Obviously BS made some bad bets, they were known to be among the most aggressive in the sub-prime, CDO, SIV world. My point is that many banks should have pounced on this deal because the terms are great, but JPM was the only one with enough balance sheet left to do the deal, and its a small deal! The Fed tried to shop this, nobody has any resources left because of their own problems.

The basic reason the Fed forced this deal rather them just let them go under, is that would have required selling their crap in the open market when nobody is buying. Once their assets found no value, other banks would have a model to mark to market (value their own crap) and that would have precipitated another round of liquidation, margin calls, etc.

Fair value is still being estimated to be 7 to 19 Billion (7 for Liquidation), and remember the Fed is backing them on the downside for the questionable collateral.

Bob

>Could it be a bit simpler? BSC made wrong bets and got in situation where fair value is about zero and JPM is willing to take small risk. Sounds plausible enough, imho.
>
>>Its called preservation of capital. Hilmar has a valid point though. Since the US will continue to devalue the dollar, even cash equiv's will be losing value against devaluation and inflation. The real returns come when you put the money back to work when the economy starts to expand, but we have quite awhile to go yet.
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>>For those that might think I am an alarmist consider this. Bear Stearns was sold at a rock bottom price of $2/Share (under $300 Million) and owns a building worth more than a billion and it's franchises are worth approx 7 billion. Here are three scary points to consider.
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>>1) Even though this was a steal by any measure, the Fed had to back the deal to make it happen.
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>>2) JPMorgan was the ONLY bank whose balance sheet was in good enough shape to make a $300 million deal (not that much money)
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>>3) These other banks and institutions could not scratch up the capital to make a better offer even though it would extremely profitable.
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>>Question, who gets to save the next one, and the one after that.....
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>>Bob
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>>>>>I took a page from your book and put everything I could into cash for a while. Too bad I wasn't smart enough to do that a year ago....
>>>>
>>>>Putting everything to cash is fine, as long as it ain't in US$. To be on the safe side, at least part of your money should be in some foreign currency.
>>>
>>>Really? Everything I buy and earn is in dollars. Foreign goods will become more expensive (already have) as the dollar sinks against other currencies, but I don't understand why I should hold money in those currencies unless I am worried about the dollar becoming worthless, which I am not. If I put my money in Euros, for example, isn't that an investment / speculation that Euros will appreciate against the dollar? I am looking for a safe haven, not an investment. Not forever, just to ride things out for a while.