Dean (Zhuiyang) Chen

There has been much discussion about buyout of Bear Stearns by J.P. Morgan. CNBC has a video that pretty well sums up many people's perception that the Fed showed preferential treatment towards Wall Street over the individual citizens amid the economic crisis. The media has a knack for revving up emotions for the sake of their ratings and I find its focus on the Bear Stearns deal especially unnerving. The media wants you to believe that the Fed negotiated the BSC deal in order to cover Wall Street's ass, by using 30 billion dollars in your tax money to "bailout" BSC. When I see these reports I often find many small but significant details left out. First and foremost, BSC was initially sold to J.P. Morgan at $2 per share, at the urging of the Fed. J.P. Morgan officially announced today to raise the bid to $10 in order to make the transaction smoother by gaining some shareholder support. Even then the 6 month stock price chart gives you a pretty good idea of how cheap BSC is being sold at; the stock price hovered near the hundred. Bear Stearns, its executives and employees are losing a majority of their wealth by going through with this deal. About 30% of the BSC is owned by Bear Stearns employees and I'd bet that no employee is happy about their investments and savings taking the huge dive evident in the charts.

The discount at which BSC is purchased at is mind-boggling, the initial $2 per share offering summed up to just about 1/5th of the value of its headquarters on Madison Ave., sure, the $10 a share is no doubt more reasonable, but it still barely covers the values of its real estate let alone the billions of financial instruments that it holds and controls.

A piece of information that I've rarely seen mentioned is that the 30 billion dollars is being used not to pay the banks but the mortgages that it holds. And like any type of investments it can lose or GAIN in value, especially when the mortgage crisis is over. J.P. Morgan is also taking the hit on the first one billion dollars of losses if the mortgages do decrease in value, another piece of information that gets left out. The reason that Bear Stearns fell was not because its investments weren't worth anything, rather that it didn't have the funds and liquidity in its investments to continue doing business due to the lack of confidence in the bank, a problem that the Fed, which has the power to inject virtually unlimited credit, doesn't have.

The media also missed the big picture of this purchase or they would have realized that the Fed acted in the best interest of the average Joe. Hopefully it has now become clear that Wall Street will not benefit from this deal. This move by the Fed is to preserve the billions of dollars in mortgages and trillions of dollars in credit swaps that will go bad with if Bear Stearns did fall which was almost a certainty. During a time when the economy had been battered left and right, the fall of BSC along with the multitude financial instruments it holds could have very well been the K.O. for the economy. The stock market would have collapsed, sending the investments, pension funds and savings of Americans spiraling down. It would also not just cause decreases in jobs but further deteriorate the housing and credit crisis The hit that the stock market would have taken alone could have been very well beyond the measly 30 billion dollars to prevent this disaster.