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Wall Street’s Own Medicine

‘The human tragedy here is enormous.” What could that refer to? Civilian deaths in Iraq? Nope. The devastation of New Orleans and its displaced residents struggling to return? Nope. Perhaps the millions of foreclosures around the country, people turned out of their homes and neighborhoods fragmented as empty properties start a downward spiral? Closer, but no.

The speaker, quoted in New York magazine, was talking about the takeover of Wall Street institution Bear Stearns by JPMorgan Chase at the (to them) insultingly low price of $2 per share. (It was trading at $171 per share last January.)

For those of you who don’t follow financial news, the short story is this: In the midst of the foreclosure mess, a rumor started that Bear Stearns, which was heavily invested in subprime mortgages, was short on cash. In the perception-is-reality world of the stock market, investors started bailing and Bear Stearns was quickly in trouble. Fearing that a complete Bear Stearns collapse would trigger a full-scale Wall Street meltdown and a global recession, the Federal Reserve moved in and brokered a deal with JPMorgan, offering to guarantee $30 billion of Bear’s riskiest assets so it would be a less risky move for JPMorgan to buy them. The token price was partly to stem criticism that the Feds were bailing out rich guys again.

It was a shock to the people who worked at Bear Stearns, most of whom now owned a lot of worthless stock in their own company, as well as being unsure if they’d keep their jobs.

But the terms in which they painted their loss, even in the first flush of shock, illustrate well the arrogance of Wall Street and the financial companies that play God there. “It has felt like an Enron, but without the fraud,” one told New York. Um, ‘scuse me? The problem with Enron was the fraud.

“They needed to show there was a victim,” another Bear staffer told New York, while yet another said “The whole idea of a couple of people deciding we should go bankrupt to teach somebody—I don’t know who—a lesson? I don’t know how that serves anyone.”

OK fellows. Deep breath. Sure, JPMorgan is no angel and doesn’t necessarily deserve to get a sweet deal from the government on your dime. You’re getting punished the most for something almost everyone did. That doesn’t feel good.

But listen to yourselves. Wall Street speculation is a high-risk game. You played it badly, and the rest of the country was already suffering for your greed. Speaking of things that don’t “serve anyone,” how about your orgy of loans that balloon up to rates it’s obvious borrowers were never going to be able pay, not to mention fees to brokers that encourage them to steer people with good credit to subprime, high-interest rate loans? I could go on, but you should know the details better than I do.

You, Bear Stearns bankers, took on a massive amount of risky investments and pretended to yourselves and your clients that they weren’t risky. You knew. Hundreds of advocacy groups on the ground working with people getting these loans had been sounding the alarm for a decade. How badly do you really expect the masses to feel if some of you with the million dollar salaries who got us into this mess get to experience foreclosure up close and personal?

Maybe it will teach you a lesson about the fact that no matter how far removed it may feel, the “work” that you do is grounded in, and has real effects on, people outside of the finance world, even people outside of Manhattan (yes, we exist).

Even New York magazine, which ran the sympathetic profile of a shell-shocked Bear Stearns, noted in a companion article focusing on JPMorgan and how it set itself up for the deal, “the irony is hard to ignore: Investment bankers, whose actions regularly force drastic cost-cutting and job loss on companies across the world, were reeling from a taste of their own medicine.”

Unfortunately, it doesn’t seem like the take-home lesson is getting through. It sounds more like the analysis at Bear Stearns is that the Feds are the bad guys for not interrupting the free market in the right way at the right time to protect the right people’s savings accounts (i.e. theirs). Witness corporate “free-market” capitalism in all its contradictory glory.

If this makes you want to do more than just shake your head at the rare and transient pain of the rich, Senator Chris Dodd (D-Conn.) has an important bill pending, the Homeownership Preservation and Protection Act, that would ban predatory lending, which is still going on despite the meltdown, and hold all participants in the lending process, from broker to lender to Wall Street, accountable. Tell your senators and congresspeople that you want Dodd’s bill passed, without weakening from the financial lobby.

It matters far beyond Manhattan.

—Miriam Axel-Lute

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