The proposed bailout is a complete disaster, a massive transfer of wealth from taxpayers to Wall Street elites with no strings attached. I have little faith that a dressed-up bill would be acceptable, given that the entire thing would have to be refocused (on the needs of taxpayers and not Wall Street) and restructured for it to pass muster. Glenn Greenwald has posted an excellent discussion of the elite consensus surrounding the bailout.

I can't take credit for the argument in my last post, that investment banks were unsustainable and bound for failure, but a week of bankruptcies and bailouts has all but confirmed what was previously a fringe view.

It's happened very fast: in one week, Lehman Brothers went bankrupt, Merrill Lynch has been purchased by Bank of America, Morgan Stanley was teetering on the edge and in merger talks, and Goldman Sachs was fighting off rumors that it will also need to disappear into the arms of a big old commercial bank.

Nouriel Roubini is predicting that in a few years each of the four major independent broker-dealers (the big investment banks - Goldman Sachs, Morgan Stanley, Merrill Lynch, and Lehman Brothers) will have either gone bust or gotten swallowed up by a commercial bank, as their business model of securitizing, slicing, dicing, transferring credit risk, piling up fees, hoodwinking, and so forth, has gone from insanely profitable to bust.

I got my stimulus check today, so it was funny to read this just now in an AP article on Lehman Brothers:

Investors have retreated from financial stocks to such an extent that it has wiped off nearly $180 billion of market value from the four biggest U.S. investment houses in the past 12 months. That's enough money to pay every American roughly $600 each.

Apologies for the long absence, I've been working on a very exciting project.

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: