Bear Stearns: another huge fall, this time in the financial, not the political arena

Wow. What a collapse. With effects hugely beyond our stupid Governor's daliance.

In twenty-six years giving financial advice, I've never seen anything this sudden. Bear Stearns was worth about $160 a share at the beginning of 2007. Friday it was worth $30 a share, and this evening JP Morgan bought it for $2 a share.

Amazing.

That makes the market cap of the company around $240 million; their corporate HQ near Grand Central is worth over a billion dollars. I cannot figure the math. The term fire sale is apropos ... And they have 12 or 14 thousand employees, most of whom will lose their jobs.

The Wall Street Journal has comprehensive coverage, J.P. Morgan Rescues Bear Stearns - WSJ.com but probably not accessible online unless you're a subscribers.

So here's Yahoo! Finance. hit the link and read the whole article for more background:

JPMorgan to Buy Bear for $2 a Share: Financial News - Yahoo! Finance

The last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system.

The Federal Reserve and the U.S. government swiftly approved the all-stock deal, showing the urgency of completing the deal before world markets opened.

Bear Stearns shares closed Friday at $30 a share. At their peak, the shares traded at $159.36.

The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets. Risky bets on securities tied to subprime mortgages -- loans given to customers with poor credit history -- crippled Bear Stearns, the nations' fifth-largest investment bank.

At almost the same time as the deal for control of Bear Stearns was announced, the Federal Reserve said it approved a cut in its lending rate to banks to 3.25 percent from 3.50 percent and created another lending facility for big investment banks. The central bank's official meeting is on Tuesday. Before the emergency move to lower the discount rate, which is the rate at which banks lend each other money, the Fed was widely expected to again cut its headline rate by as much as a full point to 2 percent.

The announcements from both the Fed and JPMorgan come ahead of what some analysts expected to be a brutal day for global stocks. Already, before the announcements, New Zealand's markets opened drastically lower -- then began to recover after the deal was unveiled.

"This is going to go down in very historic terms," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession."

A collapse of Bear Stearns could have created a further crisis of confidence in world financial markets amid a deepening credit crunch. JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago.

The deal marked a 93.3 percent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb. 29.