Karl Zachar

JPMorgan's Actions Indicate Bear Was a Bargain

At yesterday’s testimony in front of the Senate Banking Committee, Bob Steel (Treasury Under Secretary) said that his boss (Treasury Secretary Hank Paulson) set it up for JP Morgan to buy Bear Stearns at the low ball price of $2 per share. (Just one week prior Bear’s stock was trading at $70.)

It is now clear that the $2 stock price offer (which was orchestrated by Paulson and Bernanke) would justify the government’s highly criticized $30bn bailout of Bear. (“We had to bail out Bear. It was a sinking ship. Look, it was only worth $2 per share.”)

Bear had to accept any offer that was given to it. It was desperate. They were in no position to negotiate price. The Fed and Treasury handpicked JP Morgan and told them: “if you buy Bear Stearns and save our collective political asses, we will “give” Bear to you for $2 per share.”

Remember, Bear’s stock price traded at $70 one week prior to this and $170 12 months ago. So the Fed and Treasury screwed Bear’s employees and shareholders by giving away the company for $2 per share. Why did they do this? To save their political futures – that’s why.

At the end of the day, even JP Morgan could not get away with this crime. So they eventually bought Bear for $10 per share. Still pretty damn cheap.

Bob Steel had better watch out. His old Goldman buddy Hank might be in trouble - big trouble. The Democrats have a huge incentive to go after Hank for his blatant cronyism. Hank threw Bear shareholders under the bus to temporarily save is butt. He might just throw Steel under the bus next.

Moral hazard my foot. Physical hazard is more like it. Heads are going to roll for this circus act.