The initial responses to my post below about what kind of pressure the Fed could have brought to bear on Bear Stearns to sell at vastly under its market value, if that in fact was the case (a proposition that I find difficult to believe from my vantage point of complete ignorance), suggest that there’s no obvious answer to the question that everyone agrees on.
In other words, we’ve received no emails telling us about the little-known ‘sell your $%&#& company for what we say or it’s off to Gitmo’ law being invoked.
But here are some possibilities. Berkeley economist and reality-based blogger Brad DeLong suggests two possibilities. One, that Bear Stearns execs were unwilling to go into bankruptcy because of a various forms of criminal liability they would face — and that everyone would be so pissed about the collateral damage of the bank’s collapse that everyone would want to not only execute them but also have them drawn and quartered (in case you only know the phrase and not what it actually means: not pretty). Two, there’s so much crap on Bear Stearns’ books that $2 per share is just a fair price, even with the Fed assuming a lot of the potential liability. Let’s call this the Atrios option.
Brad says the market seems to believe two while he’s leaning toward one.
More generally, a lot of what I’m hearing suggests that the some part of the answer may be that the Bear Stearns board and execs may have pursued interests not perfectly in line with their shareholders on this deal, whether that be to avoid criminal liability or protect their own compensation not directly tied to stock price.
