Senate Snoops Bear Stearns Deal for Taxpayer Risk

The Senate Finance Committee says it wants the full details of the agreement under which JP Morgan will acquire Bear Stearns, including a description of the assets the Federal Reserve will take on from Bear to allow the deal to happen, in order to judge whether the deal poses any risk to US taxpayers. It’s nice to see the Senators working hard for the tax payers, but more telling is what thy did not say, namely

The letter did not say that the Senate committee had any plans to obstruct or alter the deal, which still appears to be evolving as JP Morgan earlier this week agreed to increase its purchase price to 10 usd per share of Bear Stearns. However, the senators said they want to know whether the deal poses any downside risk to taxpayers

What is going on here is that the New York Fed has agreed to accept billions of dollars worth of worthless level three assets from Bear Stearns as collateral. If the assets weren’t worthless why didn’t Bear sell them while laying there on it’s death bed? Once cleared of it’s radio active waste matter Bear Stearns seems to be a tasty little $5 a share treat for JP Morgan. But what happens when Bear’s worthless billion dollar level three BS shows it’s true worth on the FEDs ballance sheet? Does the taxpayer bail out the lender of last resort? These are the issues the Senators say they are raising in an election year. Senator Grassley says this way

“Congress has a responsibility to look at whether the taxpayers will lose money here, what kind of precedent this sets for federal involvement when other firms over-extend themselves, how this will affect the marketplace in other direct and indirect ways, and whether top executives will come out better than the rank-and-file workers who weren’t in the room negotiating the deal,’”

That’s beautiful, but the name of this game is keep your eye off the ball. The public is largely unaware that a tax by any other name is inflation and so the tax payer has already been bludgeoned by massive bailout financing and desperate interest rate cuts, not knowing or complaining. On top of it all FED can print money from nothing and absorb a hit of any size, the taxpayer cannot.

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