First, Bear Sterns gives money freely to home buyers. Then tells everyone that it passes the risk to the "stupid" foreigner investors.

Guess what, Bear goes bankrupt. Who is "stupid" now?

EagleTed:

Shareholders have absolutely no rights when a company goes bankrupt, this is a de facto bankruptcy, without the paperwork.

Last time I checked, Bear Stearns wasn't bankrupt. If Bear Stearns was bankrupt, I would have less of an issue than now. A non-bankrupt company belongs to shareholders last I checked. It's ridiculous for you to argue that shareholders somehow shouldn't have any rights.

I also find it hard to believe why someone would be paying more than $1 billion for a company that you claim is bankrupt. Math is not my strong suit but something doesn't add up.

There is no other way to say it: Bear Stearns was looted by JPM, while being abetted by the Federal Reserve. Somehow JPM became the preferred party of the Federal Reserve, which put up $29 billion of taxpayer money while giving away the company to JPM and no one else. None of you may believe it but the Federal Reserve made a horrendous mistake by legitimizing the looting of a company outside of bankruptcy courts. I'm generally a defender of the Federal Reserve but Ben Bernake made his first huge mistake on the job.

 Lest all of you forget, shareholders own a company. Not the Federal Reserve. Not the US government. Not the big bank on the block. Not the bondholders. Not the customers.

They'll get their vote.

Frankly, I wish the Feds and JPM had let them declare Bankruptcy. Teach Wall Street a lesson. Even if it would have damaged the rest of us enormously. Oddly though, shareholders get no vote on whether a BOD declares bankruptcy or not. 

The Invisable Hand aka Bernanke's hand

That hand you see is Bernanke's hand in your pockets.  The FED (aka the tax payer) guaranteed the first $30 billion of this deal.  I also see the offer has been raised to $10/share. 

This whole thing seems a bogus to me.  A closed door deal with the FED calling the shots.  How's that for free markets.  No other offers taken.  Guaranteed with FED money.

Looks to me like the FED panicked, and maybe they had good reason to.  Their thinking had to be if BSC goes down, lots of other stuff goes with it and maybe the whole system.   It just shows me how unstable the whole system is and how close to imploding it must have come.   Now the FED is loaning money to the investment "banks".  Freddie and Fannie have had their collateral requirments reduced so they can buy more mortgages.  TAF,  etc are loaning money to banks.  etc etc etc.  Looks like panic to me. 

JPM will come out of this smelling like a rose if they survive..........

Every thing the FED is doing seems to be adding debt (lower interest rates, taking really doggey Mortgage backed securities as collateral for long term loans etc.  .  My advice is when you find yourself in a hole, quit digging.  

EagleTed:

They'll get their vote.

Frankly, I wish the Feds and JPM had let them declare Bankruptcy. Teach Wall Street a lesson. Even if it would have damaged the rest of us enormously. Oddly though, shareholders get no vote on whether a BOD declares bankruptcy or not. 

I'm not a BSC shareholder but my problem is really with the board of directors. It's amazing to me how they can give away around 40% of the company to JPM under the guise of a better deal ($10 instead of $2). Admittedly they probably couldn't grab $29 billion from the federal reserve without doing something weird like this, but it steps all over shareholders. The BOD even had to break NYSE regulations (these don't matter much; it's just an exchange) and skirt Delaware regulations which try to block cases like this, where the BOD gives away 40% of the company to JPM in order to seal a vote.

There is something really fishy going on behind the scenes... Interestingly, the CEO of Wells Fargo is now trying to get the FedRes to facilitate them trying to loot other distresses financial companies.

 BSC shareholders probably woudl have ended up with nothing (BSC is highly leveraged) but their rights as shareholders were ignored by the BOD.

EagleTed:

They'll get their vote.

Frankly, I wish the Feds and JPM had let them declare Bankruptcy. Teach Wall Street a lesson. Even if it would have damaged the rest of us enormously 

Eagle, if you wish to have a depression, then BSC should have been bankrupt and not saved by the Fed. But the Fed will not allow a depression, therefore they will bail out any bank/firm in trouble of smelling bankruptcy

I guess many of you just don't understand the derivative chain reaction??

farmera1:

That hand you see is Bernanke's hand in your pockets.  The FED (aka the tax payer) guaranteed the first $30 billion of this deal.  I also see the offer has been raised to $10/share. 

The deal was modified so that JPM picks up the first billion in losses, while the FedRes picks up the rest of the $29 billion... still almost the same though... 

