The shocking collapse of one of America's biggest investment bank Bear Stearns is a sobering reminder of just how quickly a Wall Street firm can lose the confidence of investors, traders, and other institutions.
In a deal reached on Sunday to save Bear Stearns, JPMorgan Chase agreed to pay a mere $2 a share to buy all of Bear — which a little over a year ago was trading for as high as $170 a share.
As part of the watershed deal, JPMorgan and the Federal Reserve will guarantee the huge trading obligations of the troubled firm, which was driven to the brink of bankruptcy by what amounted to a run on the bank.
A week before the dramatic announcement, Bear executives were talking about how the firm was poised to report a profitable first quarter, after the firm posted its first quarterly loss in its history in the fourth quarter. But in the span of seven days, Bear went from being Wall Street's fifth largest firm to another in a long line of investment firms to bite the dust.
The purchase price offered by JPMorgan is an indication of just how far things have fallen at Bear, which a year ago helped spark the sub prime meltdown with the collapse of its two big hedge funds.
It appears that the housing mortgage crisis in America has taken down a giant victim. Nervous employees will now be scratching their heads as many of them will laid off with this merger. This is how the free market works and such cyclical ups and downs are part of the business process.