Coming Soon: Anatomy of a Smash n’ Grab

by StockJockey

Tuesday, March 18, 2008 - 8:32 am

In the end, Bear shareholders probably did not stand a chance and were thrown under the bus to keep the wheels of capitalism spinning. The Black Sheep of Wall Street were sacrificed like lambs.

Joe Lewis is not going quietly, but the end is near, and Roger Lowenstein is no doubt at work on a new book. Get busy, Roger, this one might sell even better than When Genius Failed. Maybe he can call it When Paulson Plundered:

"Two weeks ago, these guys said they didn't need to raise more capital," said a fixed-income executive who has been with the firm for 16 years. "And now they're selling the firm for a quarter of the price this building is worth!" WSJ

Bear was forced to jump on a handgrenade. For those about to die, we salute you.

Bear Stearns was too big to fail, too weak to continue operations, and too intertwined with counterparties to go down without causing serious collateral damage. It was the judgment of Fed policy makers that the risk to the national economy from a margin spiral was greater than the appearance of bailing out a bank.

In retrospect, it seems that the too-big-to-fail bank served as a sacrificial lamb, held out (hung-out?) as an example.

``The Fed let JPMorgan steal Bear Stearns because it needed cover for the putative moral hazard in keeping the system afloat,'' said Paul DeRosa, a partner at Mt. Lucas Management Co. ``For macro reasons, the Fed had no alternative.'' Bloomberg

Jamie Dimon will cement his place in Wall Street lore with this deal. But even mere mortals can cash in on the firesale. There are motivated sellers in the Hamptons:

“My life has been flushed down the drain,” one person told The Times. There was talk Monday that with their life savings nearly depleted, some executives had moved quickly, putting their weekend homes on the market. NYT

Outplacement counselors will lend a hand. And the mourning will begin in earnest.

If it is any consolation, the J.P. Morgan people I know are good folks. Not as arrogant as Goldman and a step quicker than the average European banker. I doubt they will be dancing in the endzone:

Top J.P. Morgan executives yesterday gently reminded employees not to gloat about their former rival’s misfortunes. “As we now begin the important work of integrating the two firms, we are counting on you to embrace our new partners at Bear Stearns in a first-class way and ensure they feel welcome at our firm,” wrote Messrs. Steve Black and Bill Winters, co-heads of the investment bank, in a memo to employees.

Hank Paulson turned the screws pretty hard on Bear. If Goldman would have ended up with the prize all hell would have broken loose.

And the price would have been a dollar lower.

RIP, Bear.

We owe you a drink.