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.

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Levitt

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Source:

Levitt Says Bear `Bailout’ Raises New
Regulatory Issues: Video

Bloomberg, March 26   2008
mms://media2.bloomberg.com/cache/vSIw1QRzGAHM.asf

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What's been said:

Discussions found on the web:
  1. Marcus Aurelius commented on Mar 30

    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.

  2. Steve Barry commented on Mar 30

    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.

  3. Northern Observer commented on Mar 30

    “Call it a banana
    “it has consequences

    Love the Levitt.

  4. Wade Black (Rudy’s partner @ Scarsdale) commented on Mar 30

    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.

  5. Ross commented on Mar 30

    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.

  6. Winston Munn commented on Mar 30

    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.

  7. m3 commented on Mar 30

    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.

  8. Estragon commented on Mar 30

    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.

  9. JustinTheSkeptic commented on Mar 30

    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…

  10. Rod commented on Mar 30

    Too bad, I have a video without audio. Bloomberg needs to update its old software for Mac users.

  11. sam commented on Mar 30

    this is the most coherent argument i’ve read to rethink what the fed did!

  12. como commented on Mar 31

    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.

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