Ahhh Capitalism

So what happened between Friday and today that caused Bear Stearns' stock to lose $28 in value? Presumably all that subprime trash they bought over the last few years is still worth about what it was on Friday. Presumably the asset column of their balance sheet did not change that much over the weekend.

And yet JP Morgan can scoop up what, until this weekend, was one of the more preeminent investment banks in the world for $2 a share.

Not to be the resident conspiracy theorist, but didn't this transaction come on the heels of our government's assumption of the risk for $30 billion worth of liabilities tied to mortgage-backed securities? How is it that when the government assumes $30 billion worth of a company's risk that the value of that company declines so precipitously? I'm just asking...

I know that our economy is headed towards a recession, that a run on investment banks is horrible for Wall Street, and that presumably a collapse on Wall Street could cause a collapse of the greater economy and render Americans in another Great Depression. That makes sense to me.

What also makes sense to me is that the two biggest, most sweeping securities regulation laws were passed in 1933 and 1934 as a direct response to what can politely be described as "gamesmanship" and what can more accurately be described as theft that was occurring on Wall Street about the time the bottom fell out and the U.S. economy was turned on its heels.

So why is it that the first time Wall Street causes a depression they are directly targeted by government regulation, and a lot of it, and now, when it seems like things are going that way again, Wall Street is given bail-outs? Is nobody out there worried about the moral hazard associated with allowing Wall Street to brush off losses that, in a free market, would ruin the whole securities exchange market?

Voters, I urge you to pay attention to your politicians' economic policies. When it sounds too complicated to understand, that's because it is. Remember that ultimately, all of the wealth generated by securities has to be tied to some tangible asset and, when the securities' structure becomes so complex that those assets cannot be seen, then the "free hand" of the market will begin to slap people around. And don't think for a minute that the pains from that market smack-down won't be passed directly to the American consumer. When your politician calls him/herself a "free market capitalist" just remember that it works both ways, when the economy is doing well and when the economy is doing what it is doing now.