Does this mean that shares in a Bear Stearns Intermediate Bond Fund are worthless or semi-worthless now?
The real problem is that there isn’t a market for much of their assets, so they can’t dump them even if they wanted to. What the Fed is doing is making loans to a lot of these companies with the subprime mortgage and other unmarketable bonds taken as collateral, which injects liquidity into the market.
As for BS going bankrupt, a lot of other companies hold their paper. If they do go under, these companies would have to write off this paper, which would hurt their capitalization, which might inspired other runs or failures. It might be satisfying, but it isn’t practical.
No.
At least I don’t think so.
That’s not a bond that BS is paying on, or shares of Bear Stearns
It’s a fund that BS put together that owns a whole bunch of different bonds. As long as those bonds are still worth something (and they’re probably high grade corporate bonds, and treasury notes, and foreign bonds, etc) then the fund should be all right.
It might get managed at JPMorgan and be called something different, but the underlying value of that fund is still there.
Looks like it could have been much worse. That’s not to say that JP Morgan Chase didn’t get themselves a good deal - the winners always do in such situations - but the critical issue was to do the takeover quickly, over the weekend before a collapse could occur.
JPMorgan Surges After Capturing Bear Stearns for $240 Million
Tee-hee. I saw that on the way back from lunch today. (I work a couple blocks away.)
Heh.
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Timely.
This economist at Berkeley raises another possibility for the low buyout: Bear-Sterns executives may have been afraid that a bankruptcy filing would expose them to criminal charges related to their management of a company. So they sell on the cheap.
The law in question is mentioned in this Wall Street Journal article from Friday. Basically, it’s section 13-3 of the Federal Reserve Act of 1932.
The Los Angeles Times today says “[t]he last time the Fed made a loan under the authority it used on Friday was in the midst of the Great Depression.” Is that right?
(article: With markets on edge, Fed takes urgent action to calm investors / By Walter Hamilton and Peter G. Gosselin, Los Angeles Times Staff Writers / March 17, 2008)
I strongly suspect that they don’t own it outright. That sounds like far too significant an asset not to have raised money against…
My 401K is operated by JP Morgan. Is this buyout a win for me? The last 3 months pretty much sucked but now they are buying out the competition. Brighter days ahead?
Your 401k is most likely invested in stocks and/or mutual funds. The fate of the brokerage house the runs it is probably irrelevant.
Well, there is the possibility that having bought out BS, they can over time merge their funds and reduce the 401K fees due to efficiencies of size. But I wouldn’t bet on it.