Tuesday, March 18, 2008

My Objection to the Bear Sterns Buyout

The Bear Sterns buyout is such a sweet heart deal for JP Morgan. Seriously? WTF? This bailout/buyout should have been structured so as to return something to the tax payers. This is the 2nd time in a week that the Fed has thrown IB a big bone and gotten nothing in return.

Last week the Fed essentially bought $200B of worthless real estate paper and got NOTHING in return. Then over the weekend they finance the Bear Sterns buyout by assuming the risk on $30B in bad Bear Sterns real estate paper and gets nothing in return. I don't object to bailing out the banks, I have said all along that its necessary for the banking institutions of this country to be on sound footing, but Bear Sterns is just a brokerage/trader, they aren't a bank where millions of people have their savings accounts. While their going under would be very bad news, its not like your talking about Bank of America or Wachovia going under.

With a cost basis of $2/share, JP Morgan will make billions on this deal, and probably cover their bases fairly quickly, say 3-5 years. This deal could have returned a lot of money to the Federal government and the tax payers who are financing it, or at least bearing the burden of the inflation another $30B in printed money will cost. I also don't like that the whole thing was done under the cover of darkness and fast tracked over a weekend, so that nobody had a chance to raise an objection.

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