Roubini asks important question: Is Bear Stearns the 'Sacrificial Lamb' or is the Fed?

http://www.rgemonitor.com/

• Bloomberg: JPMorgan boosts its all-stock bid for BS to $10 a share from $2.52, and strikes a deal with Bear Stearns's board to purchase about 40% of the company in a transaction that doesn't require shareholder approval.
• Whalen (IRA): JPMorgan crowd won't be laughing much longer: analysis of risk exposures suggests that JPM needs almost five times current capital levels to fully support its economic risks (Citi almost 3x) 
  
• Farrell: Fed set an example with Bear before opening the liquidity tap for all other primary dealers--> Bear is the 'sacrificial lamb'
• Siegel (Wharton): "I think that when we look back, we will say [Bernanke] did everything he reasonably could. We're going to have maybe a mild recession, but we're going to avoid anything worse. Bernanke may very well easily turn out to be a hero here, when everything is said and done and the recovery comes."
• Roubini: First fully wipe out shareholders, then fire all the senior management and have the government take over such a bankrupt institution for orderly liquidation before a penny of public money is wasted in bailing it out.
• Bear could not hang on until March 27 for Fed's TSLF operation announced on March 11 (i.e. swap sound Treasuries against tainted AAA mortgage paper)
• Gongloff (WSJ): Shotgun JPMorgan and Bear Stearns wedding reminiscent of the "convoy system" employed for decades by Japanese banks, in which strong institutions propped up and absorbed weak ones, at the government's urging.
• Economist: JPMorgan reportedly agreed to buy Bear Stearns for $2/share (about $236m). Agreement was backed by the Fed and Treasury in an attempt to stave off a run on other banks. Fed is to fund up to $30bn of Bear's less liquid assets to prevent JPMorgan's strong balance sheet from being hurt by the deal and avoid firesales
• Fitch (via RGE): At the beginning of the turmoil Bear Stearns had the highest toxic waste ("residual balance") exposure as percent of adjusted equity on balance sheet: BSC = 54.5%; LEH = 53.3%; GS = 21%; MER = 17.8%; MS = 8.3%.
• Cumberland: Bear (= second largest mortgage underwriter) has a business model that is becoming obsolete. It is heavily reliant on U.S. fixed income underwriting and trading. There is virtually no footprint outside of the U.S., and they are rapidly losing their competitive position as other brokerage firms pounce on Bear's weaknesses

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