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Could someone please explain to me why we read so many reports of a "bailout of BearStearns?"
With several thousand BearStearns employees about to lose their jobs, the stockholders watching the value of their shares drop to $10/share (from $150 and $50), the name BearStearns probably going away, and no government money (loan or otherwise) going into the BearStearns coffers, why does everyone claim that there was a bailout?
A "bailout" is any providence beyond what the market itself would have provided to Bear Stearns. If the shares go for $5 a pop, and their actual market value is less, then a bailout took place. It's not quite that straightforward in this case, due to the triangular relationship between JP Morgan Chase, BS, and the Fed, but the principle is the same.
Could someone please explain to me why we read so many reports of a "bailout of BearStearns?"
With several thousand BearStearns employees about to lose their jobs, the stockholders watching the value of their shares drop to $10/share (from $150 and $50), the name BearStearns probably going away, and no government money (loan or otherwise) going into the BearStearns coffers, why does everyone claim that there was a bailout?
Because the Federal Reserve stepped in and helped to negotiate the sale of Bear Stearns to JP Morgan. During this process the Federal Reserve
1) Covinced JP Morgan to lower their bid, lower then what they were willing to pay for it
2) Guaranteed a loan, given to JP Morgan to help buy out Bear Stearns.
Considering that members of JP Morgan are on the board for the Federal Reserve, its a conflict of interest, and considering that guarantees add value to any deal, and liability for those doing the guaranteeing, it put the US tax payers on the hook if the the loan defaults.
The Fed provided JPMorgan with guaranteed funds to take over Bear Stearns.
The Fed did not give any money to Bear.
True, but as any accountant can tell you, a guarantee is a debt obligation until the loan is paid off. No, its not a bailout yet.. it does become one if the loan defaults though.
The Fed is lender of last resort and a guarantee by the Fed means we, the taxpayers, will pay it off regardless.
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