Conspiracy Theory
Posted on March 26, 2008 - Filed Under Philosophy |
It’s true: JFKs assassination was a conspiracy. Aliens crashed landed in Roswell. Happy cows come from California.
OK. So Happy cows don’t come from California.
With every Conspiracy Theory, only speculation feeds our imagination. Lack of answers piques our curiosity even more. With that, my own theory is put forth based on speculation, imagination, and some deductive reasoning.
Recounting
The events of Bears and Sterns/JP Morgan/Federal Reserve remains fresh in the minds of many. More popular, common place thinking believes this was nothing more than high paid executives, trying to protect their year bonuses.
It is something else entirely.
Let’s chase down what is known.
- Friday: BSC’s chairman announces all is well.
- Saturday: High level negotiations between BSC, JP and Federal Reserve
- Sunday: Agreement reached. Fed calls Treasury Secretary who briefs the President
- Monday: Announcement is made
Seriously: If this was just a matter of protecting a few year end bonuses, would all this have happened over a single weekend? And why the Federal Reserve’s keen interest?
Something was about to break loose at Bears and Sterns. Something bigger, more threatening that just a few more foreclosures. If it really was just to “protect bonuses” then no way JP Morgan would have agreed. JP could make more money if Bears and Sterns were to flounder.
Something was boiling inside Bears and Sterns. Scandal perhaps? Maybe bankruptcy.
The steps of bankruptcy:
- Company files for bankruptcy
- Lawsuits are launched by investors to recover some money
- Federal Judge freezes all assets until it is determined who gets what.
The Theory
Bears and Sterns is more than a few mortgages. They are a financial institution. In its possession the very survival, the very future of millions of Americans.
401k
In bankruptcy, the Federal Judge freezes all assets. This means hundreds of thousands of retired employees suddenly find themselves without any income whatsoever. That money is frozen.
The national news media immediately latches onto this story. With a constant obsession with trying to find the scariest story, the media hits stories with
- 401k’s Vanish!
- 401k’s Gone!
- Is your 401k safe?
Suddenly, millions of retirees call to cash out their 401ks. The only problem: the financial institutions can’t cash out that many 401ks. Financial institutions are only required to have a percentage of cash on hand. Roughly 20%. The rest is invested elsewhere . . . like Bears and Sterns.
A run on the banks ensues, fueled by more fear. Media outlets once again runs stories, revealing the millions who suddenly can’t get their 401ks. People stop funding their 401ks. Why continue if money is no longer there?
Results
Banks are closing. People have lost their life-savings.
Sound familiar?
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Comments
4 Responses to “Conspiracy Theory”
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I think the point Rogers was trying to make was that in bankruptcy, the judge would’ve forced the millions of dollars of year-end bonuses that were handed out in January to the management to be returned.
Rogers point is perfectly clear.
Paying back the year-end bonuses was the least of Bears and Sterns problems. This, in my conspiracy world, was a desperate attempt to stave off an Economic Depression.
I don’t know specifically how the 401k at Bear Sterns works, but corporate retirement plans and their assets, including 401k’s are not the property of the corporation and are not part of a corporate bankruptcy filing. The 401k assets are usually administered by third parties and they are not comingled with the assets of the company. When a company goes under, a lot of employees and retirees lose their money, because most or all of it is mistakenly invested in company stock. Remember Enron? What wiped out the employees’ 401k’s was that they were invested in Enron stock. The same was true of Bear Sterns’ employees.
Until about 15+/- years ago, government sponsored 457 plans were considered to be the assets of the agency. If LA County went under, then the 457 plan assets could be used to pay the County’s bills. Not any longer.
Government pension plan assets are held and administered by separate agencies. CalPERS administers the state and many local government pension plans.
Whatever the motivation of Bear Sterns’ executives, it’s clear that the Fed and the Treasury put together this deal to keep the financial markets from freezing up and banks, including investment banks, from becoming insolvent. Investment banks play a much broader role in the credit markets than they used to, having taken over many of the businesses that used to belong to banks. So although the Fed was not set up to bail investment banks out, the Fed had to, because they represent a huge piece of the banking system the Fed is supposed to manage.