Bear Stearns is trading at $6 instead of $2 because unelected bureaucrats went beyond their legal mandates, delivered a windfall to a single private company at public expense, entered agreements that violate the the public trust, and created a situation where even if the bureaucratic malfeasance stands, the shareholders of Bear Stearns will either reject the deal or be deprived of their right to determine the fate of the company they own. Very simply, Bear Stearns is still in play. Still, when all is said and done, my own impression is that the ultimate value of the stock will not be $2, but exactly zero.
In effect, the Federal Reserve decided last week to overstep its legal boundaries – going beyond providing liquidity to the banking system and attempting to ensure the solvency of a non-bank entity. Specifically, the Fed agreed to provide a $30 billion “non-recourse loan” to J.P. Morgan, secured only by the worst tranche of Bear Stearns' mortgage debt. But the bank – J.P. Morgan – was in no financial trouble. Instead, it was effectively offered a subsidy by the Fed at public expense. Rick Santelli of CNBC is exactly right. If this is how the U.S. government is going to operate in a democratic, free-market society, “we might as well put a hammer and sickle on the flag.” http://hussmanfunds.com/wmc/wmc080324.htm
Have just read the story in the NYTimes that JPMorgan wants to quintuple its offer for the buyout of Bear Stearns. http://www.nytimes.com/2008/03/24/business/24deal.html?_r=1&hp&oref=slogin
Something smells here.Why is JP upping its bid?
The New York Times story suggests JPM is negotiating with Bear, the Fed is not keen to reopen the deal.Why?
The stock is trading around $6.Why offer $10?
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