The Secret Bailout of J. P. Morgan: How Insider Trading Looted Bear Stearns and the Taxpayer

[Joanne98]

The mother of all insider trades was pulled off in 1815, when London financier Nathan Rothschild led British investors to believe that the Duke of Wellington had lost to Napoleon at the Battle of Waterloo. In a matter of hours, British government bond prices plummeted. Rothschild, who had advance information, then swiftly bought up the entire market in government bonds, acquiring a dominant holding in England’s debt for pennies on the pound. Over the course of the nineteenth century, N. M. Rothschild would become the biggest bank in the world, and the five brothers would come to control most of the foreign-loan business of Europe. “Let me issue and control a nation’s money,” Rothschild boasted in 1838, “and I care not who writes its laws.”

In the United States a century later, John Pierpont Morgan again used rumor and innuendo to create a panic that would change the course of history. The panic of 1907 was triggered by rumors that two major banks were about to become insolvent. Later evidence pointed to the House of Morgan as the source of the rumors. The public, believing the rumors, proceeded to make them come true by staging a run on the banks. Morgan then nobly stepped in to avert the panic by importing $100 million in gold from his European sources. The public thus became convinced that the country needed a central banking system to stop future panics, overcoming strong congressional opposition to any bill allowing the nation’s money to be issued by a private central bank controlled by Wall Street; and the Federal Reserve Act was passed in 1913. Morgan created the conditions for the Act’s passage, but it was Paul Warburg who pulled it off. An immigrant from Germany, Warburg was a partner of Kuhn, Loeb, the Rothschilds’ main American banking operation since the Civil War. Elisha Garrison, an agent of Brown Brothers bankers, wrote in his 1931 book Roosevelt, Wilson and the Federal Reserve Law that “Paul Warburg is the man who got the Federal Reserve Act together after the Aldrich Plan aroused such nationwide resentment and opposition. The mastermind of both plans was Baron Alfred Rothschild of London.” Morgan, too, is now widely believed to have been Rothschild’s agent in the United States. 1

Robert Owens, a co-author of the Federal Reserve Act, later testified before Congress that the banking industry had conspired to create a series of financial panics in order to rouse the people to demand “reforms” that served the interests of the financiers. A century later, JPMorgan Chase & Co. (now one of the two largest banks in the United States) may have pulled this ruse off again, again changing the course of history. “Remember Friday March 14, 2008,” wrote Martin Wolf in The Financial Times; “it was the day the dream of global free-market capitalism died.”

The Rumors that Sank Bear Stearns

Mergers, buyouts and leveraged acquisitions have been the modus operandi of the Morgan empire ever since John Pierpont Morgan took over Carnegie’s steel mills to form U.S. Steel in 1901. The elder Morgan is said to have hated competition, the hallmark of “free-market capitalism.” He did not compete, he bought; and he bought with money created by his own bank, using the leveraged system perfected by the Rothschild bankers known as “fractional reserve” lending. On March 16, 2008, this long tradition of takeovers and acquisitions culminated in JPMorgan’s buyout of rival investment bank Bear Stearns with a $55 billion loan from the Federal Reserve. Although called “federal,” the U.S. central bank is privately owned by a consortium of banks, and it was set up to protect their interests.2 The secret weekend purchase of Bear Stearns with a Federal Reserve loan was precipitated by a run on Bear’s stock allegedly triggered by rumors of its insolvency. An article in The Wall Street Journal on March 15, 2008 cast JPMorgan as Bear’s “rescuer”:

“The role of rescuer has long been part of J.P. Morgan’s history. In what’s known as the Panic of 1907, a semi-retired J. Pierpont Morgan helped stave off a national financial crisis when he helped to shore up a number of banks that had seen a run on their deposits.”

That was one interpretation of events, but a later paragraph was probably closer to the facts:

“J.P. Morgan has been on the prowl for acquisitions. . . . Bear’s assets could be too good, and too cheap, to turn down.”3

The “rescuer” was not actually JPMorgan but was the Federal Reserve, the “bankers’ bank” set up by J. Pierpont Morgan to backstop bank runs; and the party “rescued” was not Bear Stearns, which wound up being eaten alive. The Federal Reserve (or “Fed”) lent $25 billion to Bear Stearns and another $30 billion to JPMorgan, a total of $55 billion that all found its way into JPMorgan’s coffers. It was a very good deal for JPMorgan and a very bad deal for Bear’s shareholders, who saw their stock drop from a high of $156 to a low of $2 a share. Thirty percent of the company’s stock was held by the employees, and another big chunk was held by the pension funds of teachers and other public servants. The share price was later raised to $10 a share in response to shareholder outrage and threats of lawsuits, but it was still a very “hostile” takeover, one in which the shareholders had no vote.

