For those of you who wonder why the deal went for $2.00, let me explain…
Bear was worth nothing, absolutely NADA!!! The reason that the Fed and treasury went in was due to the legal implications to the entire world banking system and markets had Bear entered into bankruptcy court.
Of little explained or known consequence to many were the implications of a bankruptcy filing on the various securitized trusts Bear and it’s minor child, EMC Mortgage, were servicing and securitizing. Bear had double and triple pledged notes to various trusts.
Cash flows from EMC’s business model were not allowing excess cash to cover the investor advances of principal and interest that were necessary to keep the securitizations alive. Has there been a bankruptcy filing, Bear’s Books and it’s dealings with ALL it’s partners and counterparites and those it serviced and sold mortgages to, would have publicly opened up their books for inspection.
There would have been an attack on the “true sale” issue and some would have claimed that these assets were financed receivables, and not true sales, and as such they should rightfully come back on Bear’s balance sheet to be split up amongst creditors!
This would have wrought panic across financial markets since it could have been the death knell of the MBS/ABS markets and would have collapsed the world financial system.
This is the real story that needs to be properly investigated and told. ENRON was a carbon copy of what Bear and others were doing. They created digits out of paper [promissory notes and created a new financial market with little regulation or oversight.
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