I got a very good question in my inbox last night:
If JP Morgan did cherry pick and dump the riskiest Bear assets on the Fed, then there’s no mistaking the significance of the Fed $29 billion guarantee. If, as JPM claims, they didn’t cherry pick, it seems that the relevance of the Fed guarantee might be very minor in relation to potential losses from the retained riskiest assets. Yet the deal couldn’t be done without the guarantee. Am I missing something?
Any answers? I have to admit I’m stumped.
Update: Thinking about it a bit more, it does occur to me that with JPM paying only in the $1 billion range for all of BSC’s equity, losing the risk associated with a $30 billion bond portfolio could make a significant difference to the purchase price, and possibly bring it up into positive territory. But I’m not even really convincing myself here, especially since JPM is now going to take the first $1 billion of any losses on that portfolio.