Tuesday, March 25, 2008

A Bear Stearns Bailout

I thought it was fine when the Fed agreed to back Bear Stearns' obligations in exchange for a near liquidation of the company ($2 per share was close enough). But it now continues to back Bear's liabilities, and shareholders will get quintuple the price. To me, this amounts to a transfer from the US government (i.e., taxpayers) to Bear Stearn shareholders.

I have written in the past of my reluctance to award haircuts to homeowners in trouble, but I find such policies far preferable to taxpayer transfers to Investment Bank executives.

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