Corporate Welfare Pt 2

[Hugh Conway]

The Fed is in the dealmaking business

http://www.nytimes.com/2008/03/25/business/25sorkin.html

[Peter_Puget]

Hugh's always on top:

 

In the Times earlier:

A new deal could raise even more questions about the Fed’s involvement in the negotiations. As part of the original deal, the Fed guaranteed to take on $30 billion of Bear’s most toxic assets. The central bank also directed JPMorgan to pay no more than $2 a share for Bear to assure that it would not appear that the Bear shareholders were being rescued, according to people involved in the negotiations.

 

But this is more interesting:

JPMorgan and Bear were prompted to renegotiate after shareholders began threatening to block the deal and it emerged that several “mistakes” were included in the original, hastily written contract, according to people involved in the talks.

 

One sentence was “inadvertently included,” according to a person briefed on the talks, which requires JPMorgan to guarantee Bear’s trades even if shareholders voted down the deal. That provision could allow Bear’s shareholders to seek a higher bid while still forcing JPMorgan to honor its guarantee, these people said.

 

When the error was discovered, James Dimon, JPMorgan’s chief executive, who was described by one participant as “apoplectic,” began calling his lawyers at Wachtell, Lipton, Rosen & Katz to seek a way to have the sentence modified, these people said. Finger pointing over the mistakes in the contracts began as bankers blamed the lawyers and vice versa.

[Hugh Conway]

Hugh's always on top

 

I go for the source PP not the gray lady

 

http://bearstearns.com/includes/pdfs/investor_relations/amendment_merger.pdf

 

now they get the building only if they don't get the company

[Jim]

So here's the twist. Financial instutions lobbied and recieved the ability to go unregulated into fancy investment vehicles. Banks, which are more regulated, have access to the taxpayer-funded Fed discount window in times of trouble. Now that there's serious trouble in Dodge the cowboys are getting access to the Fed discount window anyway. Great deal boys! Basically shifting, again, the investment risk to the taxpayers. Abosolute corporate welfare.