I keep reading the terms Bear Stearns and bailout used in the same sentence, or at least in the same paragraph. Usually the gist of these news stories is that Wall Street (i.e. Bear Stearns) got a bailout, therefore fairness demands that Main Street (i.e. the poor schlemiels who paid too much for their house) also get bailed out. I've got two problems with the folks who make this argument.

First of all, next month the Federal government is going to mail out checks of up to $1200 to almost everyone in America who filed a tax return. People who have not paid taxes in years, like many Social Security recipients, are being advised to file for 2007, in order to reserve their place at the public feeding trough. The cost of this government largesse will total $150 billion. Surely that's enough of a bailout to satisfy the most ardent of parachutist, isn't it?

But more to the point, it is hard to see how the Bear Stearns deal could be considered a Federal bailout in the first place. To make the deal go, the Fed gave $30 billion to JP Morgan Chase, the acquirer. In exchange, the Fed received a portfolio of Bear Stearns assets with a book value of $30 billion. For political reasons, the cash given to JP Morgan was called a loan, and the Bear Stearns assets were called collateral. Frankly, these assets are certainly not worth the book value in today's market. However, the Fed does not have to sell the assets on any timetable. In the fullness of time the Fed may be able to recover most of the money they put into the deal. There will almost certainly be an eventual loss, however, and that loss will be borne by the taxpayers.

The Fed took this action not to bailout Bear Stearns, but to keep the financial markets from freezing up in the panic that would have accompanied a bankruptcy filing by the fifth largest US investment bank. That panic would have hurt a number of large financial institutions. Institutions like the pension funds that pay pensions to retirees. Institutions like the insurance companies that pay to rebuild your house if it burns down. Institutions like municipal governments that issue bonds to build roads and sewage systems. Institutions that serve local Main Street interests.

Meanwhile, what happened to stockholders of Bear Stearns stock? Many of these stockholders were Bear Stearns' employees. As a matter of fact, the employees owned about 30% of the company. In January 2007 the stock was worth $170 per share. The Friday before the deal with JP Morgan, the stock was still worth $30 per share. The latest offer from JP Morgan was $10 a share.

So. over the weekend, two thirds of their equity was wiped out. Adding insult to injury, large numbers of the former owner/employees are facing pink slips in the very near future.

Calling this a bailout is like saying that what Henry the Eigth did to Anne Boleyn was a haircut.