I’ve been working on a post about this for quite some time, but this single comic from AccordionGuy says it better than I could, which will, of course, not stop me from giving it the old college-dropout try, right after the pic:
And you know that Jack’s taxes paid for every one of them. The banks have been shuffled around between rich people, the bundled mortgage products rebundled and shuffled and dealt out again, tax writoffs have been off-written, but quite frankly the lack of defenestrations leads me to believe this was nothing but a shell game played by knowing hucksters, and every first-generation homeowner who thought he’d do something long-term for his family and think ahead instead of renting played the sucker here.
That’ll teach ’em.
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raincoaster 
The worst of this is that, faced with a collapsing investment bank that was fixing to take out a number of people with these types of mortgages, the US government decided to deregulate the investment banks while simultaneously offering them the protection of the FDIC.
That’s the real impact of the Bear-Stearns bailout, and no-one seems to get it.
After the original Stock Market Crash, the government decided to back commercial banks so that people wouldn’t get panicked and cause a run of the same scale that toppled the economy in 1933.
Those banks are backed, in essence, with taxpayer dollars which act as insurance for taxpayer dollars in those banks.
Investment banks are a different animal entirely. They’re supposed to run the risk of losing money, and thus get to play by different rules and haven’t been as tightly regulated as the commercial banks.
But thanks to the Bush administration, now, they get the same protection without having to play by the same rules. Just another way the Bushies want to help out the little guy*.
*For “little guy” read “corner millionaire”.
What’s interesting to me is the implication (linked above) that Goldman Sachs caused the run on Bear Stearns, in order to buy it up at two bucks a share. It’s like playing dominos, only just ONE falls over. And the rest all build on top of that.
Banks do actually pay for the FDIC insurance based on deposit balances less than $100,000 per depositor. Just FYI that it’s not a free service provided by the government.
Does what they pay cover the cost of these bailouts, though? We’re all still remembering the S&L bailouts.
In theory, yes when combined with the money garnered by selling off the defunct bank’s assets. There will be individual cases now and then where this is not the case, of course.
In fact, the FDIC just raised rates if that makes you feel any better.
Gee, I wonder why they felt that was neccesary?
The problem is, extra money or no, the FDIC program was not created to assume the risk for investment houses. They’ve upped the rates, sure. But they’re covering a far larger sum at, in many cases, hundreds of times the risk.
And if/when the next Bear Stearns goes to the wall with billions in liabilities, instead of letting it sink or swim on its own merits, the FDIC will be obliged to row out the lifeboat.
Of course, that’s only if it’s a single organ shrivelling up and dying. And one that’s small enough for the FDIC to cover all at once.
And I’ll put a six-pack against a kick in the pants that if five or six of these riskier establishments go belly-up, that the money to cover their bad investments will come from taxpayers.
I think you’re confusing the FDIC with the Federal Reserve. The FDIC does not cover investment banks, not even now. Nor would it, as investment houses pay into the SIPC.
Even then, neither entity functions to bail out the owners of the failed venture at all, as all they are responsible for is protecting the funds of those who have money stored at the institutions.
Interesting. Thanks for the clarification; you’d think, having read financial scandal journalism for two decades, that I’d be clearer on the divisions of responsibility.
The individual institutions may indeed collapse, as with the S&Ls, but it seems that the impact is still primarily felt by the underclass. The loan products have just gotten flipped at a discount, and they’re going to need people to manage them, so there aren’t going to be widespread job losses in the banking industry: would you agree? While the names on the door may change, the industry as a whole is still secure.
@Beelzebufo:
You’re absolutely right. I had made a mistake in comprehension. Thanks for setting that straight.
In any case, it’s not the victory they seems to be trumpeting. The Fed guaranteed about $30 billion to JP Morgan Chase in their purchase of the crippled Bear Stearns.
BS should have been allowed to collapse, just as the mortgage-holders are being.
It was a Clinton act of deregulation, authorized by Congress, that made credit for the uncreditworthy such a great investment for a while and drove the price bubble. Having ridden the wave to profit, they should have been allowed to ride it onto the beach.
Instead, a Bush executive order, unapproved by anyone except the United States of Dubya and Dick, will bail out the banks. Congress, being the august institution it is, is putting together a package to rescue the builders, lenders, and other such agencies.
How truly noble of them. I’m sure the people who can no longer afford homes in their lifetimes will be understanding and properly grateful.
And in the UK the example is even starker, as Gordon Brown sticks the taxpayers with the burden of Northern Rock. The only point of keeping Northern Rock alive as an institution is to guarantee jobs to the bank staff. That’s not good enough.
Actually, I feel it partially depends on how many people will go jobless. And especially too, on who’s not losing out.
Consider Washington Mutual. 3000 people are losing their jobs. No word on whether the guy who’s making that decision will get his performance bonus on top of his $15 mil salary this year.
There needs to be room for some standard of fairness, even in the freest of markets.
In the 18th and 19th centuries, the heads of companies usually felt the pain of bad business or bad economic times.
Many capitalist types sacrificed profit through the bad times because they knew they had a moral obligation to their workers when times were bad.
Fortunately the robber-barons of the twentieth century spent much of their time working out ways to avoid having to consider human beings in business decisions.
I’m a conservative and I believe in a free market–though not an unregulated one. But I also support unions, for example. There’s a reason for that.