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Monday morning, American investment giant J.P. Morgan Chase & Co. announced its completed plans to absorb the now floundering firm, The Bear Stearns Companies, by the end of June.
This move comes after a series of events involving bad bets on subprime mortgaging, which caused Bear's stock price to drop well below its January high of $171 to somewhere around $30.
With the assistance of the U.S. Federal Reserve bank, J.P. Morgan plans to pluck Bear Stearns from the financial dumpster, preventing further loss of wealth as well as promoting confidence in our struggling market. Backed by up to $30 billion in Fed funds, J.P. Morgan will purchase Bear Stearns at an approximate $2 per share, a mere fraction of The Bear's stock price at Friday's closing bell.
This places the former heavy-hitter's value at around $240 million, or about 20 percent of its Manhattan headquarters' real-estate value.
As this weekend's developments have shown, the state of the American economy has become dangerously unstable, and many of our formerly venerable financial institutions, including veteran firm Lehman Brothers, find themselves treading a very thin line between losing money and total corporate collapse.
With the Federal Reserve pledging up to $200 billion in bonds to bail out banks and inflation ballooning rapidly, many investors and passers-by alike find themselves wondering how all of this was allowed to happen.
More or less, the societal trend known as the "American Dream" has evolved. A society of thrift, living below one's means, and planning for the future has become a blind mob of consumption, thriving on the mammoth arteries of credit that the market has laid down for the thirsty consumer to sink its teeth into. Firms placed seductive teaser rates on home loans, giving mortgages the moniker "sub-prime," indicating a high-risk bet on an individual's financial security.
It turns out that many of our largest financial institutions issued an unholy amount of sub-prime loans to people who were not prepared to own homes. Now, with Americans losing their suburban, cookie-cutter mansions left and right and financial giants on the run, the seriousness of the U.S. economic situation has become increasingly stark. Careless investment, fueled by corporate greed, has reared its head as the potential catalyst for a national, and possibly worldwide, economic downturn.
Of course, the market has inherent mechanisms for handling these kinds of decisions. Corporations will undergo revaluation, stocks will rise, plummet, and rise again, and if we are responsible, the U.S. financial system will recover naturally. However, markets are not kind. They are not moral, and they show little sympathy for those trampled underfoot. Individuals who overextended their economic means will lose their homes, valuable equity against financial toil. George Bush's $600 tax rebate will not help to reinvigorate the economy, but rather will take more money from the ultimate player in fiscal irresponsibility: our government.
At the behest of those kind folks on Capitol Hill, Americans are free, and in fact encouraged, to go outside, drive their mammoth SUVs to the nearest shopping mall, and further crash their livelihoods into the ground. Buying six pairs of shoes or an Xbox doesn't stimulate the economy. Besides, we've been fighting a war on credit since 2003. If the White House wants to give back all this cash, how do we expect to pay for Iraq? Killing people has proven to be an extremely expensive procedure.
The time for government to take a more proactive role in the development of our economy has long passed. U.S. markets have demonstrated their penchant for selfishness, irresponsibility and undeniable shortsightedness for far too long. Unless government is willing to totally restructure the way it approaches corporate responsibility and consumer protection, companies will continue to place bad bets on the table, and our economy will continue to decline.
With appropriate and thoughtfully enacted regulation, we can work to restrain the risk inherent in markets, reducing the financial burden on the wayward consumer and the nation as a whole. Wall Street, put on your big-boy pants and learn something about fiscal responsibility. You've made some crucial bad decisions, and Americans can't afford to pay for them.
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Update: Bear Stearns (BSC) closed Monday with a higher than expected share price, upping its value to around 340 million. JP Morgan may be forced to shell out more to acquire the struggling firm.
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Avoiding the obvious bias this writer has for standing up for the "little" people; why are we, as a society, so quick to blame "greedy", "ruthless" corporations? Last time I checked two entities must mutually enter into a contract. The fact remains that yes, corporations extended risky bets to individuals but those individuals entered into that agreement freely. Maybe we should look at the root cause, which would be irresponsible homebuyers who overextended themselves betting on the fact that the housing market would continue its upward trend. The notion of a government bailout seems all more absurd when put in context: if one were to go to Las Vegas and gamble $500,000 on one hand of blackjack and lose would we expect the government to bail them out? This is exactly the course you argue for - buying a house is just the same as blackjack, you are taking a gamble that you will make money. To conclude, the last two paragraphs are the most frightening of this whole article. Are you really appealing to government to teach the private sector how to be fiscally responsible? This from a government who spends roughly 33% more then it collects in revenue? If any private corporation were to run its books the way our Federal Government does it would be out of business in a matter of weeks. I suggest we take a lesson from our Founding Fathers and remember the best government is that which governs the least.
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The government's gross mishandling of its current budget has come as a direct result of the current administration, who truly seem to have no grasp on any sort of responsibility, fiscal or not. People should be held liable for their bad decisions, and those currently losing their homes are paying dearly. Do I support bucking financial obligations and issuing a buyout to Americans who can't handle their money? No. But when the health of our economy on the whole is threatened by these missteps (largely at the hands of deceptive government housing subsidies and corporate mortgaging policy), responsible application of regulation becomes a necessity to ensure this country's future. When the "little man" finds himself caught in a financial mess on its way to a global economic downturn, I find it exceedingly hard not to express any bias.
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Besides, I write opinion columns. Since when is objectivity a requirement?
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To Peebles.....You say, "The government's gross mishandling of its current budget has come as a direct result of the current administration..." Are you simply choosing to ignore the history of this nation's debt and poor financial managment to forward your agenda? It seems you are overlooking the fact that over the last 50 years we have probably only had a handful of politicians who do not try to spend way more money than they should be. But of course you wouldn't want to talk about that. You want to hype everyone up, stir in a little fear, and introduce more government regulation. Way to go you commie.
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