Suppose that Monday morning, Ben Bernanke is presented with a deal,
under which a buyer gets Bear assets on the cheap, Bear stockholders
get paid out, and the Fed (implicitly or explicitly) bears residual
risk. If the Fed doesn’t approve, executives say, Bear will file for
bankruptcy. Dr. Bernanke will then have an unappetizing choice. He can
say yes, and hope that there aren’t any more rumors out there about any
other firms. Or he can say no, and make it very clear that if Bear
Stearns files for bankruptcy despite the Fed’s continuing provision of
liquidity, he will do everything in his power to hold Bear executives
personally responsible for the crisis that results.

Who do you think has more bargaining power in this game?  The firm with the reputation for obnoxiousness and recklessness, or a charming, intelligent and indeed gentlemanly central banker?  We may know soon enough.  Here is more, and here, and don’t forget this.  Here is a news report, if you are interested in the background.

Update: Seems to be a deal…at about $2 a share.  Book value of about $80 a share. 


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