JPMorgan Chase taking over Bear Stearns was a show of just how weak that company had become, despite all of the help offered to the banks so far. Even after receiving financial aid to prop up hedge funds and their failing subprime mortgage investments, the financial firm took a buyout offer $2.00 per share, less than 2% of its high value near $172 per share. An enormous drop in value, however, did not persuade the Federal Reserve or the other large banks that a failed institution should be allowed to fail.
The Fed can made their aid contingent on pretty much anything, but why would they want to do something to promote accountability and free markets within the banking system? In fact, many of the largest banks in the country have hired ex-employees of the Federal Reserve system and its network of regional banks. Bear Stearns even did this, although it did not seem to do them much good in the end. This provides the banks with insights into how the Fed will manipulate the markets, but also allows them the false security that the central bank can efficiently manage the economy.
Probably the best way to find out what the Fed is doing is to hire people who used to work there. Companies in other industries hire former employees of competitors to better gauge their strengths and weaknesses. And of course it works the other way, too. What better way for the Federal Reserve to find out how the banks are doing than to ask former Fed employees who now work at the largest banks in high-level positions for their opinions?
Thus, it is surprising that any individual would seriously consider asking the Federal Reserve to make their former employees, now working at the banks most exposed to the subprime mess, put their own assets and investments at risk in order to receive aid. At risk of losing assets to a bubble created and inflated by the Fed? That seems to be going a little far in terms of accountability for banking and government institutions working together. Corporatism is not such an open system as to privatize losses.
On the contrary, what we will probably see is more free bailouts handed to the banks at the cost of a dollar destruction and further losses in the stock market. Homeowners, even if their mortgage rates stay the same, will experience higher gas and food prices, which will just keep pushing more of them into situations where they have to find methods to stop foreclosure before the bank ends up with their house and inflated money. This will put the banks in even greater trouble as they will be forced to foreclose on ever-depreciating assets, and they will end up back at the Federal Reserve requesting more "help" at the expense of and funded by the people whose homes they are taking.
The entire banking industry is certainly the most effective at privatizing all of their profits for corporate executives but passing off all of their losses onto the American people. For example, see the Fed's $200 billion lending program where banks can trade in garbage subprime loans for US Treasury securities, in effect giving the nonperforming subprimes to the people to deal with while the banks keep up an appearance of solvency. However, the banks will not be returning any of the massive profits they made from these loans to the people -- just the losses now that the loans have gone bad.
There will be more large banks to fail in the coming months, and many more smaller and mid-size banks. The next multinational financial institutions to crash might be Lehman or Citigroup, which are both in big trouble in terms of running out of money very quickly. For average homeowners and people, it may be a good idea to consider getting out of the dollar while it holds any remaining value and find some real store of value that is more stable. Gold, silver, or even seeds that can be grown into food hold more value than processed and died green paper right now.