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March 16, 2008 – Comments (14)

Bear Sells for $2 a Share

J.P. Morgan agreed to buy Bear Stearns for $2 a share in a stock-swap transaction. The deal values Bear Stearns at just $236 million. At the end of Friday, Bear's stock-market value was about $3.54 billion.

Yeah, and the day before that, it was $7 billion.

http://online.wsj.com/article/SB120569598608739825.html?mod=hpp_us_inside_todayLessons, anyone? 1) don't accidentally thumb up a bank these days, as I did with Bear last week.2) These banks with lousy balance sheets are nearly worthless. This is gonna get very very ugly very very quickly.Nice work by all those politicians and jokers like Ben Bernanke, who did nothing while these Wall Street screwballs built up these giant Ponzi schemes -- oops, I mean, created the miracle of "structured finance" -- over the past half decade.And how long until the CEO from Bear is being led through the streets in chains?, taking cabbages and tomatoes on the chin? He deserves it. Last week he was flat-out lying, saying Bear's balance sheet was fine. If that's not fraud, then there's no such thing. If he gets away with it because "Bear was too big to have to tell the horrible truth," then Lord help any of us who invest in this new banana republic.Sj

14 Comments – Post Your Own

#1) On March 16, 2008 at 8:04 PM, dwot (72.07) wrote:

Lol, I saw the news and then I post and then I see I'm late to seeing the news...

Yuck to your accidental thumbs up... 

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#2) On March 16, 2008 at 8:06 PM, dwot (72.07) wrote:

I had, upon thinking about the news over the weekend, figured that JP Morgan might be the place to have your money as from what I've seen they had the lowest exposure to the toxic paper, something like only 2% of their holdings if I remember correctly.

Now you've got to wonder what kind of trouble they've bought themselves into... 

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#3) On March 16, 2008 at 8:12 PM, SpaceMonkey01 (59.16) wrote:

Hey....there is this little microcap called Bear Stearns that I am hearing alot about lately.....

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#4) On March 16, 2008 at 8:21 PM, Hezakiah (91.96) wrote:

dwot,  It looks they didn't get off too bad.  I can't be sure, but it looks like the Fed is covering $30 billion of the worst liabilities.  I wonder if any other companies might be tempted to get in line now for a Fed bailout rather than waiting for bankruptcy.

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#5) On March 16, 2008 at 8:26 PM, StockSpreadsheet (73.35) wrote:

Bent,

Remember that a lot of this "structured finance" stuff was initiated on Greenspan's watch.  Also, he was quoted as saying that it was a good idea and showed innovation in the American markets and were a sign that American markets were still strong and innovative.  Bernake deserves very little of the blame for this mess, as most of it was created on the watch of his predecessor.  It is just Ben's job to try to figure out how to fix the problem and save the financial system from the idiocy of those who run the big banks and brokerage houses.  

As for Bear, with a 95% haircut, (or whatever the correct number is), then Morgan is probably getting a pretty good deal.  Even the most toxic of paper is probably on average worth a few cents on the dollar, which is what they paid for it.  Also, with the Fed taking toxic paper as collateral for real money loans, then JP Morgan probably just purchased themselves the right to borrow a whole bunch of money from the Fed at pennies on the dollar.  With JP Morgan's previously low exposure to toxic paper, then this new infusion of crap probably won't hurt them too bad, they gain some new customers that they can profit from through fees and services, some of these loans might actually get paid off, (making the paper less toxic), and they have a pile of new "collateral" that they can use to borrow from the Fed.  I think this could be a good move on Morgan's part, but time will tell if there are even more skeleton's in Bear's closet that even Morgan didn't know about.  

Interesting times.

Craig 

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#6) On March 16, 2008 at 8:37 PM, StockSpreadsheet (73.35) wrote:

Read in the article that Bear employees own about 1/3 of the firm.  That haircut is going to hurt bad, in addition to the expected job losses as Morgan lays off redundant personel.  A double-whammy for Bear employees.  Of course, if they own 1/3 of the firm, it seems they should have been paying more attention to what the company was doing and maybe tried to prevent Bear from doing the things that caused them to collapse.

