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Near-bankrupt Bear Stearns has been sold off to JP Morgan at a small fraction of its former value as of just a week ago. JP Morgan Chase will acquire Bear Stearns at $2 per share. Last week, Bear Stearns shares were trading at $30.
At the same time on Sunday, the Fed cut the discount rate in an emergency move. A reduction in the discount rate makes it cheaper for banks to borrow money from the Fed.
All of this happened in a feverish meetings with officials from Bear Stearns, JP Morgan, the Treasury Dept., and the Fed. The goal was to get a deal signed by early evening, beforel the Asian stock markets opened, for fear that there would be a major correction.
The reasoning was that if a deal wasn't made right away, then Bear would go bankrupt, causing a domino effect that would unravel other markets and cause other bankruptcies.
I personally don't see how the final result makes much difference -- Bear would probably have been worth $2 per share in bankruptcy anyway. At this writing on Sunday evening ET, the Nikkei is already down 4%, and Dow Industrials futures are down over 200 points.
Perhaps the Fed or someone else can pull something new out of the hat
on Monday morning, as has happened so many times since the credit
crunch began last August. Each new "something" was bigger and more
aggressive than the last "something," and each one has been less and
less effective. Right now, the situation looks quite ominous.
(17-Mar-08)
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