I read in the Wall Street Journal the other day that Bear Stearns was leveraged to 31 times their equity. Hmmm, let me see, that means that a price move of about 4% downward would wipe out all of the equity. This is not the same as all the assets, but it may as well be, as the claim of stockholders on the assets would become zero. The opportunity for gains would be great, but the opportunity for the staff at Bear Stearns to fall on their collective sword would also be large. I doubt seriously that the stockholders understood the risk they were taking in buying this stock. It wasn’t much better than betting on the bank in Baccarat.

In his blog, Francis Pileggi says that by Delaware Law the Board at Bear Stearns was likely not living up to their fiduciary duties. With the drop in stock price, this seems manifest. What are the stockholder options? For that one, it might be wise to consult a lawyer.