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Forum Report: The Bear Stearns Opportunity to Establish Marketplace Order


(May 13, 2008)



For a report of the meeting's results, see


Forum Report

The Bear Stearns Opportunity to Establish Marketplace Order

            Many of you have raised questions about what we should or should not try to accomplish at tomorrow’s meeting of the Bear Stearns Forum.[1]  There are really two essential issues that must be addressed, for the proposed Bear Stearns transaction and as a foundation for our evolving marketplace: what is fair, and who you can rely upon for fairness.

We are in a position now, after two months, to look calmly and carefully at what needs to be done, and at how to do it right.  Shareholders of Bear Stearns are being asked to vote, now, in today’s light, on terms that were crafted in confusion and frustration, and that required a panic-induced suspension of rules.  The shareholders and managers of JPMorgan Chase must also consider how that company’s decisions, now and in the view of historians, will define its leadership position.  And all of us must decide what kind of marketplace we want.

As investors, you can choose to rely upon either of two decision-makers for fairness:

  JPMorgan Chase – As the only viable buyer of Bear Stearns, JPMorgan can effectively dictate its terms.  In an economic analysis, they would benefit from fairness if the commercial values derived from an orderly marketplace and from brand recognition exceed any difference in the transaction costs.  In common sense, it’s enlightened leadership.  You must decide whether you think that JPMorgan, having demonstrated strength and courage, will want to secure its place by adding a demonstration of its commitment to rules.

  Court – If you don’t want to rely upon JPMorgan, you can ask a court to decide what’s fair.  The process is often viewed as being focused more on legal definitions and litigation attrition tactics than on fairness, but it’s our only legitimate means of enforcing rights when a party doesn’t respect them voluntarily.

Both choices have advocates.  The portfolio manager who initiated the issue for this Forum program continues to have a significantly larger investment position in JPMorgan than he had in Bear Stearns, and expresses confidence in JPMorgan’s leadership.  Other investors have decided not to rely on JPMorgan and have filed lawsuits.  You will have the opportunity to consider both alternatives at tomorrow’s meeting.

Most importantly, though, you must decide what kind of marketplace you want, and what you want to do about it.  The Bear Stearns situation has shown that some old rules didn’t work and probably need to be fixed, but the crisis reaction was to suspend the rules rather than replace them.  Do you want a marketplace in which people can argue that suspending rules may be justified, giving everyone incentives to create the justifications?  Put simply, you need to decide whether you want new rules or no rules.

I ask you to think about whether you’ll want to look back on the Bear Stearns event as the foundation for suspending rules, or as a foundation for restoring order.  And then think about how you’ll want to remember your own contribution to the definition of our new marketplace.

If you want to do so tomorrow, you’ll be able to communicate your views to JP Morgan and to the lawyers representing shareholder interests in the courts.  It’s up to you.

           GL – May 13, 2008


Gary Lutin

Lutin & Company

575 Madison Avenue, 10th Floor

New York, New York 10022

Tel: 212-605-0335







This Forum program is open, free of charge, to all shareholders of The Bear Stearns Companies, Inc. ("BSC") and to any fiduciaries or professionals concerned with their investment decisions.  Its purpose is to provide shareholders with access to information and a free exchange of views on issues relating to their evaluations of alternatives, addressing issues described in the Forum Summary.

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