Okay, I'm trying to understand why Bear Stearns is
trading at 3-1/2
times the JP Morgan takeover price.
The market obviously thinks that Bear Stearns can make it on its own
(with the help of the Fed discount window, of course) or that there
will be a white knight who will offer a better price.
However, the Fed isn't in the game of financing takeover bids, so one
would assume that any new offerer would not have the Fed's $30 billion
of non-recourse BSC debt guarantees behind it, as with the JPM offer.
That effectively raises the price for BSC by $30 billion.
So, perhaps the Fed doesn't care, because it has accomplished what it
set out to do -- with JPM's help, it created a backstop for the credit
markets. BSC and the credit markets will not collapse because JPM and
the Fed guaranteed the BSC debt until JPM completes the takeover.
However, if JPM is outbid or the markets settle and realize BSC can
make it on its own, BSC and the credit markets will not collapse.
Voila, either way the credit markets survive and Ben Bernanke is a
hero.
The next leap in logic is that the Fed has signalled that it will
backstop the debt (but not the equity) of all too-big-to-fail
institutions, like Bear Stearns, Lehman, Fannie Mae and maybe UBS.
Perhaps that's the buying opportunity in all this.