(Political Animal) THE COLLAPSE OF BEAR STEARNS....Bear Stearns has been acquired:

In the deal crafted on Sunday for Bear Stearns, JPMorgan Chase agreed to pay a mere $2 a share for Bear — less than one-tenth the firm's market price on Friday....The sale price includes Bear Stearns's soaring Madison Avenue headquarters.

....The cut-price deal reflects deep misgivings about Bear's future and the enormous obligations that JPMorgan is assuming in guaranteeing the firm's obligations. In an extraordinary move, the Fed will provide financing for the transaction, including support for as much as $30 billion of Bear Stearns's "less-liquid assets."

On Friday, Bear's putative market value was about $4 billion. Subtract the value of its physical assets (that soaring headquarters building), and its financial assets were valued at around $3 billion. What is it today?

Well, at $2 a share it's about $270 million. Minus the value of the Fed lifeline, which is.....hard to calculate. But it's a lot.

So: On Friday Bear's financial assets were supposedly worth $3 billion. Today they're worth, let's say, -$3 billion. Or maybe -$10 billion. Who knows?

For now, I won't argue with the Fed arranging this bailout. Maybe it had to happen, and maybe it will prevent some kind of larger systemic collapse. At the moment, that's more important than assigning blame.

But I would like to know why, on Friday, investors thought Bear's financial assets were worth $3 billion, when, in fact, they were worth something closer to -$3 billion — something that the principals at Bear surely must have known for quite some time. If there's no fraud involved in that, then the word has pretty much lost all meaning.

Copyright 2008

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