What happened
Bear Stearns, the fifth-largest U.S. investment bank, was purchased by rival J.P. Morgan Chase for about $236 million, or $2 a share, after being bailed out by the federal government on Friday. Bear Stearns had a market value of $3.5 billion on Friday, and $20 billion in January 2007. The Federal Reserve is guaranteeing $30 billion in the bank’s “less-liquid assets”—mostly mortgage-backed securities that Bear can’t sell. “At the end of the day, what Bear Stearns was looking at was either taking $2 a share or going bust,” said one unidentified person involved in the deal. (The Wall Street Journal)

What the commentators said
“Less than ten days from rumor to ruin,” said Megan McArdle in The Atlantic’s Current blog. The “terrifying speed of Bear’s collapse” has stunned everyone. Bear Stearns was hit hardest by the subprime crisis, and “speculation about its balance sheet has been floating for months.” After rumors started spreading that other financial institutions were getting skittish about doing business with Bear, it was over. In finance, “if no one will loan you money or trade with you because your firm might go under, your firm will go under.”

Bear Stearns will blame its implosion on everyone but the “one party to blame: Bear Stearns management,” said Henry Blodgett in Silicon Alley Insider. “Give me a break.” The “first responsibility” of any brokerage firm is to retain the confidence of their short-term lenders, at all cost, and running “hat in hand to the Fed” doesn't cut it. The party now shoring up confidence in whatever junk Bear Stearns has “piled onto its beleaguered balance sheet” is, ultimately, “you.”

This all started when “Bear Stearns bet too heavily in the mortgage debt market,” said USA Today in an editorial. Bear put “itself behind too many mortgage-backed portfolios,” and failed to grasp the risks involved in them. “In so doing, it helped inflate a housing bubble, driven in part by the proliferation of wildly inappropriate subprime mortgages.” Bear executives got huge bonuses for inflating profits, and now we’re all going to pay.

And it’s going to be a doozy of a bill, said Paul Krugman in The New York Times (free registration). The federal bailout of the savings and loan crisis in the 1980s cost taxpayers “the equivalent of $450 billion today.” J.P. Morgan buying Bear is “an OK resolution” for this particular crisis, but we’re in “an unholy financial mess that will cause trillions of dollars in losses,” and a “big bailout is coming.”

Well, “you can’t really call this a bailout of Bear,” said Justin Fox in Time’s Curious Capitalist blog. It’s more like “an extremely sweet deal” for J.P. Morgan. Bear Stears’ midtown Manhattan headquarters alone is worth $1.2 billion. The $2 a share price is mostly a “token incentive” to win support from Bear Stearns’ shareholders, who were “virtually wiped out” in the meltdown—$2 is better than “nothing.” The Fed has its reasons for handing Bear to J.P. Morgan “on a platter,” but if we “didn’t know better,” we “might be tempted” to call it “crony capitalism.”