Bears Stearns bought out in a stock swap with JP Morgan Chase at $2/share; Bear opened at $53 on Friday morning after the announcement of the Fed/JP Morgan rescue before sliding to a close of $30.
As I type S&P Futures are down about 26 to 1265. The bottom is somewhere, but where and when?
And why is this a bigger crisis than the S&L collapse of the late 80's? After a few rocky years we moved on quite nicely back then.
MORE: OK, Bear Stearns opens at $3.17 and is now trading just below $4. Why? Is another bidder really likely to emerge? My stray guess is that shareholders expect that, after the stock swap with JP Morgan goes through, some entity called "Bear Stearns" will be carved out and spun off. That guess and a buck get you a cold look at a Starbucks - bring a fiver.
Kudlow has an interesting article on the Bear Stearns debacle. In it he points out that the difference between commercial banks and brokers (investment banks) played a role:
Posted by: anduril | March 17, 2008 at 09:20 PM
Anduril--
Bear was leveraged somethng like thirty something to one. In the current environment--how could they have worked things out in a few days?
Posted by: glasater | March 17, 2008 at 09:32 PM
Glasater,
I look at it as a version of Chicago Rules based upon the Lewis buyin followed by that market crack in January. The Fed let Carlyle go last week and then fed Bear to the Great White JPM this weekend as a means of letting all the speculators who were really hoping for a replay of the S & L fiasco - a slow death scenario with Nurse Fed at the bedside (standing on the oxygen line) while pols picked winners and losers.
Instead - a couple of bullets behind the ear and viola! - it's a brand new day. $60 billion in "leverage" disappeared from the M3 in one week. That's also called "strengthening the dollar" but no one has noticed as yet. Quite unremarkably.
Posted by: Rick Ballard | March 17, 2008 at 10:07 PM
Rick, that seems to be Kudlow's view.
glasater, Kudlow specifically notes: "Throughout the credit crisis, which dates back to last summer, the Fed’s discount lending to banks was supposed to trickle down to brokers [i.e., investment banks like Bear]." Kudlow's point is simply that if the Fed had amended their regs on a timely basis (following the 1999 Gramm-Leach-Bliley Act) to allow commercial banks and investment banks to have equal access to the discount window this collapse might have been avoided. Kudlow was certainly not asking for overnight miracles. In fact, he suggests that, not having had the foresight to change its practices, the best alternative for the Fed at this point was, in Kudlow's words, to bury Bear, or in Rick's version, to put a bullet behind its ear--an object example to the financial community and a message to one and all that the Fed will be ruthless in this crisis.
There's merit in this view. Perhaps after having a day to think the Bear situation over, Wall St. revised its estimate of what happened and decided, with Kudlow, that this was not the bail out it was originally thought to be. If measures like this work, it may yet be possible to avoid the taxpayer bailout that Krugman expects (and which I, in my cynicism, still think not unlikely)--reminiscent of the S & L fiasco. Time will tell. If Bernanke can pull this off he'll be a hero. He is supposed to be the world's leading expert on the Great Depression, so he has probably run through his mind what should be done in the event of another financial crisis. Interesting days.
Posted by: anduril | March 17, 2008 at 11:12 PM
We all love game, if you want to play it, please cheap penya and join us.
Posted by: sophy | January 06, 2009 at 09:57 PM