Prometheus 6

Greenspan was worried about the Federal Government paying off all its debt because then it might start buying private assets with the "excess" (actually, the Social Security trust fund that has been pilfered from until it became a pillaging). 

The cut-price deal for Bear Stearns reflects deep misgivings about its future and the enormous obligations that JPMorgan is assuming in guaranteeing the firm’s obligations. In an unusual move, the Fed will provide financing for the transaction, including support for as much as $30 billion of Bear Stearns’s “less-liquid assets.”

This is worse...far, far, worse...than anything that could have developed from Greenspan's fears.

Sale Price Reflects the Depth of Bear’s Problems
By ANDREW ROSS SORKIN

In a shocking deal reached on Sunday to save Bear Stearns, JPMorgan Chase agreed to pay a mere $2 a share to buy all of Bear — less than one-tenth the firm’s market price on Friday.

As part of the watershed deal, JPMorgan and the Federal Reserve will guarantee the huge trading obligations of the troubled firm, which was driven to the brink of bankruptcy by what amounted to a run on the bank.

Reflecting Bear’s dire straits, JPMorgan agreed to pay only about $270 million in stock for the firm, which had run up big losses on investments linked to mortgages.

JPMorgan is buying Bear, which has 14,000 employees, for a third the price at which the smaller firm went public in 1985. Only a year ago, Bear’s shares sold for $170. The sale price includes Bear Stearns’s soaring Madison Avenue headquarters.

The agreement ended a day in which bankers and policy makers were racing to complete the takeover agreement before financial markets in Asia opened on Monday, fearing that the financial panic could spread if the 85-year-old investment bank failed to find a buyer.

Even with the frantic rescue operation, world markets were roiled as the trading day began. In Tokyo, the Nikkei index ended down 3.7 percent, while European markets were down more than 2 percent in afternoon trading.

In the United States, stocks plunged at the opening bell before recovering some ground in the first hour, and investors faced another week of gut-wrenching volatility.