Craig 

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#7) On March 16, 2008 at 9:48 PM, devoish (98.59) wrote:

Of course, if they own 1/3 of the firm, it seems they should have been paying more attention to what the company was doing and maybe tried to prevent Bear from doing the things that caused them to collapse

I have to ask... why does that idea not seem to work?

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#8) On March 16, 2008 at 9:53 PM, abitare (34.59) wrote:

TMFBENT (<20) ;)

I gave BSC the big underperform (abitareperfect) on Friday. But I invested NO REAL money. So again, I was playing CAPS ignoring the real portfolio, mine as well play XBOX or Warcraft
 Online, at least I can sell the items won online....

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#9) On March 16, 2008 at 10:25 PM, motleyanimal (88.74) wrote:

I went long on JPM when the Bear Stearns news broke.

Those SOBs. If anybody wants me, I'll be up in the Prayer Tower at Oral Roberts U.

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#10) On March 16, 2008 at 11:36 PM, leohaas (32.26) wrote:

JPM may actually be in a good shape, both short term and long term. Short term because the FED is covering $30B of the liabilities, long term because BSC still claims to have $80 a share in book value. Not a bad buy at $2 a share. Bear's problem was a liquidity problem. If JPM can avoid a liquidity crisis, it will have made a truely magnificent deal. This sounds like a steal to me.

Boy, I hope I am right on this one, because if I am not, our financial system will collapse in the next couple of weeks! 

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#11) On March 16, 2008 at 11:45 PM, abitare (34.59) wrote:

JPM has $91 TRILLION in derevative contracts (ref abitareperfect post). Good shape?

Everyone is posting the $2 a share BSC post. Going to get interesting  I really thought there were going to be more bank runs in August 07. Maybe I was early?

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#12) On March 17, 2008 at 8:18 AM, TMFBent (99.82) wrote:

Remember that a lot of this "structured finance" stuff was initiated on Greenspan's watch.  Also, he was quoted as saying that it was a good idea and showed innovation in the American markets and were a sign that American markets were still strong and innovative.  Bernake deserves very little of the blame for this mess, as most of it was created on the watch of his predecessor. 

I agree that the seeds of this problem are Greenspans reprehensible, ignorant free-money economics and his complete unwillingness to monitor what the jokers were doing in global finance. But I don't agree he deserves little blame. Unfortunately, Bernanke has LONG been part of the Greenspan free-money regime. He was there for the rise of this Ponzi scheme, and he should have known exactly how it would end. But, like any other political hack, he simply went with the flow. Now that he's in the big boy seat, the only thing he knows how to do is loan more money -- at a time when that doesn't matter because none of the recipients really want or can loan it to others. There's a major crisis in confidence that these yahoos need to address, and the old silent bank teller act aint gonna get it done.

Bernanke has already served the Federal Reserve System in several roles. He was a member of the Board of Governors of the Federal Reserve System from 2002 to 2005; a visiting scholar at the Federal Reserve Banks of Philadelphia (1987-89), Boston (1989-90), and New York (1990-91, 1994-96); and a member of the Academic Advisory Panel at the Federal Reserve Bank of New York (1990-2002).

I also think JPM got a pretty good deal, a steal, really, especially since they've effectively shifted any of the balance sheet risk onto us taxpayers via the fed. That's a typical, Bernanke/Wall Street socialism for you. JPM buys good assets on the cheap and sticks the taxpayer with the potential blowups.

How much of a cut in the future profits will taxpayers get for providing JPM with this invaluable service?

Sj

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#13) On March 17, 2008 at 9:15 AM, ByrneShill (76.90) wrote:

Dude, the sith lord short Bear, that's what killed it. Come on, Patty predicted the whole collapse of the financial system, you heretic. BSC is just the first step of the financial apocalypse brought upon us by NSS.

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#14) On March 17, 2008 at 10:39 AM, Imperial1964 (97.76) wrote:

"Even the most toxic of paper is probably on average worth a few cents on the dollar, which is what they paid for it."

Depends on how much it's been levered.

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