The Blog

A Mauling on Wall Street

In Connecting the Dots on Monday, 17 March 2008 at 13:18

Bear Stearns didn’t have Jimmy Stewart to keep its clients and shareholders from bolting last week, but the US government and JP Morgan have come galloping to the bank’s rescue. The Federal Reserve has effectively promised not to let the bank fail, while JP Morgan, relatively unscathed from the subprime mess, has agreed to acquire the troubled Bear Stearns for $2 per share — a price that is, amazingly, one tenth of Stearns’ valuation just three days ago. Paul Krugman weighs in on the situation, suggesting the Fed should have let Bear Stearns fail: The bank gambled on risky subprime investments, and allowing the institution to slip beneath the waves would “teach Wall Street not to expect someone else to clean up its messes.” Writing in the Washington Post this weekend, James Grant suggested that the Fed is a little too interested in Bear Stearns’ share price and not interested enough in global inflation — his smart piece analyzes how the US government’s bailout will affect the greenback. But we have yet to see any word on how billionaire investor Joseph Lewis feels about the flurry of weekend deal-making — the largest investor in Bear Stearns, he upped his stake in the bank last year to roughly 10 percent.

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