The Bear Stearns Failure and Bailout Are a Cover Up by the Federal Reserve to Hide the Truth About How Central Banking Operates. We Must Abolish the Fed Now.
The Bear Stearns failure came as a shock to the financial and economic communities around the world. If Stearns, the fifth largest investment bank in the United States, could fail would other large banks fail as well during this financial crunch?
Before its collapse, Stearns had over $2.1 billion in assets and over 15,000 employees working for them. The company made it through the stock market crash in 1929 but wouldn’t be able to make it through this financial crisis.
The Bear Stearns failure in 2008 caused a lot of speculation from American bankers and economists.
Here was an enormous bank that suddenly disappeared after just a year ago having over $20 billion dollars in market capitalization.
Harsh criticism was that the Federal Reserve managed to cover up this financial disaster with its name being kept out of the news as much as possible.
In fact, if asked, most Americans would have no idea that the Federal Reserve was the major player behind the Stearns bailout.
In the name of saving capitalism, the Fed virtually handed $30 billion dollars over to a company that did nothing more than take risks with other people’s investments.
Why Bear Stearns Failed
Bear Stearns invested heavily in what were known as mortgage backed securities. With the economy in the United States looking very precarious many investors pulled out their money, leaving Stearns in a severe cash crunch. The company looked for a buyer who would help them out and take over the obligations but no one wanted to touch such an insecure situation.
Financial analysts state that one of the reasons for the Bear Stearns failure was mismanagement of the company. Stearns was great at taking risks in the bull markets but when it came to managing risks during times when the credit markets were struggling, they were unable to make management decisions that were sound.
When Stearns started to fail, management wasn’t working well together, causing the rest of Wall Street to turn a blind eye and shy away from rescuing the company.
Why The Federal Reserve Got Involved
Once it became apparent that Bear Stearns was about to collapse the Federal Reserve, the central bank of the United States, held an emergency meeting. Stearns had notified the Fed, as well as other government agencies, that unless it could find some source of funding it would have to declare bankruptcy.
The Fed met on March 14, 2008, to discuss some sort of bailout package for Stearns. They were concerned that if Stearns declared bankruptcy the entire financial structure of the country would be at risk.
They felt that because Stearns held such an important position in the markets, and because the markets were so fragile, the only choice open to them was to come up with emergency financing.
This emergency financing was done through J.P. Morgan, another large investment bank. The financing loan would give Stearns time to find an alternate solution to their impending failure.
However, by March 16, both the Federal Reserve and J.P. Morgan knew that the emergency loan wouldn’t be enough to stop the Bear Stearns failure. The Fed met again to arrange for the purchase of Stearns by J.P. Morgan.
An important issue over the purchase of Sterns, an issue that received much criticism, was that the Federal Reserve would make a collateralized loan of up to $30 billion dollars of Stearns assets. This was the first time the Fed would agree to assume mortgage backed securities as collateral for a loan. However, this was the only way J.P. Morgan would be able take over.
Criticism of the Bailout
One of the messages the Federal Reserve wanted to send about bailing out Bear Stearns was reassurance to investors, as well as pension holders, that this was just a slight downturn in the American financial market.
It wasn’t that Bear Stearns was such an important invest bank in and of itself, but it needed saving so the American public could feel safe and continue spending and investing their money.
The Federal Reserve needed to hide the real truth, the truth that the security of other banks is a very fragile and that the United States economy and finances are just a step away from collapse. Central banking is the base on which our government rests.
It’s how this country is able to tax the American people during times of inflation while giving the government the power to continue operating and spending money, sinking us even further into debt.
The cycle is a vicious one, one the Federal Reserve wants as few Americans as possible to know about. But knowledge is power and the more Americans that know about how the Federal Reserve operates and what the Bear Stearns failure and bailout really meant, the sooner we’ll be able to return to a stable economy that is for the people and not the government.