One hell of a deal

James Pethokoukis is the first person I’ve seen to utter the word that I’ve been thinking about the so-called “bailout” of Bear Stearns: nationalization.

Bank Bailout Is a Path to Nationalization – “What seemed unthinkable a few months ago is not only possible today but maybe even probable.”

The City of New London has nothing on this deal. The Federal Reserve and the Treasury Secretary threatened the firm with involuntary bankruptcy, with its attendant costs, vulture attorneys and a guaranteed liquidity problem that would make settling transactions (Bear’s core business) impossible. Where the company really was worth billions last Friday, including considerable goodwill, it would have been worth less than nothing with its business shut down and no ability to service clients.

Now, favored bank J.P. Morgan steps in and gets billions of dollars in assets for less than $400 million in stock and gets a $30 billion line of credit from the Fed in the bargain.

Would anybody like to lend me $30 billion so I can pay $300 million or so, in stock, for a company with tens of billions in assets? Because I would take that deal.

Now, if I happened to already own a bank with a market cap in the $165 billion range, I might think twice. Because my depositors and shareholders might wonder why I was really looking for a $30 billion loan. My shareholders and depositors might be asking, does it really cost $30 billion to issue $300 million in stock certificates? Sure there’s postage, printing, a little recordkeeping, but wouldn’t it be reasonable to expect the cost to come in south of…say…$200 million?

But I don’t own a bank. And then again, even if I did, this is such a sweetheart deal I wouldn’t really even have to look too closely at the books of the company I was buying. Frankly, as long as I had a passport and a fully fueled Gulfstream V ready at the nearest airport, I’d be glad to borrow the $30 billion to pay $300 million for a vacant lot with environmental issues (let alone a prime piece of Madison Avenue real estate). And I’d even pay cash for it, instead of stock.

So, Ben, if the helicopters are still running, give me a call. I’ll tell you where to make the drop.

J.P. Morgan shareholders – you might want to be asking what the catch is.

Everyone else – you thought Kelo v. New London was a threat to your property? When billionaires are at risk of an overnight government takeover without so much as a hearing, private property is really a myth. Unfortunately, all the hubbub calling this nationalization a “bailout” is keeping anyone from noticing the naked emperor a little longer.

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