Current Events — HabitableZone

Current Events » in reply to Understanding the stock market a bit. "Stocks climb on news of corporate deals"

re: Understanding the stock market a bit. "Stocks climb on news of corporate deals"

"The bailout of Bear Stearns and other infusions of cash into failing companies has demonstrated that the Bush Administration will use any amount of public funds to prop up an inflated stock market. Tax money is used to see that "capitalists" will not lose money."

The link Bowser provided said:
"Then in March, after a weekend of intense negotiations, the Federal Reserve approved a $30 billion credit line to help JPMorgan Chase acquire Bear Stearns.

JPMorgan agreed to pay a mere $2 a share to buy all of Bear — less than one-tenth the firm’s market price two days before."

So, you buy a car for $10,000 cash, you drive drunk and vomit all over the car, and get ticket, lose your job, and the govt lends a bank $2000 to buy that car for $2000, and tells you you have to sell that car for $2000.
That is sort of what happened.

Bear Stearns was badly managed, stock investors in that company got screwed due to this bad management- though if Fed didn't step in, it's possible they could lost more [the $2 per share is the most they could have lost under any circumstances].

Or another analogy is you own a house worth $200,000, you don't have fire insurance, the house has a fire, the fire is put out. You are ordered to fix or tear down the house. The lot is worth about 50,000. To repair the house might cost $50,000-100,000. To demolish and remove the house might cost 20,000-40,000. The govt finds a buyer who will pay $20,000 and the govt will loan them the 20,000. You have no money for demolition or repair. You take the $20,000.

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