Sunday, March 16, 2008

Bear Market

It is breathtaking just how quickly Wall Street firm Bear Stearns collapsed. Just last August, it was reported,
"Bear Stearns' liquidity is strong and the bank should be profitable in the current quarter, according to S&P."

and in the same article, their CEO James Cayne had commented,
"Contrary to rumors in the marketplace, our franchise is profitable and healthy and our balance sheet is strong and liquid."

Over the last year, the stock was trading as high as $159 per share. Friday morning it started the day trading at $54 per share. And now before Monday even begins, it was just sold to JPMorgan for $2 per share. Yes, that giant sucking sound you heard was $18.5 billion evaporating into thin air. If I'm a JP Morgan shareholder, I'm thinking I'm pretty happy right now. They're buying assets for pennies on the dollar. They paid $236 million for the entire company. As the article points out, their office building alone was estimated to be worth nearly $1 billion!

So, the moral of the story is:

  1. It's a really bad idea to lend money to people who can't pay you back.
  2. Risk is real and people panic.

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