2-Dollar Broker
$2/share is the price J.P. Morgan is paying for Bear Stearns. That’s down from $30/share as of Friday’s close.
To a first approximation, from the perspective of shareholders and employees, $2/share is the equivalent of zero. The prime brokerage business alone was probably worth about ten times that amount. That could mean that J.P. Morgan thinks the cost of exiting the other businesses (because it fears some proportion of Bear’s assets are marked incorrectly, or because it just costs money to eliminate redundancies and there’s a lot of overlap in investment banking and asset management) is roughly equivalent to the value of the prime brokerage (and anything else they intend to keep). Or it means that Bear’s board had sufficiently limited leverage that it had to take literally any offer above zero. Or, most likely, both.
I’m really trying to figure out the silver lining here. I guess it’s that we don’t have to worry about the contagion from a spectacular Bear Stearns bankruptcy, and the potential chaos that would bring to the derivatives markets as counterparties rushed to replace positions previously facing Bear. Beyond that, I’m hard pressed. $2 won’t even get you on the subway for much longer.
$2 won’t even get you on the subway for much longer.
There’s your silver lining: an unexpected opportunity for subway reform.
— SomeCallMeTim · Mar 17, 01:02 AM · #
You know, from time to time I hear the argument from the Gordon Gecko set that one of the reasons that Wall Street execs and other business suit types make so much money is because they “live on the razor’s edge” and that they’re bold daredevils who work in such a high risk environment where one wrong move leads to disaster….
Millions of people in this country who work at or near the poverty line are constantly one wrong step away from financial destruction. If they make that false move, the social safety net protecting them is frighteningly thin and inadequate, and weakening all the time. But if you have the good fortune to be from Bear Stearns….
I’m often told that my fundamental political failing is that I just don’t respect the free market. If only I had the moral clarity of all the free-market capitalists out there….
— Freddie · Mar 17, 01:27 AM · #
Freddie:
Looking for justice from a market leads to a long, long wait. Like Darwinian evolution, it grinds out efficient forms of organization at the expense of most participants, and rewards are only loosely related to any normal conception of merit.
— Jim Manzi · Mar 17, 03:10 PM · #
The arc of history is long, but it curves toward justice, I guess.
The question I always have to ask is, what if it doesn’t? How long do we wait to see if it will? And how much harder will it be to try something new, the longer our investment in this model goes on?
— Freddie · Mar 17, 05:08 PM · #
The market doesn’t curve towards justice, not even over a long time scale. It curves towards efficiency. Only Richard Posner thinks they are the same thing.
— Noah Millman · Mar 17, 05:51 PM · #