BEAR STEARNS BAILOUT NOT A GOOD SIGN
Okay, let's see here ... I woke up on Friday to complete a huge writing project, bleary from working too late the night before and reeling from the flu, and what do I hear? The Federal Reserve Bank is making a loan to Morgan Stanley so it can make a loan to Bear Stearns, and the Fed is taking as collateral -- you guessed it -- mortgage backed securities. The reason? Because Bear was plumb outta cash. As in -- all the billions are gone.
Now that's no problem for a Decider -- you just write another check! Which is what Ben Bernanke, Bush's master of financial prestidigitation, did. Now, no one was screaming from the high heavens that this was a bailout, and in fact the Decider himself was down at The Economic Club in New York City himself that very day, telling people we didn't want to get all excited and have a bailout, and there was one going on that very moment.
Maybe you're confused -- isn't the government supposed to bail out banks? Yes, banks that paid insurance into the Federal Deposit Insurance Fund -- they pay their insurance, and their deposits are covered. But Bear Stearns is not a bank, it's an investment bank (big difference), and it doesn't pay insurance premiums, and it had no claim upon the public purse that entitled it to be bailed out. It was kind of a huge favor that Bernanke was doing. But of course the Fed isn't supposed to do favors, it's supposed to carry out monetary policy.
So why did Bernanke authorize this outpouring of generosity? So Bear Stearns owners wouldn't go broke? So Bear executives wouldn't leap from their office windows? Well, that's not what he's saying. The reason is -- because otherwise we would have a financial meltdown in this country, and Bush would probably become about as popular as Mussolini after Italy lost the second world war. Which is not why Bush hired him.