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Monday, March 17, 2008
Bear Stearns at $2. Holy Toledo!
The Atlanta Journal-Constitution
Holy Toledo! Bear Stearns Cos., an 85-year-old financial giant with 14,000 employees, a company whose stock traded a year ago at $150 a share, sold Sunday night to rival J.P. Morgan Chase & Co., for $2 per share. On Friday it closed at $30 a share.
The buyout was arranged with the backing of the Federal Reserve, which is providing $30 billion against some of Bear Stearns’ less liquid assets, including mortgage securities that jittery investors around the world are unwilling to touch.
The alternative was bankruptcy, Many shell-shocked stockholders would have preferred that option. In January of last year, the company had a value of $20 billion. On Friday, its market value was $3.5 billion. It sold for $236.2 million, a stunning collapse for a company that survived the Depression and both world wars.
Watch the stock market today. Either the panic will spread or the quick and decisive action by the Federal Reserve could calm the jitters.
Bear Stearns stunning collapse is a reminder that the market is a powerful and unforgiving regulator. Those in Congress who rush to bail out subprime borrowers are egged on by populists who insist that greedy and “predatory” lenders trick unsophisticated borrowers into taking home mortgages. In the populists’ scenario, the greedy live high and those who are duped pay the price with high-interest mortgages that drive them into foreclosure.
Bear Stearns, which has a large mortgage business, is evidence that when lenders and borrowers get reckless, nobody’s immune — especially, in this case, the 14,000 employees who were prohibited from selling their stock as its value plummeted and who now may be out of a job.
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