PrintApril 25, 2008
Bailout suspicions
There is some Interesting circumstantial evidence circulating on the web suggesting the Bear Stearns liquidation and takeover was actually to disguise the federal bailout of JP Morgan. Posing this hypothesis is John Olagues, owner of Truth In Options and a recognized authority on listed and employee stock options.
He argues that there are far too many coincidences and oddities with this deal that don't add up, although odd coincidences are certainly not uncommon occurrences in the halls of high finance. Why would the Federal Reserve Bank, the S.E.C, the Treasury Department, and Congress participate much less cooperate in such a massive intervention- i.e. to the tune of $55 billion? The reason they all so readily agreed is because you can't have the leading bank of the leading economic power be insolvent, and that's that! This explains why there have been so little fireworks over this deal. After all, who wants to take the blame for triggering the collapse of the global financial system? Congress, the Fed, Treasury-oh no- no way.
Olagues supports his theory detailing unusual and massive buying of puts and shorting of Bear Stearns stock just days before the announcement of the JP Morgan takeover. He cites the highly irregular request made to open a new April series of puts with strike prices of 20 and 22.5 when the stock was trading at 70. I surmise the insiders were Bear shareholders and employees tipped off to what was afoot to gain their cooperation in the bailout. How else to the muted protests of the employees and shareholders in the days after the takeover was announced. Bloomberg and others are reporting that JP Morgan is signing up most of the Bear executives.
Former Bear Chairman, Alan "Ace" Greenberg agreed to stay on- for a handsome sum- saying in an interview "I'm very excited.' Bear employees reputedly owned 1/3rd of the company, the JP Morgan deal hands them a loss of 85% of their share value, and Ace says "he's very excited." Really, he just lost 85% of his share value and he's excited. Come off it, this is simply not believable.
Olagues lays out his case: The official assurances of Bear Stearns liquidity in the media on Monday, the 11th Tuesday, the 12th and Wednesday the13th followed by the collapse on Friday the 14th. The obvious insider trading during the period. This followed by the ridiculous show hearings in the Senate on April 4th all leading to the inescapable conclusion that this was really a government funded $55 billion recapitalization of JP Morgan.
Don't worry, there'll never be investigation, there is far too much at stake to risk that.
h/t Reggie Middleton's Boombustblog
