Saturday, March 15, 2008

Observations About Bear Stearns Near Collapse

Jim Rogers calls for the abolition of the Federal Reserve in the wake of its bailout of Bear Stearns. He adds:

"Listen, investment banks have been going bankrupt since the beginning of time. If people make mistakes -- if you bail out every investment bank that gets in trouble, that's not capitalism, that's socialism for the rich."

With regard to Bear Stearns and its near collapse, Paul Krugman notes a poetic justice in that particular bank getting in trouble, as its chief economist David Malpass was one of the biggest cheerleaders of the phony boom, using nonsensical arguments like "asset price inflation is savings" to deny that there was any problem during the boom and so of course he was not able to forecast the current problems either. And after it became apparent to everyone that there was a problem, he did his best to downplay the problems, a line which does not appear credible considering the problems his bank has gotten into. And finally Malpass has long been bullish on the dollar. In short, Malpass has been as consistently wrong as you could get, something which is probably not unrelated to Bear Stearns problems as they have presumably acted based on his faulty analysis.

Another thing to note was that Bear Stearns was actually mentioned in the hilarious and yet still accurate discussion of the subprime crisis by two British comedians that I posted in January ,with regard to two of their worst funds, "High Grade Structured Credit Strategies" and "High Grade Structured Credit Enhanced Leverage Fund". As was explained in the discussion, these are fancy names for investments in bad debts. This again illustrates the poetic justice in Bear Stearns problems.


Blogger flute said...

Good idea - just look at which banks have published the most inaccurate analyses of the situation since this summer, and you will probably find the next to go down.

I have long suspected Bear Stearns would be the first to go down, since the whole thing started off with them last summer.

2:01 PM  

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