Bear Stearns deal must happen by Monday AM

Or else Bear does a bk. The contenders are JPMorgan and J.C. Flowers.

The stress level at Bear among executives whose life savings is tied up in the company’s stock was palpable Saturday as the meetings to determine the value of Bear continued.

The speed at which Bear Stearns imploded is quite staggering. Last Monday, Bear probably quite honestly said they were solvent. But the run on them had already started, and that just accelerated it, probably on the theory that if you have to publicly deny it, then it could be true. Billlions were withdrawn in the next few days.

The problem for a buyer is, Bear owns so much toxic garbage that putting a value on it is difficult at best.

And folks, ignore Greg Palast’s unhinged rant that Eliot Spitzer had to be eliminated because he, noble warrior acting alone, was going to unmask the devious plots of Bush and the Fed to bail out Bear. First off, it wasn’t a bailout, rather a 28 day maximum loan to keep Bear afloat. Second, and most important, it wasn’t a devious plot, but was right out there in the open. Of course they are doing it to prop up the banking system. Duh.

Why Bear Stearns failed

Naked Capitalism details the multiple reasons for the collapse, the precipitating event being rumors of financial problems at Bear caused massive withdrawals of cash by hedge funds and other institutions.

Did others deliberately push Bear and that Carlyle hedge fund off a cliff?

An awful conspiracy theory presents itself: were Bear’s creditors trying to deliberately hasten its demise (a la Carlyle) before Bear could take advantage of the TSLF [the Fed $200bn of liquidity that starts on the 27th], so they could grab Bear’s collateral and turn it into desperately needed liquidity for themselves?

AC DC – Dog Eat Dog

Bear Stearns craters

Bear Stearns logo
Wall Street investment bank Bear Stearns received emergency 28 day funding today from JP Morgan and the NY Fed. BSC cratered on the news and closed at 30, down 27 points, a whopping 47% drop in just one day.

Reports are circulating that major banks have issued orders for no dealings with Bear Stearns, and the bank is probably dead as a going concern.

Lehman Brothers is also reported to be in trouble, although Bear certainly takes the prize for mismanagement and for getting involved in toxic waste “investments.”

Disclosure: I’ve been buying puts (you make money if the stock price falls) on BSC on and off for the past several months and thus have watched the stock carefully. In the past, just when you thought it was a goner, it would stage a furious sustained rally, sometimes for several weeks in a row. However, based on the past few weeks, and especially today, it now appears BSC is circling the drain.

You can still put puts on BSC. However, because the company is at such risk, the options are extremely expensive, and given its weakened state, another company could buy them, driving the stock price up. So, maybe I’l buy more puts, maybe not. (I prefer to buy puts on companies that are starting to weaken, not ones that have already collapsed.)