Reuters reports: “A fire sale of Bear Stearns Cos Inc stunned Wall Street and pummeled global financial stocks on Monday on fears that few banks are safe from deepening market turmoil. … The combination of Bear Stearns’ bailout and the Fed’s offer on Sunday to extend direct lending to securities firms for the first time since the Great Depression highlighted just how hard the credit crisis has hit Wall Street.”
DEAN BAKER
Baker wrote the book The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. He said today: “The banking system is experiencing enormous stress due to collapse of the $8 trillion housing bubble. This is an inevitable and entirely predictable result of the collapse. The fact that almost no one in government or Wall Street anticipated this set of events raises serious questions about the competency of people in positions of responsibility.
“Going forward, the public should insist on full openness and transparency in the actions of the Fed. We have an interest in keeping the financial system operating but there is no public interest in putting up tens of billions of taxpayer dollars to protect the managers who have brought on this disaster or the shareholders who had hoped to profit from their actions. The takeover of the Northern Rock Bank by the British government should be the model. The bank was kept operating, but the managers were sent packing and the stockholders will probably lose their investment.”
Baker is co-director of the Center for Economic and Policy Research. In August of 2002, the group released a paper by Baker titled “The Run-Up in Home Prices: Is It Real or Is It Another Bubble?” In 2005, Baker co-wrote the paper “Will a Bursting Bubble Trouble Bernanke? The Evidence for a Housing Bubble.”
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DOUG HENWOOD
Henwood is author of the book Wall Street and editor of Left Business Observer. He said today: “The Federal Reserve’s attempts in recent weeks to restore market confidence haven’t worked, and the arranged marriage of Bear Stearns and JPMorgan Chase is proof of that: people simply stopped believing in Bear and it was dead in a matter of days. We’re clearly in a new phase of managing this financial crisis, but before it’s over I think we’re going to see the expenditure of real taxpayer money and not just pledges of support by the Fed. The economic question is now how bad the recession we’re already in will be. The political question is what the public will get in return for its largesse — license for financiers to do this all over again a few years from now, or a more stable and equitable financial system? Oh, and let’s not forget, in all this high-end melodrama, there are still several million people losing their houses.”
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For more information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167
