I don’t have a debate question but I’d like to generate a debate about what this means, why it happened, and what the next casualty will be.
Bear Stearns was sold to JP Morgan today for 250 million dollars. Thats right, 250 million. In other words, it was given away. That’s $2 a share. Thousands will be out of work and thousands have lost everything. The $250M is 93% less than it’s market cap on Friday. It’s 99% less than it was valued at the end of February.
NEW YORK (AP) – JPMorgan Chase said Sunday it will acquire rival Bear Stearns for a bargain-basement $236.2 million – or $2 a share – a stunning collapse for one of the world’s largest and most storied investment banks.
The last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system.
The Federal Reserve and the U.S. government swiftly approved the all-stock deal, showing the urgency of completing the deal before world markets opened. Early indications, though, pointed to continued fear about the stability of the U.S. market, as the dollar hit fresh record lows against the euro, gold broke through $1,015 an ounce and Asian stocks sank.
“This is going to go down in very historic terms,” said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. “This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we’re probably heading into a recession.”
P.S. Whats going on in the Asian and Aussie markets?
It happened as nothing more than another domino in the collapse of the latest bull market, which was all about the overvaluation of real estate, especially in the US. Whether it is only a precursor to a recession or whether it precipitates a mild depression is still up in the air.
It happened because government is afraid to stand up to big business, and takes a hands off approach to regulation. And the efforts of the government are gonna be too little, too late.
Yep just another domino to you but Greenspan calls it the worst financial crisis since ww2. Investors are terrified of what will happen tomorrow. Sterns sold for 2 bucks a share. They were 170 not long ago. It could get ugly.
In the Times today it was mentioned that Bear Stearns was one of the more aggressive houses in terms of interesting investments, and that not sacrificing them would send a bad message - but that sacrificing them might cause more dominoes to fall. If JP Morgan makes good on their paper that other houses hold, this sounds like an excellent way of handling the situation - punishing Bear Stearns while not screwing its partners.
Too bad about the people being laid off, but no doubt lots of them made a bundle from the practices that led to the problem. Ditto for the stockholders.
I’m not sure if the depression thread is still active, but I never expected to see a run on a bank in my life.
Are you showing a taste for droll euphemism, or do you mean “interesting” the way an epidemiologist might think of a truly spectacular outbeak of Ebola?
The Greenspan quote was interesting, though. The full thing says that a lot of the trouble is with uncertainty. He believes that once housing prices stabilize, people can at least get a hold of what the market is like, those that need to go out of business will, and the economy in general can get on with things.
And after that WWII crisis, we had one of the biggest economic booms of all time. Hopefully, things will work out as simply. It may not, but there’s the hope.
That struck me as a pretty outrageous quote - even abstracting from his lack of responsibility. He’s saying that after the crisis, the damage caused by the crisis will be done and that will allow us to return to normal service. But the crisis has come from that normal operation of the financial markets and their regulators.
You could not find anyone to criticize Greenspan for the last 20 years. Now we are paying for his deficiencies and suddenly it is apparent. He was a believer in nonregulation. These Libertarians have destroyed much of our economy is th last 7 years.
I worked for Bear Stearns for 2 years. I still have a lot of friends who work there (well, I’ll find out later today if they still work there.) They are an old, proud company. I’m shocked by this. Thought I saw it coming awhile back but convinced myself I was overreacting.
I love how liberals are arguing that the individuals who took out these loans have no responsibility whatsoever.
Arguably in a freer market lenders probably would have never made these loans in the first place–lenders don’t have any interest in seeing people unable to pay them back.
Obviously lenders expect that they will have to write off a proportion of their assets and they reserve against this. But when at every level the due diligence fails, how can anyone make a real guess as to what this default rate will actually be?
WTF??? Haven’t you read anything about the causes of the crisis? The free market allowed the mortgages to be chopped up and sold, so the lenders really didn’t care much about being paid back, since they didn’t own the loans. Back in the old days when banks actually kept the loans they cared a lot more.
Your faith in the free market to cure all ills is very touching if a bit removed from reality.