The Fed-orchestrated bailout of Bear Stearns was finalized on March 16, 2008, exactly five years after George W. Bush declared a "moment of truth" for the world with respect to the disarmament of Iraq. Interestingly, the Bear episode has also been cast as a sort of "moment of truth" for the global economy.

For instance, the Chicago Tribune reports:

We've been here before. The stock market is apparently surging on the news that UBS and Deutsche Bank have announced a fresh $19 billion in losses. How can this be construed as good news? It's hard to understand, but luckily the New York Times explains:

But despite the discouraging numbers — $19 billion in write-downs at UBS and nearly $4 billion at Deutsche in the first quarter alone — investors hoped that the bad news could signal the last of Wall Street’s subprime woes.

Via the BBC. Something about this reminds me of that novel Rates of Wrath.

Was the Bear Stearns bailout necessary to keep financial markets and our economy running smoothly? That's what the press is telling us. The only problem is that our economy is in trouble no matter what. The most important outcomes of the Fed's bailout were to make the public purse absorb losses that should have been borne by private investors, delay (and potentially exacerbate) future pain and reckoning, and thwart an accountability process that might have embarrassed some powerful people.

Recently I've read praise of the folks who shorted (bet against) the mortgage market from some unexpected corners, including Dean Baker at Beat the Press. The basic argument is that by shorting mortgage-related securities (subprime, CDOs, etc), these investors were sending important signals to the market that these assets were overvalued.

Via the New York Times, Bear Stearns CEO Alan Schwartz:

Mr. Alan D. Schwartz, Bear’s chief executive, looking pale, summed it up. “We here are a collective victim of violence,” he said, his voice cracking. “It’s natural to be angry, and you’re not sure who to be angry at. But we have to put it behind us.”

Unnamed Bear Stearns executive:

Dean Baker at Beat the Press is doing a great job of tearing apart the media for its analysis of the Fed's bailout moves yesterday.

He writes: "Can’t the media find any economists who don’t think that handing hundreds of billions of taxpayer dollars to the big banks and the incredibly rich people who own and manage them is a good idea?"

In December I wrote some subprime-inspired carols about Goldman Sachs for the Home for the Holidays initiative of NTIC's Save the American Dream campaign. I had written the report posted on the left for that campaign, which was demanding that investment banks like Goldman give up bonuses for foreclosure prevention. A group of us from the Northwest Bronx Community and Clergy Coalition and PUSH Buffalo (the two organizations that initiated the call for bonus paybacks) and a few other organizations braved the weather to sing those songs and others outside one of Goldman's holiday parties on the same day that they announced their record $20 billion in bonuses.

This week a profile of CEO Lloyd Blankfein in Fortune points to the event as a sign of the pressures Goldman faces:

Whoa: Citigroup Falls to Lowest Since 1998 as Analysts Project Loss (Bloomberg).

I'm not sure what it means to party like it's 1998 (something involving the World Wide Web and the Backstreet Boys?), but the 1998 collapse of Long Term Capital Management, a huge, highly-leveraged hedge fund, was thought to pose a systemic threat to world financial markets and spurred a bailout of LTCM's creditors by the central planners at the Fed.

I don't typically turn to the pages of the Wall Street Journal for a laugh, but today they posted a good bit on Wall Street's recent dealings surrounding credit default swaps on CDOs and other subprime-related junk (a credit default swap acts like insurance on a bond; the seller of the contract receives streams of payments from the buyer, who in return receives insurance against future losses).

Hedge funds are apparently getting bullied by the big banks in a myriad of ways. Some of the details are a bit sketchy, so I'm going to take a stab at translating the tale of woe in the last paragraph as I understand it, in the spirit of the excellent Subprime Primer (no relation):

Hedge fund: Hi there. I'd like to cash out this extremely lucrative position.

Investment bank: Great, I've got just the deal for you. For the month of March, we are offering customers just like you the chance to sell us insurance on a bag of toxic waste!