JPMorgan Chase redecorates with a new Bear rug

by Patrice Sarath, March 17th, 2008, 9:35 am

$270 million. In stock. That’s how much JPMorgan Chase will pay for Bear Stearns. $2 a share. Or, put it another way, a more than 90% discount.

$270 million for 80-plus years of scrappy trading, of being part of the colorful history of Wall Street, and in the end, for making a really bad bet on collateralized debt obligations.

It’s still hard to believe that Bear Stearns has come to this.  I am sure that the company was resistant to the idea, but the alternative was the unthinkable. The bank, as was made clear over and again, was too big to fail. The ripple effect on the financial markets would have been more like a tsunami. Even the buyout will have an effect on the markets. The Fed, which already gave Bear a $30 billion line of credit, and JPMorgan have been hastening to assure Bear Stearns’ creditors that the company’s obligations will be guaranteed.

Even so, even if letting the bank fail was never an option, saving it might only slow the bleeding, not stanch it. The world’s financial markets are still reeling from the fallout of the subprime mortgage debacle, and the domino effect is continuing. Other investment banks are likely still in peril. Can the Fed find buyers for all of them? At a certain point, one of them is going to have to go under. Let’s hope the economy can weather those waves when it happens.

Hindsight is 20-20 and all that, so I wanted to remind you of this article, from June 2007:

Bear Stearns woes seen raising chances of sale.

It seemed hardly credible back then. It’s hard to believe now.