thoughtsignals

So JPMorgan Chase is in talks to pay more for Bear Stearns than the original $2-per-share deal it negotiated with the help of Uncle Sam. This is no surprise, as $2 per share is the equivalent of giving the company away, especially since the feds were guaranteeing $30 billion worth of risky Bear assets. The new asking price is $10 a share — meaning most Bear shareholders will still lose money, but at least they’ll lose less, and perhaps fewer of them will sue to stop the deal.

Here’s what I don’t get: Henry Paulson, the Treasury secretary, last week wanted a deal that wouldn’t be portrayed as a taxpayer-funded bailout of Bear, taking the risk off its shareholders. But if this isn’t a taxpayer-funded bailout of Bear, it certainly looks a lot like a taxpayer-funded gift for JPMorgan. With $30 billion (or maybe $29 billion, according to the New York Times story), how is this anything other than a gift to JPMorgan?

It may very well be a necessary gift to ensure confidence in the financial markets, and therefore keep more money flowing through the economy, and therefore blunting whatever slowdown/recession were in, or in for. But it’s still a gift.

I suppose we won’t know until months or years down the road, after all these exotic financial instruments have been somehow unwound or their true values determined — that lack of information is what’s at the heart of the subprime mess and the larger credit crisis. But I wonder if someday it will come out that these risky Bear assets end up being worth significantly more than JPMorgan is paying for them? We won’t know for quite a while.

Link.