Ever wondered how to manhandle a bear?


grizzly-bear

I wonder how many of you have heard about Bear Stearn’s in the past.  If you are not that interested in finance it would not come as much of a surprise to me that you haven’t?  Anyway, Bear Stearns was a major bank who was widely invested in selling mortgage backed securities.  In 2008, the bank was on the verge of destruction and was essentially going to fail.  JP Morgan decided to pick them up and put them under their wing but their deal was about the equivalence of what they would offer a homeless person.  Here’s what happened:

The case that I am looking into deals with the large banks of Bear Stearns and JP Morgan.  In 2008, Bear Stearns nearly looked death in the eyes as the economic crisis was about to begin its rampage on Wall Street.  This crisis occurred because of the tightening of credit markets which occurred as a result of investment banks exposure to subprime mortgages.  Unfortunately, Bear Stearns was one of the biggest underwriters of complex investments that were linked to these subprime mortgages.  By the end of July 2007, two of Bear’s hedge funds were deeply invested in subprime mortgages.  In December of 2007, Bear Stearns announced its first loss in their 80 year history as they reported a write down of $1.9 billion of holdings in mortgages and mortgaged based securities up from $1.2 billion.

Just a few months later in March 2008, the rumors began to run rampant regarding the financial condition of the corporation along with the financial industry in general.  Quickly enough on March 10th Bear Stearns faced a serious liquidity crisis.  By March 13th and 14th counterparties were refusing to lend them additional money on customary terms and simultaneously demanded the repayment of outstanding debt.  Bear Stearns was essentially left with two decisions: dissolve or merge.

The Federal Reserve would do anything in its power in order to prevent a fire sale which could further depress markets.   A decision had to be made quickly before the markets opened up in Asia on Monday March 17th and this became a worldwide phenomenon.  A deal for the proposed merger was struck late on March 16th where JP Morgan would acquire the company for $2 a share and the Federal Reserve would support up to $30 billion of funding for less liquid assets.  However, the agreement did not go over so well with a number of different people mainly those who were stakeholders of Bear Stearns and thus getting stuck with an extremely low share price for a corporation that had been valued so highly just a year ago.  Needleless to say an amended merger proposal was made which altered some of the terms of the original agreement to benefit those who were unsatisfied.  The merger ended in a series of lawsuits and with the question of whose fault was this and who was truly acting with an ethically and morally sound base in this situation?

What would Jensen’s stakeholder value versus stockholder value say about this?

Carlson, Robert and Lee, Stephen.  “Revisiting the Bear Sterns/JP Morgan Transaction: An Analysis of Deal Protections and Fiduciary Duties”.  StayCurrent. 2008 May.  Web. 9 February 2013.

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Blog 6 Prompt: Where are they now?


Prompt 6: Where are they now?

For this week’s blog prompt you will be taking a second look at one of the companies or people we have already covered in class or one related to one we have studied.   In the past we looked at these companies from a historical perspective; however, what we want you to do this week is to look at where these companies or executives are now.  Did they learn from their mistakes or are they still engaged in unethical activities?  Has there been any initiatives taken so that previous mistakes are not repeated?  Or was their situation so dire that they are considered obsolete?

From the society and values side of the class, you can look at whether laws have changed, or social pressure, or media representations, or some other element of what we call social change.

In essence we want you to choose a company or a specific manager who had a major impact at the firm.   Then using your own ethical standards assess how this company or their executives have adjusted after they were accused for immoral practices.  Please use your blogging “muscle” to support your conclusions, such as rating, pics, and polls!

Be sure to use GOOD sources.  For examples, there is this page of news and blog resources on our blog.  This includes Global Issues in Context, an excellent resource you can ONLY GET through Bucknell.  It combines news, blogs, academic articles and so on.  Try putting your chosen case or organization in and see what you get.

Here are some examples to get the ball rolling… you can add to these.  If you do, please be sure to tell us how your example is linked to the original case or example we looked into.

  • Apple: Apple, Foxconn, Mike Diasey, This American Life
  • Nike: Michael Moore, Phil Knight, Jeremy Ballinger, Fair Labor Association, Reebok, adidas, the Aspen Institute
  • Enron: Arthur Anersen (and its partners), Skilling, Richard Causey, SOX law
  • Weekend: Goldman Sachs, Lehman Employees, Tim Geithner, Hank Paulson, Bernanke, Fannie Mae or Freddy Mac
  • Occupy or Tea Party
  • Housing Bubble: Mortgage originators.  Countrywide Financial.  Anything that has been done around trying to either be fairer about foreclosures or to help people avoid foreclosures (I think there may be some class action lawsuits…).
  • AIG: Hank Greenberg, Willumstad, AIG Financial Products Group, Office of thrift Supervision, Ratings Agencies
  • Dodd-Frank, the Volcker Rule, or the new Consumer Finance Protection Bureau

Title and Tag Line Contest!

In addition, we are also hosting a competition to see who can come up with the best new title and tag line for the blog!  The winner will be exempt from doing one question from the next weekly homework.  If you wish to participate, please post your suggestion as a comment on this post.  Best of luck!