In the aftermath of Bear Stearns’ collapse (by that I am referencing the collapse in its stock price following a liquidity crisis and ‘run on the (investment) bank’), its impending acquisition by JPMorgan Chase announced March 16, and the market turmoil of the past year generally, commentators have discussed the role of accounting standards in bringing valuation issues to light, as well as potential legal implications of ‘second-guessing’ of valuations by regulators or the plaintiff’s bar.
“Where do you see a major firm that's been around for years go from $65 a share to being sold for $2 a couple of days later. That's never happened," notes a trader as quoted by Matthew Karnitschnig and David Enrich in their March 19 article in the Wall Street Journal, Bear’s Runup Sets the Stage for Epic Clash.” [Update: see "JPMorgan in Negotiations to Raise Bear Stearns Bid," by Andrew Ross Sorkin in today's (March 24) New York Times.]
“The one [question] consuming Wall Street these days is this: What killed Bear Stearns?” asked Scott Patterson in "Unanswered Questions in Bear’s Death” in the Wall Street Journal on March 21.
Accounting standards are being bandied about by some as being among the usual (or unusual) suspects in the Bear Stearns whodunit, and in considering where the next shoe may drop.
Broader potential regulatory and legislative responses are also being offered to the market situation generally, noted in two articles in today’s (March 24) Wall Street Journal: “Potential Pendulum Swings Toward Stricter Regulation,” by Elizabeth Williamson and “Washington Sees Several Fronts For Attacking Mortgage Crisis.”
For further discussion of accounting standards, including FAS 157, "Fair Value Measurement," as relates to the current market situation, including a link to a summary of over 14 articles on this topic, see further detail here.
Posted by Edith Orenstein, FEI Financial Reporting Blog, 12:47 p.m. March 24, 2008.