Grand Theft Investment Bank
J.P. Morgan's acquisition of Bear Stearns is starting to look more and more like a crime with the Federal Reserve and Treasury Department guilty of aiding and abetting. Government officials orchestrated grand theft investment bank.
As of yet, of course, there is no definitive deal. Yet Morgan almost got away with "buying" Bear for just $2 per share. The government, it seems, was desperate to close a deal and just as desperate to punish Bear's shareholders. Morgan was smart enough to realize they were the only bidder in the game. They could name any price they liked and that's exactly what they did.
But shares of Bear immediately started trading well above the offer price. And now, after only one week, Morgan decided it needed to allay some of the ill will it's initial offer created. So it decided to increase its offer--by five times! If this does not confirm that Morgan's initial offer amounted to highway robbery, I don't know what does.
With Morgan's new offer the government is still assuming most of the risk by guaranteeing Bear's toxic mortgages. But instead of doing this through Morgan, it could have done the same thing directly through Bear. Either way, the burden to taxpayers is the same. By working through Morgan, however, the government can be sure that Bear's employees and shareholders get absolutely pummeled.
One day a lot of hard questions will be asked about exactly what went on. Harvard professors are probably already working on a case study. Dozens of books will eventually be written on the subject. In the final analysis, it will become evident that, with the government's help, J.P. Morgan almost stole Bear Stearns.
As of yet, of course, there is no definitive deal. Yet Morgan almost got away with "buying" Bear for just $2 per share. The government, it seems, was desperate to close a deal and just as desperate to punish Bear's shareholders. Morgan was smart enough to realize they were the only bidder in the game. They could name any price they liked and that's exactly what they did.
But shares of Bear immediately started trading well above the offer price. And now, after only one week, Morgan decided it needed to allay some of the ill will it's initial offer created. So it decided to increase its offer--by five times! If this does not confirm that Morgan's initial offer amounted to highway robbery, I don't know what does.
With Morgan's new offer the government is still assuming most of the risk by guaranteeing Bear's toxic mortgages. But instead of doing this through Morgan, it could have done the same thing directly through Bear. Either way, the burden to taxpayers is the same. By working through Morgan, however, the government can be sure that Bear's employees and shareholders get absolutely pummeled.
One day a lot of hard questions will be asked about exactly what went on. Harvard professors are probably already working on a case study. Dozens of books will eventually be written on the subject. In the final analysis, it will become evident that, with the government's help, J.P. Morgan almost stole Bear Stearns.
posted by Vahan Janjigian | 2:13 PM
2 Comments:
Dear Dr Janjigian
In all the ink I have read over this issue, why doesn't anyone ask who was responsible for the severe loss of confidence in Bear Sterns reflected in that price.
All of the high powered Bear executives are wandering around blaming someone else for what happened. Who are they kidding?
Their firm was thought worth $2 a share, or bankrupt because of strategic decisions THEY made that ended up with Bear having a huge plate of junk for assets, over leveraged 30 to1 and the Street wondering if they had enough money to pay salaries next week.
Why weren't they more conservative and cautious as the sub prime mess blew up? Why did Stan O'Neil buy a sub-prime mortgage company less than a year ago?
The only explanation I can see is their greed got the better of common sense.
They are all getting exactly what they deserve and what they would have dished out to others if the shoe had been on the other foot. They deserve to loose every penny and then some and should be forced to make whole all of the secretaries and clerks who had their retirement savings in Bear's 401K destroyed.
It is extremely galling that "Wall Street" detests government involvement in capitalism and the " Free market" when things are rosy, but runs for a multi-billion dollar hand out when things fall apart.
This is a simple case of little guys paying through their taxes to bail out a bunch of oligarchs... just like Russia.
Dr Janigian.
I follow your posts fairly regularly. The shareholders did get screwed. The question is: would it have been better to just let Bear Stearns go bankrupt? This would demonstrate to the entire banking world that money is real and that the guys on top would have to pay for their own mistakes. The danger, of course, is that this would create panic and fear and a completely illiquid market in which many would just not trust lending to anybody with any kind of exposure to SIVs, CDOs, etc. This might in its worst-case scenario mirror the Depression in that money would be locked up and not available to the economy. Jobs would be lost, the stock market would crash, fear would be rampant, and this would feed upon itself. At least this would be the worst case scenario. Could this have happened if the government had done nothing? I don't know. However, I don't think the real difficulty here is the threat of bankruptcy. Companies that have made bad decisions throughout history have had to pay for it with the threat of bankruptcy. That fear is necessary to stem the tide of poor business decisions and avaricious behavior. I think the real issue is the lack of transparency. All public companies should be obligated to disclose their holdings. That way it would become clear what is what and who is who. Then banks would be willing to lend because they could define their risk, at least to a much greater extent then now. In such a case the government would not need to deflate our currency as much (this is really going to hurt America's standing in the world and our already large debt problem) and the market and the economy would be able to correct to healthy levels and start again instead of sitting in this ridiculous cloud of mystery and deceit. The credit leverage mess is an ugly picture. But we have to face this and we can't begin resolving it until we can see without opacity what is going on.
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