The deal was also a very bad one for U.S. taxpayers, who are on the hook for the loan. Although the Fed is privately owned, the money it lends is taxpayer money, and it is the taxpayers who are taking the risk that the loan won’t be repaid. The loan for the buyout was backed by Bear Stearns assets valued at $55 billion; and of this sum, $29 billion was non-recourse to JPMorgan, meaning that if the assets weren’t worth their stated valuation, the Fed could not go after JPMorgan for the balance. The Fed could at best get its money back with interest; and at worst, it could lose between $25 billion and $40 billion.4 In other words, JPMorgan got the money ($55 billion) and the taxpayers got the risk (up to $40 billion), a ruse called the privatization of profit and socialization of risk. Why did the Fed not just make the $55 billion loan to Bear Stearns directly? The bank would have been saved, and the Fed and the taxpayers would have gotten a much better deal, since Bear Stearns could have been required to guaranty the full loan.

http://dandelionsalad.wordpress.com/2008/05/15/the-secret-bailout-of-j-p-morgan-how-insider-trading-looted-bear-stearns-and-the-american-taxpayer/

[midnight]

1. March 12: New York Gov. Eliot Spitzer announces his resignation as his wife Silda looks on at his Ma

Remember Friday March 14, 2008,” wrote Martin Wolf in The Financial Times; “it was the day the dream of global free-market capitalism died.”


“Let me issue and control a nation’s money,” Rothschild boasted in 1838, “and I care not who writes its laws.”

Although called “federal,” the U.S. central bank is privately owned by a consortium of banks, and it was set up to protect their interests.2 The secret weekend purchase of Bear Stearns with a Federal Reserve loan was precipitated by a run on Bear’s stock allegedly triggered by rumors of its insolvency.


Isn't it interesting that the man who was investigating this mess resigns just days before this debt is dumped on the taxpayers has to resign.

[dixiegrrrrl]

2. In support of the the story above, I offer this,:

Source:
http://greatreddragon.com/commentary/071127_ForCatherineAustinFitts.htm


"One thing experience has taught is that every notable market crash, panic, bear market
or financial crisis is the result of careful planning and forethought by the monetary
authorities. With trillions of dollars at stake, nothing happens without their tacit
or explicit approval and there is simply no such thing as a crisis that happens by “coincidence.”
For happenstance to be allowed to run its course in with trillions in derivates out there
would be certain death for the financial system. As the economist Dr. Stuart Crane was
fond of saying, “Things don't just happen to happen. They happen because they were planned
to happen.”

Another thing Dr. Crane used to say was that you can always tell the underlying reason
for any crisis by waiting to see what the results of that crisis are. In the final analysis,
the results, as he pointed out, are in what the crisis fomenters expected to yield as the
fruit of their labors. And it's no coincidence that in every case, a financial crisis
always yields the following results:

1.) Greater consolidation within the banking and financial industry with the smaller
players being merged into the bigger players, or else swept away;

2.) Greater regulator powers for the monetary authorities.

There has never been an exception to this outcome in the history
of U.S. financial crises."

[Joanne98]

3. Thanx. Bookmarked

[Joanne98]

4. JP Morgan leads global M&A table

http://www.efinancialnews.com/assetmanagement/index/content/2450654376

[Demeter]

5. Proud to K&R This to the Greatest Page

for the greatest Ponzi fraud and abuse scheme ever perpetrated.

[creeksneakers2]

6. Private banks don't actually own the Federal Reserve

Stock purchased by member Federal Reserve banks finance the Feds 12 district banks. However, the dividends of that stock are already set by law and member banks has no reason to influence policy except to insure the stability of the banking system. The district banks are under control of the Board of Governors of the Federal Reserve. The members of the board are appointed by the government, not private enterprise. The member banks who own stock in the district banks do get to choose who runs the district banks, but those decisions can be vetoed by the fed board.

The US government controls the Federal Reserve System, not private enterprise on some global conspiracy. If decisions at the Fed are more favorable to the wealthy that is because the US government is that way also.

[AdHocSolver]

7. Ownership of the Fed is irrelevant. Only control matters, and this bailout scheme was engineered by

the insiders of the banks involved.

The transfer of wealth from the middle class to the corporate insiders was engineered by former Fed chairman Greenspan several years ago.

The stock market bubble and the housing market bubble were set up by keeping the interest rates artificially low. People were conned into taking their savings out of insured instruments and putting that money into risky stock market ventures. People were conned into buying more house than they could afford because of low interest rates, and were made to believe that a fast "flipping" of the house, before their balloon mortgage would kick in, would net them a handsome profit.

The suckers throwing money at stocks and real estate drove the prices up beyond reasonable levels, and the insiders only had to sell before the bubble burst. Then the insiders, through agencies like the Fed, get the government to bailout the companies - not the shareholders or the customers who were scammed - so that the insiders buy back the companies at ten cents on the dollar - and are ready to perpetrate the fraud all over again.

These techniques were plain old Ponzi schemes and it was expected the markets would collapse. The insiders, as in the Enron collapse, knew when it was time to bail out.

By the way, the same schemes were pulled in the 1920's that led to the Great Depression of the 1930's.

I agree that the government lets them get away with it. The 1990's saw the dismantling of laws such as the Glass-Steagall Banking Act first enacted in 1933 to prevent these kinds of scams.

The first actions that the new government has to do in 2009 is to reconstitute the protections to the public, such as Glass-Steagall, and hope that the economy survives till then.