Arthur Levitt on the Bear Bailout, SEC, Fed
Former U.S. Securities and Exchange Commissioner Arthur Levitt talks with Bloomberg's Carol Massar from Palm Beach Gardens, Florida, about the Federal Reserve's involvement in the rescue of Bear Stearns Cos., and potential implications for the financial-services markets and regulators.
click for video
(launches Windows Media Player)
Source:
Levitt Says Bear `Bailout' Raises New
Regulatory Issues: Video
Bloomberg, March 26 2008
mms://media2.bloomberg.com/cache/vSIw1QRzGAHM.asf
> ~~~
Sunday, March 30, 2008 | 03:00 AM | Permalink
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Barry-
try putting this link up to the main page:
mms://media2.bloomberg.com/cache/vSIw1QRzGAHM.asf
Posted by: m3 | Mar 30, 2008 3:37:00 AM
That was weird --
I fixed it above
Posted by: Barry Ritholtz | Mar 30, 2008 7:23:15 AM
This was a bail-out in the sense that a hostage is "bailed-out" when ransom is paid. Sure, it averts the immediate crisis, but it also paves the way for a rash of additional hostage-takings.
It would have been different had the government declared BS insolvent, and had taken them over. This way, the culpable are allowed to continue profiting (profiteering) from their more-than-likely criminal activities.
The road to hell is paved with bail-outs.
Posted by: Marcus Aurelius | Mar 30, 2008 8:34:14 AM
The real bailout was for JP Morgan, not Bear. They get to keep the lid on their garbage for awhile longer and get to pick up assets at what appears to be a rock-bottom price.
Posted by: Steve Barry | Mar 30, 2008 8:42:47 AM
"Call it a banana
"it has consequences
Love the Levitt.
Posted by: Northern Observer | Mar 30, 2008 8:49:55 AM
The semantics of whether this was a bailout I think are settled at this point, but I think what should really be noticed here is that Joseph Lewis and other Bear shareholders (which had turned over a few times in the preceeding days, plus employees who might not have sold), in effect, extracted a billion dollars from the people of the United States (and to some extent every holder of US dollars), by threatening a nuclear option for voting down the deal, a clearly unacceptable risk for the Fed to allow, hence its guarantee of this deal.
That's kinda scandalous. Fed's just doing its job.
Posted by: Wade Black (Rudy's partner @ Scarsdale) | Mar 30, 2008 9:18:50 AM
If Bear had gone BK, shareowners would not have received a farthing and bonuses paid would have been required to be returned. Since know one even now knows the ultimate value of their book, it is simply an excercise of knife fighting at night.
As to the re-regulation of the markets, we have two men Paulson and Rubin who know the "game" and where the bodies are buried. Kinda like FDR appointing Joe Kennedy to clean up the mess in the 30's. I would have preffered Volker but there you have it.
Posted by: Ross | Mar 30, 2008 10:10:38 AM
BSC could not be allowed to fail because of its $13.4 trillion notional derivitive book. If BSC went tits up, those contracts would have been virtually worthless. This explains the panic to consumate a deal before the Asian markets opened and a derivitive panic set off a global selloff.
Neither Bernanke nor Paulson had the authority to commit public funds to the bailout - yet Congress has not squeaked about this usurption of their authority. Which makes it plain there was no other choice.
And all this can be traced back to the year 2000 and more deregulation:
"A milestone in the deregulation effort came in the fall of 2000, when a lame-duck session of Congress passed a little-noticed piece of legislation called the Commodity Futures Modernization Act. The bill effectively kept much of the market for derivatives and other exotic instruments off-limits to agencies that regulate more conventional assets like stocks, bonds and futures contracts."
Give the kids the matches and at the same time fire the nanny - no wonder the house is in flames.
Posted by: Winston Munn | Mar 30, 2008 10:44:09 AM
It's beginning to look like there really may be consequences.
The treasury regulatory reform proposals, together with Timothy Geithner's comments about a potential rethinking of the Greenspan/Bernanke put, just might be the start of something.
Posted by: Estragon | Mar 30, 2008 10:46:08 AM
estragon-
there may be consequences, but so far they appear to be toothless.
the treasury reforms are almost more deregulatory. all they are really doing is reshuffling deck chairs.
further, there already is a risk manager at the SEC:
http://sec.gov/about/offices/ora.htm
the real problem isn't the lack of regulation: the real problem is no one bothered to enforce the laws on the books.
the level of incompetence at the regulatory level rivals only Katrina in scope. christopher cox at the SEC should have been fired (or worse) long ago.
giving the clueless people who allowed this mess more regulatory responsibility seems pretty retarded.
Posted by: m3 | Mar 30, 2008 11:13:41 AM
m3
I agree this is closing the barn door after the horses have bolted.
That said, I also agree with Winston Munn's basic point about derivatives. The exposure isn't anything like $14 trillion (a lot of the notional value would net), but it almost certainly added significantly to the systemic risk which led to the "bailout".
Derivatives aren't generally within SEC jurisdiction. To the extent they are regulated, the CFTC does it. The OTC stuff is pretty much exempt though, and that's a big source of systemic risk.
Posted by: Estragon | Mar 30, 2008 12:38:08 PM
I read somewhere, were 40 cents on the dollar is what, on average, is recovered in bankruptcy, so that would leave the U.S. Taxpayer with a 17 billion dollar bill! And that is just BSC...
Posted by: JustinTheSkeptic | Mar 30, 2008 1:17:06 PM
Too bad, I have a video without audio. Bloomberg needs to update its old software for Mac users.
Posted by: Rod | Mar 30, 2008 7:06:16 PM
this is the most coherent argument i've read to rethink what the fed did!
Posted by: sam | Mar 30, 2008 8:01:54 PM
http://www.hussmanfunds.com/wmc/wmc080331.htm i,m sorry this is the link to the article regarding "rethinking what the fed did!"
Posted by: sam | Mar 30, 2008 9:36:44 PM
hmmm? give the fed more power? someone honestly thinks that is a good idea. youre fcuking insane and need ot be shot for being ignorant.
who do you think started this whole mess?
tard.
Posted by: como | Mar 31, 2008 9:13:35 PM
