JPMorgan Chase gets Bear Stearns for free (practically)

Posted on March 16, 2008
Filed Under business |

It’s all over the news tonight but apparently JPMorgan Chase will be purchasing ailing Bear Stearns for a huge discount compared to the latter’s stock price last Friday; in fact, the discount is 93% as JPMorgan has offered $2 per share compared to the $30 closing price on the New York Stock Exchange last Friday. As it turns out, the US Federal Reserve will supply JPMorgan with a $30 billion loan to help them pay Bear Sterns’ debt in order to prevent general chaos in the financial markets that could be triggered by the company’s collapse. Bear Stearns is the victim of the credit crisis that is hurting the US economy at the moment. If you don’t know what that’s all about, then check out this cartoon published by the Washington Post clearly explaining how it all went to hell for the greedy firms.

It is interesting how the mighty fall. A USA Today article published in December 2006 was describing the huge bonuses that Wall Street firms were giving their CEOs for record earnings among them Bear Stearns, of course. A year ago, Bear’s shares were worth $170 a piece. Barely 1.5 years after the record year, Bear Stearns who had been in existence for a good 85 years and managed to survive a number of recessions and the Depression was sold for next to nothing to JPMorgan. The latter gets the company’s assets with no liabilities since the Fed, i.e., taxpayers, will take care of the latter with the $30 billion loan. Somehow, this story reads to me as nothing more than a huge scam created to line the pockets of the JPMorgan folk but I’m just a guy on the Internet so what the heck do I know?

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