Bear Sterns

I cannot believe Bear Sterns fell that quick. JPMorgan Chase is buying Bear Sterns for $236 million, about 1% of what it was worth two weeks ago. 85 years, then gone in a few weeks. The Feds are taking on about $30 billion of Bear Sterns' riskier mortagage and other complicated investments.

How stable are Lehman Brothers and Merrill Lynch?

And it's hard to believe that JPMorgan has $236 million around to buy Bear Sterns. All this happened on the weekend so the market would open with the purchase being done and bankruptcy could be avoided. Can you imagine what around the clock panicked work and conversations have been happening this wkend with the big boys? Also this weekend, the Feds approved an emergency decrease in the interest rates it would charge investment banks, not just ordinary banks, to borrow money to further help the quickly sinking Bear Sterns.

Working on the weekend to quickly make law and policy changes? Responding within 72 hours to a huge crisis? We never see our govt act that quickly around human rights and people dying, do we? Katrina, anyone??

From the AP:

Wall Street analysts say the rescue bid was more than just saving one of the world's largest investments banks — it was a prop for the U.S. economy and the global financial system. An outright failure would cause huge losses for banks, hedge funds and other investors to which Bear Stearns is connected.

I agree. But still.

From NY Times:

Wall Street was stunned by the news on Sunday night. “This is like waking up in summer with snow on the ground,” said Ron Geffner, a partner Sadis & Goldberg and a former enforcement lawyer for the Securities and Exchange Commission. “The price is indicative that there were bigger problems at Bear than clients and the public realized.”

The deal followed a weekend of frantic negotiations to save the ailing firm. With the Fed and Treasury Department patched in by conference call from Washington, Bear Stearns executives held the equivalent of a speed-dating auction over the weekend, with prospective bidders holed up in a half dozen conference rooms at its Madison Avenue headquarters. More than 150 JPMorgan employees descended on Bear Stearns to examine the firm’s books and trading accounts.

Even as those talks took place, Bear Stearns simultaneously prepared to file for bankruptcy protection in the event a deal could not be struck, underscoring the severity of its troubles.

On Sunday night, Jamie Dimon, the chief executive of JPMorgan, held a conference call with the heads of major American financial companies to alert them to the deal and allay their concerns about doing business with Bear Stearns.

Wow.

From an editorial on the NY Times (emphasis mine):

And so, Bear Stearns, a firm that some say is this decade’s version of Drexel Burnham Lambert, the anything-goes, 1980s junk-bond shop dominated by Michael Milken, is rescued. Almost two decades ago, Drexel was left to die.

Bear Stearns and Drexel have a lot in common. And yet their differing outcomes offer proof that we are in a very different and scarier place than in the late 1980s.

“Why not set an example of Bear Stearns, the guys who have this record of dog-eat-dog, we’re brass knuckles, we’re tough?” asked William A. Fleckenstein, president of Fleckenstein Capital in Issaquah, Wash., and co-author with Fred Sheehan of “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve.” “This is the perfect time to set an example, but they are not interested in setting an example. We are Bailout Nation.”

And so we are. After years of never allowing any of our financial institutions to fail, they have become so enormous that nobody will be allowed to sink beneath the waves. Otherwise, a tsunami would swamp the hedge funds, banks and other brokerage firms that remain afloat.