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Media Missed Several Marks On Bear Stearns' Throes

Marek Fuchs

Bear Stearns'(BSC Quote - Cramer on BSC - Stock Picks) sudden denouement creates a valuable lesson for the savvy investor looking to understand high finance through the typically low level of business media coverage.

When top officials at a troubled company say they have no liquidity crisis at the beginning of the week and the media dutifully plays stenographer to pass along the reassurances, keep in mind that the officials are often either obtuse, corrupt or the Kings of Wishful Thought. In the end: Beware the end of the week.

But that mistake of stenographic reporting took on a reduced profile, if you can imagine, in light of the big pair of errors that were made over the weekend. Savvy investors have to take note and avoid such hazards in the future.

When fast breaking events occur in the business world, do not automatically trust early reports. Take a wait and watch approach. And when those fast breaking events involve government interaction, the level of zaniness and unpredictability will increase considerably, so take a double dose of wait and watch.

On Friday, the respiratory rate of everyone in finance ran wild with this news: The government would back JPMorgan(JPM Quote - Cramer on JPM - Stock Picks) in bailing out Bear Stearns. What happened then? Well, throughout much of the weekend, the business media -- even the better writers like Gretchen Morgenson of The New York Times -- dusted off all the old story lines used in cases like Long Term Capital.

JPMorgan Chase to Purchase Bear Stearns Cramer: The Past Is a Game Plan for the Present Fed Cuts Discount Rate to 3.25% Who Traded 55,000 Bear $30 Puts Tuesday? Altucher: Stocks I'd Buy in a Recession Bear's CEO Didn't Lie Fed Poised to Slash Rates Further Amid Crisis Should You Own Financials Right Now? Beyond Bear's Collapse: Who's Next?

Why save one firm, she wrote, especially an overly aggressive one? Think of the larger consequences. Besides, Morgenson and others wrote advancing from the LTCM story even as they wound their way back to it, Bear was creepy enough to have refused to take part in the Long Term Capital bailout a decade ago.

It bears mentioning that The Business Press Maven would have agreed with the outrage expressed in near collective unison in articles like Morgenson's Sunday morning "Rescue Me: A Fed Bailout Crosses a Line" if it had held up in light of the news to come by Sunday afternoon.

Now keep this in mind as we field another error, this one approximately the size of Buenos Aires.

CNBC and The International Herald Tribune reported on Sunday afternoon that Bear Stearns and JPMorgan were racing toward consummation of the sale. Time was obviously tight, as Bear could probably not survive Monday morning without a deal in place. They were right about that, but CNBC put the price of the coming deal at $15-$20 a share and The International Herald Tribune said about $20.

That article showcased an analyst who spoke about the best case scenario of a deal priced at $60 before continuing soberly that Bear might have to sell itself for "$30 or less."

Less indeed.

Remember: Under normal circumstances during fast breaking events--watch and wait and think for yourself. Don't let the printed or spoken word mislead you. But when the government is involved in the fast breaking events, tie off any temptation you have to believe anything reported before the facts are truly known.

The fact here -- a sad one for Bear shareholders -- is that the price of the sale was put at a song and a few trinkets. To be more specific: 2 bucks a share.

Obviously, this renders the reports about the deal coming at 20 bucks unserviceable. But it also means you should don protective gear so you are not corroded by those Long Term Capital story lines.

You can't accuse the government of bailing out Bear Stearns in any traditional sense here. This is much more nuanced and, in the end, interesting. Can you accuse the government, by contrast, of picking sides? Of siding with a stronger, more conservative player against a weak and reckless one? Certainly.

They are punishing Bear while trying to salvage a bit of it not to mention stability in the financial markets. And they are rewarding a better player. That's the interesting aspect to the non-bailout nature of the 2 bucks and what renders recycled story lines worth even less than Bear Stearns itself.

So in this oxygen deficient environment of Wall Street today, grab The Business Press Maven's lifeline. Don't believe old story lines on this one. And never, never, never believe what you read about business events involving the government until the facts are truly out.

Know What You Own: Bear Stearns operates in the financial services industry, and some of the other stocks in its field include Citigroup (C Quote - Cramer on C - Stock Picks), Goldman Sachs (GS Quote - Cramer on GS - Stock Picks), Morgan Stanley (MS Quote - Cramer on MS - Stock Picks), Merrill Lynch (MER Quote - Cramer on MER - Stock Picks) and Lehman Brothers (LEH Quote - Cramer on LEH - Stock Picks). These stocks were recently trading at ($18.21, -7.94%), ($143.80, -8.31%), ($34.18, -13.55%), ($39.04, -10.27%) and ($25.20, -35.71%)respectively. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.