The Fed’s Forced Marriage of Bear Stearns and J.P. Morgan

Dean Baker reports:

The news that J.P. Morgan bought investment house giant Bear Stearns for just $236 million, or $2 a share, sent tremors through financial markets around the world today. This is company whose stock was worth almost one hundred times as much a year ago. Its building alone is valued at close to $1 billion, which suggests that all the other assets of this 85 year-old investment bank had a negative value – Bear Stearns liabilities exceed its assets.

Further confirming this view is the fact that the Fed apparently had to make guarantees to J.P. Morgan of $30 billion in order to get the bank to take Bear Stearns even at this price. That suggests the bank had a lot of real garbage on its books. The markets are right to be worried. Of course with the $8 trillion housing bubble in full meltdown, there will undoubtedly be much more bad news for the banks in the months ahead.