It was the cleanest theft since the Great Brink’s Robbery in 1950. The Fed and JP Morgan (JPM) got the Bear Stearns (BSC) management is a room over the weekend and beat the ownership of the company out of them.

It was an elegant deal, especially by the Fed. Instead of loaning money directly to Bear Strearns, it passed the money throught JP and almost locked up the takeover. The central bank had hired someone to clear up the mess and the big bank should get a ton of good earnings out of it.

It is the "ton of good earnings" part that bothers some people.They have to wonder why BSC could not do that themselves, if they had some financial support directly from the government at the key moment.

Now the deal faces two hurdles, either one of which could kill it dead. The first is the government bodies like New York City want to know why they lost so much money on their Bear Streans shares. As the astute controller of the Big Apple asked "I think a lot of people are going to be taking a look. … Was there some deception in there or was this just a miscalculation?" according to a report from Reuters. The odds that there will be shareholder suits over this issue are fairly high.

The second phalanx of outrage comes from the Bear Strearns common shareholders. Bear Stearns stock trades at $5.91, well above the $2 offer from JP Morgan. Obviously some investors think that another buyer will come in.

According to The Wall Street Journal, debt holders in Bear Strearns want the deal done. Their paper gets rolled into JP Morgan paper, a sweet deal. But, 30% of the common shares are held by Bear Strearns employees and they don’t like the idea of getting nothing.

The rally in Bear Strearns shares is for suckers. The company is not going to get any other offers. There are too many land mines on its balance sheet. The failure of the firm is its own fault. It made bad bets and institutions with money in BSC pulled out. It was the safe thing to do and it cost them little to do it. Move the money over to Goldman Sachs (GS) where management knows what it’s doing.

James Dimon, the tough-guy CEO of JP Morgan, learned his trade from the master–Sandy Weill. Sandy went so far as to fire his protege when he no longer needed him. Dimon has brutality in his bloodline.

Both JP Morgan and the Fed know that Bear Stearns has no other options. JPM has the right to sell the Bear Streans headquarters. Bear Stearns does not have access to capital except from the Fed.

The dynamics of the deal are not unlike those between Yahoo! (YHOO) and Microsoft (MSFT). Yahoo! may not like the current buy-out offer, but the white knights are on vacation.

Douglas A. McIntyre

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