From the NY Times:

JPMorgan Chase was in talks on Sunday night for a deal that would quintuple its offer for Bear Stearns, the beleaguered investment bank, in an effort to pacify angry Bear shareholders, according to people involved in the negotiations.

The sweetened offer is intended to win over stockholders who vowed to fight the original fire-sale deal, struck only a week ago at the behest of the Federal Reserve and Treasury Department.

Under the terms being discussed, JPMorgan would pay $10 a share in stock for Bear, up from its initial offer of $2 a share — a figure that represented a mere one-fifteenth of Bear’s going market price.

More from MarketWatch:

In the latest groundbreaking move from the central bank, the New York Federal Reserve Bank will manage and dispose of the high-risk securities that helped push Bear Stearns Cos. (BSC:The Bear Stearns Companies Inc
News, chart, profile, more over the brink and into the arms of J.P. Morgan.

If the securities, valued at $30 billion on March 14, sell for more than $30 billion, the Fed will take the profit. If they sell for less, J.P. Morgan will assume the first $1 billion in losses, with the Fed on the hook for the remaining $29 billion.

It was bad enough that the Federal Reserve first agreed to assume responsibility for up to $30 billion in the worst mortgage securities in the Bear Stearns portfolio.  At least then the Bear Stearns shareholders - who played a key role in the subprime fiasco - were essentially wiped out.  I still think they should have been allowed to lapse into bankruptcy, but that is another story.  Now the Fed has only minimized the exposure of taxpayers to this toxic debt by a mere $1 billion, while allowing the Bear Stearns shareholders to quintuple their take away cash.

This is not how capitalism works.

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This entry was posted by Brian on Monday, March 24th, 2008 at 7:36 pm and is filed under Economy, Government. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Please note the copyright policy.