With Fed financing, JP Morgan buys Bear Stearns

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I saw this headline and I thought it had to be a typo: ‘JP Morgan to buy Bear Stearns for $2/share.’

It is not a typo, it is true, and it is a shocker, a bottom-dollar buyout that was brokered and backed by your government. Shares of Bear Stearns traded at $159 last April, and $57 on Thursday. Even after the investment bank effectively failed Friday morning and was bailed out by JP Morgan and the Fed, Wall Street’s smart guys believed the company was worth $30 a share. Man, were they wrong.

The ultimate take-over price -- $236 million, or not even enough money to sign a decent baseball free-agent these days -- is stunningly low. It means Bear Stearns was very close to worthless, a realization Wall Street did its best to avoid all day Friday.

It also means the financial fallout that began with the the crisis in the mortgage market -- yes, the same fallout the Bush administration repeatedly assured us was ‘contained’ -- is not contained and is almost impossible to quantify at any given moment. You can safely say this: it is bad and getting worse.

Why a Sunday deal? The New York Times: ‘The talks between the companies, which were overseen by the Federal Reserve and the Treasury Department because of their potential effect on financial markets, were rushed in an effort to reach a deal before stock markets open in Asia at 8 p.m. Eastern time.’

The bailout angle, from the AP: ‘The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets.’

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