The WSJ has a tick-tock tonight of how Bear Stearns meltdown began last week, and accelerated into the weekend. It is fascinating stuff, full of juicy details, messed-up moments, and general confusion. Some will find it reassuring in the aggressive role the Feds took in making the deal happen; and others will be outraged at how confused and uncertain the process was.
Either way, read it.
Speaking of which, there are scoops, including that some insiders think Bear was brought down by competitors and short-sellers. Further, and more importantly, it turns out Henry Paulson really drove this whole thing, forcing JPMorgan to buy all of Bear when JPM only wanted pieces, etc. Bernanke, by the end of the weekend, was far from the main governmental player.
Here is a snippet from near the end:
Finally, they came to a conclusion. J.P. Morgan wouldn’t buy Bear Stearns on its own. The bank needed help before it would do the deal.
Mr. Paulson was frequently on the phone with Bear and J. P. Morgan executives, negotiating the details of the deal, the senior Treasury official said. Initially, Morgan wanted to pick off select parts of Bear, but Mr. Paulson insisted that it take the entire Bear portfolio, the official said.
This was no normal negotiation, says one person involved in the matter. Instead of two parties, there were three, this person explains, the third being the government. It is unclear what explicit requests were made by the Fed or Treasury. But the deal now in place has a number of features that are highly unusual, according to people who worked on the transaction.
In addition to its option to purchase Bear’s headquarters building, J.P. Morgan has the option to purchase just under 20% of Bear Stearns’s shares at a price of $2 each. That feature that gives J.P. Morgan an ability to largely block a rival offer, says a person with knowledge of the contract.
The deal also is highly "locked up," meaning that J.P. Morgan cannot walk, even if there is a heavy deterioration in Bear’s business or future prospects. Bear Stearns holders can, of course, vote the deal down. But the effect that would have on J.P. Morgan’s ongoing managerial oversight and the Fed’s guarantees is largely unknown.