Welfare for Robber Barons & River Boat Gamblers

$50 Million Bonus for Wrecking the International Economy ~ Where Do I Apply for a Job?

Bear Stearns!

Truthout had a great rumination on the new class of welfare recipients yesterday ~ a logical outgrowth the Bushco fondness for unbridled, deregulated rapacious cannibal capitalism ~ ruin the world's biggest economy, and we'll bail you out using the "independent" Fed to do it. Whine about your stock price and we'll sweeten the pot.

But you there, little welfare mommy trying to feed your family with foodstamps ~ don't get any bright ideas from this. Welfare allotments for you are another matter entirely. You have to learn to live within your miserably inadequate budget for food, and do not whine about the astronomical prices of bread, eggs, and butter. Do not bother to complain about Medicaid spend-downs, either. A $6,000 annual deductible isn't that bad for health insurance for poor people! We can't hear you!

Two worlds under Bushco

A grocery-shopping true vignette from the real life of your Demon ~ last evening I stopped by my local Safeway to pick up some chicken while it was still on special and a few other things. Only one register was open, and in front of me was an ordinary looking mother and her small child with a shopping cart crammed full of stuff. They looked like any other people you'd see shopping in a striving-for yuppie-dom neighborhood.

Due to Safeway's unfortunate placement of its cash register computer screens, every minute detail of your shopping habits is broadcast to everyone in line behind you, including payment method. So I couldn't help but notice that it was a food stamp transaction. The time the transaction took was more than the ordinary, and as I was standing there I noticed also that for the amount of the transaction, this welfare mom must have been a heroically thrifty shopper.

She utilized coupons, spent $100, and got a shopping cart full of groceries. I have to say ~ I admire a hard shopper, a person who can pinch a penny so hard it screams (I just don't like waste!)~ and this woman was a paragon.

I saw store brands, mostly, some name brands (purchased with coupons), and some substitutions that wouldn't have occurred to me--for instance, a value-sized tub of cooking lard, but no butter or other cooking oils.

Not that I was taking inventory. These were just a few of the things I saw when not otherwise entranced by a National Enquirer cover of amateurishly pasted-together cover photos of Obama and Reverend Wright atop a lurid headline about how they're plotting to destroy the country from the inside out. ("Sorry, fellas, Bushco already beat you to it," I'm thinking.)

When I had completed my purchase and was on the way out, the welfare mom and her daughter were still standing next to their cart, Mom scrutinizing her cash register receipt to be sure there had been no mistakes.

I daresay this woman was not Ronald Reagan's demonized, vilified, and all-too-easy to hate Cadillac-driving Welfare Queen.

True story. So you might imagine how your Demon was affected when, later, she read the story about how the Bear Stearns investors and employees had succeeded in whining the price of their worthless stock from $2 to $10 when they should have been thanking their lucky stars to get $2--better than bankruptcy!

Your Demon is willing to bet no one at Bear Stearns is being forced to buy lard because they can't afford butter.

* * *

..."Long live the welfare king." This person really exists [unlike Ronald Reagan's Cadillac-driving welfare queens], his name is James E. Cayne, and taxpayers just handed him almost $50 million. Mr. Cayne got this gift when J.P. Morgan renegotiated the terms of its takeover of Bear Stearns. The buying price went up fivefold, fetching Bear Stearn's stockholders $1.2 billion instead of the $236 million in the agreement brokered by the Fed last week.

"While Bear Stearns shareholders may still have been unhappy about their losses even at the higher price (the stock had been worth more than ten times as much a year earlier), in reality this was a very generous gift from US taxpayers. As an inducement to carry through the takeover, the Fed gave J.P. Morgan up to $30 billion in guarantees, in case the bank has to make good on Bear Stearns' liabilities. In other words, J.P. Morgan is being given the opportunity to do some gambling, with the taxpayers committed to making good any losses. The money that J.P. Morgan paid for this privilege went to Bear Stearns shareholders, not the taxpayers.

"James E. Cayne did especially well as a result of the taxpayer's generosity because as the former CEO of Bear Stearns, and current chairman, he owned a great deal of the company's stock. To put the taxpayer's gift to Mr. Cayne in some context, this is approximately equal to the amount paid in TANF to 10,000 working mothers over the course of a year.

"Of course Mr. Cayne and the rest of the Bear Stearns stockholders are not the only incredibly rich people benefiting from the taxpayers' generosity these days. The Fed's actions are reining [sic] down taxpayer money all over Wall Street. When Fed Chairman Ben Bernanke rushed in to save Bear Stearns last week, he made two other important policy changes. He indicated a commitment to protecting other major investment banks and he opened the Fed's discount window to the investment banks. These are both huge taxpayer subsidies to these titans of free market capitalism.

"The story of the discount window is straightforward. The Fed is allowing investment banks, which are subject to none of the restrictions or disclosure requirements of commercial banks, to borrow at a government subsidized interest rate. Currently the discount rate is two-and-a-half percent. Those seeking to refinance mortgages, most of whom are probably better credit risks these days than the investment banks, may want to call Mr. Bernanke and ask for the same deal.

"While the subsidy involved in the below market lending is easy to see, the commitment to support the investment banks is probably the bigger subsidy to the Wall Street crew. The basic story here is that the investment banks made commitments, mostly in the form of credit default swaps, that they lack the resources to honor. These credit default swaps are essentially a form of insurance. The investment banks promise to make payments to bondholders in the event that there is a default on the bonds they hold.

"The banks were prepared to deal with an occasional default, but they don't have the resources to deal with the sort of large-scale collapse that we are now witnessing as a result of the bursting of the housing bubble. Mr. Bernanke has effectively told the banks' creditors not to worry, because the Fed will make good on these credit default swaps, even if Bear Stearns, Lehman Brothers, or Goldman Sachs can't.

"This is a very nice deal for the investment banks, because they got the fees for selling the credit default swaps, not the Fed. And they were very big fees, making the banks and the bank's executives extremely wealthy. In effect, the investment banks sold insurance that they actually were not in a position to provide. Instead the Fed is providing the insurance, but the investment banks get to keep the money they got from selling the insurance: nice work, if you can get it.

"This is yet another episode of the Conservative Nanny State, the story of the how the government intervenes in the market to redistribute income from those at the middle and bottom to those at the top. In this case, the media would have us applaud Mr. Bernanke and the Fed for keeping the financial system from freezing up and preventing the economic chaos that would follow.

"While the Fed deserves some credit for preventing worse financial distress in the face of the collapsing housing bubble, government handouts for the very richest people in the country are difficult to justify. In other areas, we usually expect to see some quid pro quo, for example, serious regulations on lending and perhaps restrictions to accomplish social goals, like a cap on executive compensation ($1 million a year should attract a much more competent crew). This is welfare as we know it now."
http://www.truthout.org/docs_2006/printer_033108A.shtml

More: In Congressional hearings, banks BLAME the Fed for coming to their rescue.

*Asian markets hadn't opened yet ~ we could have gotten more!*

Ungrateful robber barons!

http://www.mcclatchydc.com/homepage/story/32562.html