Remember Bear Stearns, that company you thought was worth $75 billion last year (trading at $160/share)? And even last Friday when the market closed to the public you thought it was worth $14 billion ($30/share)?
Turns out, it’s only worth $236 million ($2/share).
What happened was (paraphrasing the NY Times), a lot of Bear Stearns executives, Treasury and Fed officials and would-be buyers got together over the weekend and actually looked at the books and accounts. Then they decided that really, when you think about it, $2/per share looks like a fairer price.
As one former enforcement lawyer for the Securities and Exchange Commission noted
“The price is indicative that there were bigger problems at Bear than clients and the public realized.”
No kidding. This is a market we are supposed to have confidence in?
It would be nice if the people who got us into this mess didn’t profit on the deal. But the financial mess is so big, not bailing them out isn’t an option. As Paul Krugman put it today, we didn’t get to this point just because Bear Stearns had bad management:
Between 2002 and 2007, false beliefs in the private sector — the belief that home prices only go up, that financial innovation had made risk go away…led to an epidemic of bad lending. Meanwhile, false beliefs in the political arena — the belief of Alan Greenspan and his friends in the Bush administration that the market is always right and regulation always a bad thing — led Washington to ignore the warning signs.
So, its not just Bear Stearns. It’s national leadership in general that created this crisis. When will they pay the price? November, perhaps?
Note: in other news of failed national leadership, I see Dick Cheney is paying surprise visit to Iraq to promote unity.