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Saturday, April 05, 2008

Real Lessons of Bear Stearns

1. If you are big enough, you will not be allowed to fail, no matter what you do. The stockholders may have taken a hit (more about that later), but the bond holders were bailed out.

2. Just imagine if you were savvy enough to purchase Bear Stearns at $2, and just maybe guessed!? that JP Morgan might come back with a higher offer, and you bought a million shares at $2 and then 5 days later saw it rise to $10. You would have made a hell of a lot of money. Now we all know those folks know and talk to each other..... The fact is some people made a killing.

3. The Fed is not bailing out the economy; it's bailing out its friends in the guise of bailing out the economy. There's a big difference.

4. Capitalism requires that risk takers get hurt on occasion to keep things honest, i.e., the so-called moral hazard. The Fed is removing that risk from the system. In the meantime, the dollar has tanked and the only real benefit is that the interest on our debt is lower - that makes the administration numbers look better. And again, these folks are all friends and bailing out each other.
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