What role did the government play in setting the price for JP Morgan Chase's acquisition of Bear Stearns? The big story in today's Wall Street Journal indicates that regulators may have misled lawmakers on this question.
Journal reporter Kate Kelly reports that JP Morgan chief Jamie Dimon was mulling a price of $4 or $5 a share for Bear Stearns but was talked down to a lower price by Treasury Secretary Hank Paulson. "I think this should be done at a low price," Paulson told Dimon. The price got knocked down to $2 a share.
But lawmakers were told a different story when the Senate Banking Committee held hearings on the deal. There was a good deal of attention focused on $2 asking price for Bear Stearns. Lawmakers wanted to know how the price was reached and if regulators were involved in determining that price. New York Fed President Timothy Geithner denied they had set the price or even negotiated it.
"We did not set or negotiate the price," said Geithner.
According to Kelly, Paulson urged Dimon to lower the price because he was "leery of appearing to bail out Wall Street investors at a time when homeowners were losing their houses to foreclosure in record numbers." Concern about moral hazard--the notion that the rescue could encourage risky behavior in the future--also played a role.
It seems implausible that Geithner didn't know about Paulson's negotiation with Dimon. The call to Dimon from Paulson was made after Geithner and Paulson had talked on Sunday afternoon. Together they decided Paulson should call Dimon.
So were lawmakers misled or was Geithner misinformed about Paulson's role?