Wednesday, March 26, 2008

Bear Sterns

Over on the side bar I've been posting Google Feed Reader items that I enjoy from other blogs and news sources. I used to make a whole posting of those things under the title of Quickies. When Google began offering this widget I was able to stop doing those types of posts, which are just regurgitation of other people's work. It's a bit of ego tripping to post what one reads, but these generally reflect what I've been reading an interested. Most of the time I don't draw attention to such stories again and I often change the stories posted within 24 hours.

However, I was going back over the feeds I brought to notice yesterday and read this one over about Bear Sterns. It contains these highly illuminating lines that gets tossed into the piece with no follow up:
Because bankruptcy is increasingly a venue for the sale of assets—rather than traditional reorganizations—a court may well approve a controlled liquidation of the company. But it would almost certainly require a meaningful market test, to assure that the assets received the highest and best price. Today, even with JPM sweetening its offer, we have no idea what the real market value of the company is. The JPM process appears designed to make sure we never find out.
A follow up question to this quote might be: what motive do these financial institutions have for obfuscating their real value and balance sheets? It seems to me that until we know the depth of this crisis our financial institutions will continue to experience credit crisis after credit crisis as times come along and reveal that they really do not trust each other and they ask the Fed to mitigate the problems. The Germans have suggested that more openness would actually aid in stemming the crisis for it will bring some down, but leave others in much better standing. In other words, we'd know who deserves credit and who doesn't. By not promoting more transparency in the system, the Fed is extending the malaise.

As someone who has worked in the tech industry and who promotes more openness and more data sharing in the tech world, I see the financial system's reluctance to pursue this course as archaic. The Fed's participation in this protectionism is hurting the system. Japan, after all, has had a sputtering economy for over 20 years based on this course of action. Do we really want to emulate the Japanese model on this?

More here on what Bear Sterns might be able to get away with legally to prevent share holders from challenging this deal. Question: was the $2/share offer a fake designed to make it look like the Board was protecting investor interests when it "renegotiated" the $10/share offer? Once again, why the machinations? What's going on behind the curtain?

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