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CEI's John Berlau has an interesting piece in Investor's Business Daily. While I agree that hysteria about systemic risk is being used as cover for wildly inappropriate Federal Reserve action, I don't agree with John's point that Bear shareholders were made worse by the deal or that their options were compromised.
In fact, Bear shareholders clearly did better under the Fed-orchestrated (and revised to $10) buyout. The only caveat to that statement is that the Fed started lending directly to other investment banks shortly after the deal; if Bear had known that they could have hung on and gotten the welfare loan without JP Morgan Chase, and they would still be in business.
So Bear shareholders definitely got screwed given the current treatment of the other major investment banks.
But at the point in time when the deal happened, by all reports Bear Stearns was completely insolvent (i.e. would file for bankruptcy the next morning) and there was no Fed window for them. I doubt shareholders would have gotten anything at all if the unwinding occurred that weekend in a true free market: bankruptcy court, which was the other choice Bear had at the time the deal was struck.
I don't think anyone would argue that Bear should be able to go back in time with the benefit of hindsight and now get direct access to the Fed's bailout window. Indeed, shareholders already got a second bite at the apple and had the share price raised from $2 to $10.
John writes, "In this bailout, the government sided with creditors at the expense of shareholders of Bear Stearns common stock."
But shareholder claims are already subordinate to creditors'. The Fed action actually made creditors whole and partially bailed the shareholders. Any other scenario leaving creditors less than whole almost certainly wipes out shareholders completely.
The Bear Stearns deal is a black mark on American capitalism and should never have happened, and Bear shareholders walked away with about $1 billion at taxpayer expense. It was a bailout for them...but not nearly as big as the subsidy the other investment banks are getting from the Federal Reserve today.