Who are the real pikers? The understated valuation of bad loans in 2008 (2) Meetings at the Federal Reserve’s building. The big bargain

In 2008, when the economic crisis hook-ups and the giant banks were to collapse in US, there were meetings which take place in the Federal Reserve’s building in New York. These meetings were attended by the Federal Reserve, the bank in danger (Bear Stearns) and the banks with cash (JP Morgan) which could bail out the banks needing to be roll over.
In these meetings, there were dizzying series of bank mergers deals. JP Morgan which was the acquirer offered the price of $2 as a Bear Stearns’s share price when this real share worth was $79.

(See the video from the 26:00 minut to 28:42 minut. Film: WALL STREET: MONEY NEVER SLEEPS part 2. 2010)

-What about moral hazard? If we bail out Keller Zabel, who’s to say it is not gonna happen again and again?
-You vindictive bastard. Who are you to talk about moral hazard?
-I’m sorry, Lou. The Street (Wall Street) needs to make an statement here to the world.
-It’s was eight years ago! You just can’t let it go, can you, Bretton?
-All right, Lou. Knock it off .
-Thirty of our people have been through the Keller Zabel books for the last three days. And they still say it’s impossible to get the bottom of this. This could be a 10-billion dollar hole for us. And there is no way we can risk our money without the backstop  from the Treasury or the Fed. Under these conditions, and assuming you refine  your guarantee, we are prepared to risk $2 a share.
-Two bucks? You’re out of your mind . The stock was trading at $79 a month ago! Our building alone is worth more than two bucks a share. My board will never accept this. There is no way I’m gonna sell for two bucks a share.
-The Government, if we guarantee this deal, could never justify a high price for your company. And if you don’t sell, Lou, you’re in bankruptcy … and your exit will help restore  faith in it.
-Who the hell are you to tell me to get out?
-You’re out, Lou. One way or other. You’re out.
-Then the hell with you!  I’ll take my chances in bankruptcy court before I sell to that barracuda.

© Images: Wikipedia

Licencia Creative Commons@Yolanda Muriel Attribution-NonCommercial-NoDerivs 3.0 Unported (CC BY-NC-ND 3.0)

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