Office Rumors

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Merger Thoughts

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Two things happened today that were very interesting. First, the acquisition of XM by Sirius was approved by the Department of Justice, more than a year after it was first proposed. Second, Bear Sterns, who by all accounts was insolvent last week was bailed out by the US taxpayer (whose chief benefactor was investment bank JPMorgan). It doesn’t take a cynic to see that these mergers have opposite time tables, but are both examples of horrible regulatory action by the U.S. Government.

In the case of the satellite radio merger, two companies who are struggling to pay off huge start-up costs with relatively the same service (except for a split of the sports broadcasts–this author’s irreconcilable issue with this product right now) were prevented from merging because it might be a monopoly. When looking at the case in the perspective of media or audio markets (not narrowly as a satellite radio market) this quickly appears ridiculous.

The JPMorgan buyout of Bear Sterns is quickly becoming ridiculous. The Fed agreed to float the company what amounts free financing for a risk-free takeover. This is not a buyout, but a complete bailout of an insolvent firm. Meanwhile, Bear Sterns employees attempt to wash their hands of any wrong doing. The sad fact is that Bear Sterns was more heavily exposed to the mortgage-based securities than any other major financial firm, so when these securities and their underlying mortgages go bad, a company taking the risk it was should reap what it had sown. Sure, market fallout would have been worse, but it would have taught the market a lesson and avoided the growing moral hazard.

At the heart of both issues is a government that has grown unable to see the larger picture. Too often are officials with short-term goals and mindsets placed in positions of power overseeing things that require long-term, or big picture viewpoints.

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Written by walonline

March 25, 2008 at 12:23 am

One Response

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  1. […] this blog discussed this topic and I’m glad that there has been a continuing dialogue elsewhere. Was the Bear […]


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