Monday, March 17, 2008


I've been blogging for a while at NYCEducator about problems in the financial and economic sectors.

With the collapse of Bear Sterns this morning, those problems have grown immensely.

The ironic thing is that as of last Thursday, S&P said all was well in the financial sector and that most bank writeoffs related to the mortgage mess were over.

The Dow Jones, which had been down all day, responded with a triple point turn-around and finished the day up.

But behind the scenes on Thursday, there was a run on Bear Sterns, the fifth largest brokerage in the country with tons of investments in garbage mortgage securities.

By Thursday night, Bear Sterns told the Federal Reserve they might have to file bankruptcy.

As a result of Bear's impending collapse, a bunch of laissez faire capitalists who hate government regulation and intervention got together to try and save Bear.

By Sunday night, J.P. Morgan had agreed to purchase Bear Sterns for $236 million in a deal brokered by the Fed. On Friday afternoon, Bear Sterns had been worth $3.5 billion and as of January 2007 Bear Sterns was worth $20 billion. Now it was being sold for about $2 a share, truly a firesale.

To get J.P. Morgan to purchase Bear Sterns and keep this financial crisis related to the mortgage mess from spreading to other vulnerable banks like Lehman and Citigroup, the Federal Reserve is providing as much as $30 billion in financing for Bear Stearns's less-liquid assets, such as mortgage securities that the firm has been unable to sell.

In other words, the Federal Reserve is buying a bunch of crap mortgage securities that are worthless for $30 billion.

Barry Ritholtz at The Big Picture wonders just who is buying Bear Sterns, J.P. Morgan or the Federal Reserve.

It kinda sounds like this is a government bailout to help out a bunch of laissez faire capitalists who made some awful (and greedy decisions) over the past few years.

It's funny how all these laissez faire capitalists hate government bailouts unless they are on the other end of it.

At any rate, rumors are swirling that Lehman Brothers will be next to collapse and that Citigroup could go to.

It is not in the country's interest to have these major financial institutions collapse even if the reasons why they are vulnerable to collapse are due to their own misguided and/or greedy decisions so I can understand why the Fed needed to step in to avoid a possible financial system meltdown.

Nonetheless, the next time some billionaire businessman or greedy hedge fund manager tells us in print that the problem in education is that there is no accountability and what we need to do is bring more business and corporate principles to education to make sure the system, the administrators and the teachers are held accountable for their performances, let's ask the billionaire businessman and greedy hedge fund manager where the accountability in this mortgage crisis is.
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