JP MorganChase was in talks on Sunday night for a deal that would quintuple its offer for Bear Stearns,
the beleaguered investment bank, in an effort to pacify angry Bear
shareholders, according to people involved in the negotiations.
More. Last week we were wondering why the price was above $2 a share. And last week some of you were calling this deal a bailout of Bear Stearns. Now Bear shareholders are alleging they were coerced into taking this deal. This is a) good news that the firm is worth more than we had thought, b) bad news for dealing with the next round of problems (it is harder for any subsequent solution to be viewed as legitimate), and c) another reason why the answer isn’t just more regulation. By the way, note that JPMorgan isn’t actually paying that much more.
The funniest thing I read this morning about this was that Christopher Cox of the SEC said that Bear Stearns was about too little confidence, not too little capital. Is there any difference?
I love all the continuous references to the recent double digit stock price, as evidence that the “real value” of BS must be above the token $2 dollars, without any attempt to account for all the missing information from those stock prices that $30 billion dollars in now evacuated toxic loans communicated.
Evidently from JPM’s actions to win over BS’s Staff and Shareholders, the risk free net value of BS is more than $2. Isn’t this why nationalization of BS, would have been the better solution than this fiasco. This is like the ER patient complaining bitterly about the bill to the hospital accountant on his way out of surgery.
How do say “moral hazard” in a clearer way than this.
Professor Cowen,
For purely selfish reasons, I’d love to see your response to Dr. Gokhale’s criticism of your NYT open at
Cato-at-Liberty. It’s an interesting discussion…
This is like the ER patient complaining bitterly about the bill to the hospital accountant on his way out of surgery.
Based on market movements since the Fed rescue, it seems easy to argue that Bear’s assets are more liquid and more valuable. It’s a big win for the Fed!
So, should this newfound windfall go to (a) Bear Stearns shareholders, who were dead but are now alive; (b) JP Morgan shareholders, who heroically reached into the abyss (with the Fed holding them tightly), or (c) the taxpayer, if anyone could figure out how?
If this is just a random wealth transfer between Bear and Morgan shareholders, why should we root for Morgan? It is not as if Bear Stearns was the prime mover in this sub-prime debacle.
OTOH, Bear was useless during the LTCM bail-out and Morgan has been performing their historic role of lender of second-to-last resort, so I suppose I can get behind them.
And now Bear is trading at $12.40 — with a high of $13.85 no less. Looks like Mr. Market thinks we are going to repeat this all again next Sunday.
“calling this deal a bailout of Bear Stearns”
True, its shareholders will lose almost all their investment. No real bailout for them. But for its bond holders and lenders, won’t the Fed’s intervention make a big difference?
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