The Bear Stearns Safety Net

The New York Times announced this morning that JPMorgan Chase has sweetened its offer to Bear Stearns to $10 a share. At the Federal Reserve’s urging, JPMorgan had originally offered to bail out Bear Stearns for $2 a share. This is the same investment bank that had traded as high as $170 per share a year ago.

The new deal comes at the behest of Bear Stearns’ shareholders. The Fed, as justification for the deal, cited the stability of the financial market. The deal may in fact stabilize the market but the fact of the matter is, nobody did their homework. Had Wall Street checked into the bonds, they would have seen that the loans at their core were unaffordable and adjustable – straight junk. Bear Stearns should have seen that if the housing market dwindled, like it did, the bonds would become basically worthless -- like they did. Instead, the investment bank snatched up the bonds, which is kinda like buying a house without looking at it first. So, when the housing market died, and interest rates kicked in, and people lost the ability to refinance, some people lost their homes; foreclosures are up 65 percent in King County. Bear Stearns lost everything too. The difference is, while Harry Paulson is falling all over himself to bail out the investment bank, I don’t see anyone helping out the homeowners.