What was astonishing about the collapse of the venerable Wall Street securities firm Bear Stearns was its speed. Even the construction crane on the New York City’s Upper West Side seemed to take longer to topple.
On Friday, Bear Stearns was valued at $3.6 billion. By Monday morning, it had already been sold to J.P. Morgan Chase for $236 million. Employees who left for the weekend with a comfortable nest egg returned to work to find they had next to nothing. The stock was valued at $2 a share for the sale. “Fire sale” doesn’t begin to describe the transaction. Thrown into the deal was Bear Stearns’ $1 billion high-rise office building.
But it was either that or declare bankruptcy. Even then the Federal Reserve — that is, the taxpayers — had to commit to provide as much as $30 billion in financing.
We are assured that the orchestrated sale, basically a form of bailout, was necessary to prevent runs on other securities firms, brokerages and banks, and the Fed and the Treasury agreed to back besieged but basically solvent firms with $200 billion in additional financing.
Somebody surely saw this coming. Bear Stearns was worth $20 billion a year ago, it stock worth about $170 a share. Of course, hardest hit were the employees, who own about a third of the company.
Haven’t we seen this movie before?
A firm called Long Term Capital Management, a hedge fund formed by people we were assured were absolute economic geniuses, created these elaborate financial instruments that intricately spanned currencies and markets, far too complicated for the rest of us to understand. It turned out that the geniuses didn’t understand them either and it took a $3.6 billion bailout to liquidate the company before it could take down the world’s markets.
And did not the TV shots of grim-faced Bear Stearns employees carrying their personal belongings out of their office building remind you of a similar exodus by Enron employees in 2001?
Maybe Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke have returned calm and confidence to the markets. But the betting here is that the great mass of us are wondering: What else is out there that we don’t know about?