Friday, April 04, 2008

Government Intervention Run Amuck No. 12: Bear Stearns Buy-Out

It's amazing how the examples of our government-genie's clumsiness seem to jump off the pages at me on a daily basis.

[Thanks to for the image.]

I opened today's Wall Street Journal to fall upon this headline.

The Bear Stearns collapse and the subsequent scrambling of the Fed, Congress, J.P. Morgan and the victim Bear Stearns itself, are a great example of how too much government power gets us in trouble as a nation.

I ask you: What business does the government have (whether it be the government-proper or one of its side-kicks like the Federal Reserve) fixing the price of a failing market participant on the brink of bankruptcy? What superior knowledge will permit the government or its agencies to pick the right price?

The answer, of course, is none. They have no business, they have no knowledge, and they are fixing prices--something they profess to be loathe to do.

Not only that; they're doing it with the collusion of the two parties--or least the door is open to that accusation.

And now they're stuck with trying to explain their decision, and they will find this to be a most difficult task. They have chosen some participants over others, putting themselves in the position of the God of Markets. As such, they will recuperate the full force of all the accusatory fall-out that would normally have disinflated itself ricocheting off only non-actionable "market forces."

Here's an example of today's self-defensive jaw-boning:

"'There was a view that the price should not be very high or should be towards the low end...given the government's involvement,'" said Treasury Undersecretary Robert Steel.

The price had been set at $2, but now it five times that, for no apparent reason other than to squash dissent, to find a compromise.

So now, instead of having a bankruptcy (which is what the market would probably have required) and a few days of discomfort, we now have lawsuits, justifications, rationalizations, suppositions and hypotheses about dire consequences that they have no way of foreseeing.

Just another lesson in what is apparently going to be a very long list in my series illustrating government clumsiness.

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