Sunday, March 16, 2008

Bear's Bear Market, Bare Cupboard Sale

Poor confused Uncle Billy lost Bear Stearns liquidity last week. Over the weekend Bear's wonderful life dissipated as creditors symbolically stormed the doors. Friday, the Fed announced it would give JP Morgan Chase the funds to shore up the ailing investment firm. Sunday, the same pair announced the unthinkable.

Bear Stearns, worth $160 a share a year ago, would be sold to JP Morgan for $2 a share. That's a loss of $158 per share for some folks. Talk about wringing wealth out of the system. Does that mean Mr. Potter gets to pick up Bear's assets on the cheap? Will he sell the debt associated with foreclosed homes sitting in today's version of Potterville?

How should an individual mortgage holder feel about this giant injection of Fed cash ($30 billion) to the people who created the mortgage securitization system, now a dead industry with toxic leftovers? No help for the individual, but major support for corporations. Last week Carlyle Capital's creditors pressed the foreclosure button to make major ka-ching off Uncle Sam. Carlyle co-founder David Rubenstein complained about it over the weekend. But it isn't the first time David's blamed the feds for his firm's failures.