We haven't heard the last of the Bear Stearns bailout-buyout plan orchestrated by the Federal Reserve and the Treasury Department. Now that the markets have started to recover from the initial shock over this unprecedented action, the political class is starting the raise the all important questions about who benefits from the deal and who pays. As is always the case when political institutions are involved, the two categories have only an incidental overlap. As time goes by, there will be more and more second thoughts.
Over at National Review, David Freddoso introduces us to a Republican Congressman who wonders what happened to his party's commitment to free markets. Are there no free-marketeers in financial foxholes? His summary of the way the Bear Stearns deal looks paints a very ugly picture.
In short, this is the mother of all government subsidies — a non-legislative appropriation that doubles the size of all this year’s congressional pork projects combined. Without so much as a vote of Congress, taxpayers are to buy securities of undetermined value for $29 billion — roughly Panama’s GDP, or the Federal Reserve Bank’s entire annual profit. They take this enormous risk so that JPM, a company worth $146 billion, has enough liquidity to make a major and profitable acquisition for next to nothing. JPM is more than happy to take on Bear’s book of client and counterparty accounts — these were probably never in danger of being lost, and it’s great business for JPM. The ones being rescued are Bear’s bond-holders. They keep their shirts. The stockholders at least keep their socks. The profits from the good times are retained, and the losses are socialized.
Bear with Me [National Review]