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American tax payers bail out investment bank Bear Stearns, JP Morgan Chase buys it.

Posted by Adrian on March 18, 2008

The rumour that Bear Stearns was in trouble circulated early last week, in fact two banks appeared to be in trouble. Fannie Mae the mortgage bank and Bear Stearns the Wall Street investment bank. You could have tossed a coin which one was going to go belly up. But, the incredible thing is that a ‘solid’ old investment bank (Bear Stearns), was the one that was insolvent. Incredible in the sense that Wall Street a beacon of financial solidity is, in someways collapsing. A once independent bank Bear Stearns was bought by JP Morgan and Chase for just $2.00 a share. Apart from the astounding cheap price for an an 85 year old bank of Wall Street. The Federal Reserve also provided emergency bailout funds to keep Bear Stearns a float before the deal between JP Morgan Chase, and Bear Stearns could be finalized.

But with massive billion dollar losses of the global banks, it’s not surprising a bank was going to become insolvent. I speculated in morbius glass forecasts for 2008 that it would be a smaller bank to medium size bank that would get wiped out (with no return) from the global liquidity/credit crisis. To have a big bank go first (albeit rescued by a competitor) is very worrying, especially when Bear Stearns was sold at $2.00 a share.


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