J.P. Morgan wanted insurance from the Fed worth roughly $5 billion in order to do the deal that weekend--or so it said, and the Fed couldn't find anybody else willing to do the deal that weekend.
My guess is that the Fed (a) avoided a small (5%?) chance of real macroeconomic disaster, and (b) took away $12 bn from Bear Stearns shareholders that they would have held on to if disaster had been avoided, and then (c) gave $5 bn of that to J.P.Morgan. Presumably (though I don't know for sure) is that the Fed reasoned that Bear Stearns's overleverage had caused a big problem, that the shareholders of Bear Stearns ought to have been riding herd on Bear Stearns to keep it from causing the Fed problems, and that the appropriate thing to do in order to make shareholders get their act together better in the future is to take their money if they hold stock in an organization that causes problems for the Fed by being the epicenter of a systemic risk earthquake. The Fed might say that it is also appropriate to reward Dimond and company for being well-capitalized and highly liquid at a time when nobody else is--that in the future investment banks will think that if they don't succumb to the speculative mania, maybe they will be in position to bottom-feed like Dimond did when the crash comes. It's not arms-length market transactions, no, no, no, not at all... On Sat, Aug 2, 2008 at 6:32 PM, Michael Perelman <[EMAIL PROTECTED]> wrote: > Is Roubini correct that JPMorgan was a major counterparty with Bear Stearns & > needed > to be bailed out? > -- > Michael Perelman > Economics Department > California State University > Chico, CA 95929 > > Tel. 530-898-5321 > E-Mail michael at ecst.csuchico.edu > michaelperelman.wordpress.com > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > -- Yours, Brad DeLong _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
