repuiblicans love $30 Billion tax-payer money to bail out the Banksters. Yet one penny for healthcare brings blood-chilling screams from the right wing.. "You cann't do that.. that would be SOCIALIZED MEDICINE!

[unblock]

6. relax, it's actually only $29 billion, not 30, so that makes it perfectly reasonable.

it was originally $30bn, as part of the original $2/share deal. there was too much hue and cry over jpmorgan getting a steal with no risk, so they upped it to $10/share and took a first loss position on $1bn, so the fed is only guaranteeing the $29bn after the first $1bn of losses.

of course, it's still and absolute steal for jpmorgan and moreover, it does gall more than a little bit that bear shareholders get anything at all. the entire plan is the moral equivalent of an expedited bankruptcy, so only the creditors should really get bailed out, although there is some logic in the rescuers getting some upside. but none for the owners of the effectively bankrupt entity.

besides, the fed's rationale of needing to be involved to save the financial system simply meant that they needed to keep the bank standing or otherwise keep the assets and customers properly served. bear's shareholders did NOT need to benefit in any way.


oh, and by the way, how did bear collapse? in no small part because jpmorgan (and others) refused to provide them the liquidity they needed to survive. no small degree of moral hazard for jpmorgan, who gets fat off the carcass of the competitor they helped kill.