Ah. So Bear Stearns is the first bank to belly up to the front of the dole queue. No, wait, I guess I have to count Northern Rock, although Bear Stearns seems like a whole nother order of maginitude. Maybe the real question is how many more we’ll need before the agony is over—have you read that table of price-to-book values for major players in the mortgage mess (link)? Granted, Bear was the lowest except for dead-on-the-gurney Countryside, but the list went all the way up to (oof!) 1.6.
I don’t mind, really. Igives me another opportunity for cheap snark. And I believe: banking is one industry where I do not gain from my competitor’s failure. And even in the weakest institution, there is probably some going-concern value to be protected against dissipation. It would be nice, though, if just once the government treated this sort of takeover for what it is—a bankruptcy and a sale to creditors. Wipe out the old equity and put the malefactors on the bus. Not likely, I suppose, but one can hope.
Update: For a refreshingly clear outline of the transaction, and a more extended critique from someone who thinks it should not have happened, go here. And don't overlook the comments, particularly this one:
One question: if the government is worried about contagion, wouldn’t it make sense instead of bailing out the company, to instead provide whatever benefit it would have given that company to its competitors instead? Wouldn’t that avoid the moral hazard problem while providing the same level of support for the industry? Or are there systemic risks to an institution failing that I’m not taking into account?
I assume the last question is sarcasm? Brings to mind the comic who said that Eliot Spitzer shouldn't have brought his wife to the press conference--he should have brought the hooker.
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