JP MORGAN, propped up by the Federal Reserve, has bought Bear Stearns for $2 a share, giving it a value of $236 million rather than the $3.5 billion it was worth last Friday and the $2o billion it was worth a year ago.
The sale is a devastating indictment of the stupidity that made large financial institutions lend money to people who couldn’t repay the loans. The Federal Reserve will provide the not insignificant sum of $30 billion to cover Bear Stearns’ exposure in these so-called “sub prime” markets.
The alternative to flogging Bear Stearns was for the firm to go bust, with many analysts believing that the move heralds a deep US recession.
Shareholders in Bear Stearns are not at all happy with the sudden collapse of valuable equity to what is effectively junk. ♣