This whole thing seems a bogus to me.  A closed door deal with the FED calling the shots.  How's that for free markets.  No other offers taken.  Guaranteed with FED money.

Looks to me like the FED panicked, and maybe they had good reason to.  Their thinking had to be if BSC goes down, lots of other stuff goes with it and maybe the whole system.   It just shows me how unstable the whole system is and how close to imploding it must have come.   Now the FED is loaning money to the investment "banks".  Freddie and Fannie have had their collateral requirments reduced so they can buy more mortgages.  TAF,  etc are loaning money to banks.  etc etc etc.  Looks like panic to me. 

I'm in the disinflation/deflation camp so I'm cool with the FedRes injecting liquidity. My understanding is that so far nearly all of it is sterilized (i.e. no net increase in money supply) so it won't cause inflation. The taxpayers may take losses but I'm not sure about that either. The Bear assets are likely very risky (it's basically the lower tranches of mortgage debt) but the other assets that the FedRes is accepting likely won't lead to big losses.

My problem is with the way the Bear Stearns Board of Directors were behaving and how the Federal Reserve favoured one party: JPM. The BSC board somehow managed to issue shares to JPM for almost 40% of the company without shareholder approval. This is highly unethical in my eyes!!! The BOD is supposed to represent shareholders! It is in poor taste for the BOD to issue huge amount of shares and give it to a preferred party in order to complete a takeover.

It's also bizarre that the Federal Reserve was willing to wipe out equity holders (this is ok--shareholders take the risk) but make the bondholders whole (BSC bondholders should also take losses). I'm actually shocked that the Federal Reserve will save the bondholders and not the stockholders. It doesn't make any sense at all.

JPM will come out of this smelling like a rose if they survive..........

It's probably conincidental but do keep in mind that JPM has the largest derivatives book on the Street. They are not leveraged like the investment banks, and most of their derivatives are likely "safer" stuff (like interest rate and currency derivatives) but you just wonder.

Every thing the FED is doing seems to be adding debt (lower interest rates, taking really doggey Mortgage backed securities as collateral for long term loans etc.  .  My advice is when you find yourself in a hole, quit digging.  

 Lowering rates is fine with me. Remember, some people out there are saying that we have a real estate bubble half the size of Japan's (although Japan's big bubble was in commercial real estate while the US one is in residential; also Japan had a huge stock market bubble whereas USA doesn't). Unless you want to end up in a massive deflationary recession or depression like Japan did, cutting rates is the right thing to do. One of the biggest mistakes the JCB did was to raise rates in early 90's--likely under political pressure. It was a disaster of epic proportions. Not only did it further aggrevate the real estate and stock market collapse, it also bankrupted many of the banks. The FedRes is right in steepening the yield curve and letting the banks make some money, while some of the pressure is removed frmo the consumers as well.

Having said all that, it's not the job of the FedRes to bail out anyone. They should facilitate liquidations but not favour select parties and offer free money. Sadly, they did just that with the Bear Stearns case. To make matters worse, the FedRes also indirectly trampled shareholder rights. If Bear Stearns faced an orderly bankruptcy or if it was offered to the highest bidder, they would have avoided most of the ethical questions. As it stands now, it looks like the FedRes is in the backpockets of JPM and loves to help board of directors who ignore shareholder rights!!!

openhurdle:

EagleTed:

They'll get their vote.

Frankly, I wish the Feds and JPM had let them declare Bankruptcy. Teach Wall Street a lesson. Even if it would have damaged the rest of us enormously 

Eagle, if you wish to have a depression, then BSC should have been bankrupt and not saved by the Fed. But the Fed will not allow a depression, therefore they will bail out any bank/firm in trouble of smelling bankruptcy

ITA - the chain reaction that would have ensued would have been historical and devastating.  The system is far too interconnected to let a big player fail.

Sucks if you're a BSC shareholder, but I am not so I am glad it ended the way it did.

If BSC failure teaches us anything at all it is - diversify and do not keep a large stake in your employer's stock.

MommaD:

ITA - the chain reaction that would have ensued would have been historical and devastating.  The system is far too interconnected to let a big player fail.

Sucks if you're a BSC shareholder, but I am not so I am glad it ended the way it did.

If BSC failure teaches us anything at all it is - diversify and do not keep a large stake in your employer's stock.

I'm not in financial, and have not been in financial for months. I'm the type of investor that buy