Can someone explain to me what the taxpayers are paying for with this JP Morgon/BSC deal?

[beer]

So, the Fed agreed to a two hundred billion dollar credit line last week. It's a credit line - we're not actually giving any money away, but providing some liquidity. There's no evidence that any of the major banks that did not invest heavily in subprime were in as bad financial shape as BSC. So, is the big concern here that the banks that the Fed is loaning to will default? If they don't, how do we, as taxpayers, get screwed by this?

JP Morgan bought Bear Stearns for a little over $230 million. That sucks for BSC's shareholders but doesn't likely suck for anyone else, right?

Can someone familiar with financial transactions clarify what, if any, U.S. taxpayer burden there is to this?

 

[Vic]

Taxpayers, nothing (yet).

American people, more inflation.

 

[GroundMeat]

The Fed agreed to put up $200 B worth of credit that can be backed by Fannie Mae and Freddie Mac CMO's, 28 day loans mind you. This is so that banks start lending to each other again. The problem has been even though fed rates have been coming down bank rates have not on top of banks simply plain not lending money. So we now have a constipated credit market. Mainly because they all realized that credit ratings are more like apples as opposed to math, so they're scared now.

The reason that BSC is going down is because it's a brokerage firm acting like a bank and not a bank with a brokerage firm as part of it's operations. Thus it is not eligible for any of that $200 B liquidity money.

As far as taxpayers are concerned, what Vic said, it's only going hurt when the people with the Fannie Mae and Freddie mack loans start defaulting. Then the proverbial poo is going to hit the fan.

 

[woodie1]

I read that the Fed would guarantee/back up $30 Billion of Bear Stearns' less liquid assets in the buyout. One would think that we taxpayers will eat some of that with all the home foreclosures. Time will tell.

 

[Jhhnn]

Vic's right - the FRB isn't really a part of the govt per se- it's basically an overseeing consortium of the nation's banks, given license to do certain things by the govt... taxpayer liability doesn't change.

 

[Mavtek3100]

Inflation, so this is going to effect savers, not consumers or taxpayers. Peter Schiff is on the radio right now speaking about what's going on with international markets right now.

 

[beer]

Originally posted by: Mavtek3100
Inflation, so this is going to effect savers, not consumers or taxpayers. Peter Schiff is on the radio right now speaking about what's going on with international markets right now.

Fair enough. So we have inflation above and beyond any sort of ideal rate.

Let's say the fed didn't extend this line of credit. Let's say that BSC fails; Lehman follows. Is the assumption being made that retail banks aren't vulnerable enough to fail? If they do fail, and the FDIC ends up paying taxpayers' deposits, how is that any more ideal of a solution?

I understand economics and money supply, but not finance. I'm looking to tie the two together, I suppose.