I was waiting for the fallout from Yahoo's rejection of the MS deal, before publishing this article. If you dig deep enough into these deals we've seen in the last couple of months, there seems to be a deep malaise, for both the buyer and the buyee. The Bear Stearns, Countrywide Corp. and Yahoo! Inc. deals are all a real cause for worry - For the buyers, for investors and for Wall Street - Much more so than any more MBS writedowns or lack of liquidity. The question here is, were these companies worth saving from going bellyup? There's a big difference between finding value in a downturn and paying through the nose for a company with a deep rot.

Let's consider all three one by one.On Jan 9th 2008, there was a near state of panic based on Countrywide bankruptcy rumors. Couple of days later, after the BofA-Countrywide deal was announced, things satabilized, and people have just about forgotten why the company was about to file for bankruptcy. Chris Kaufman, Dealzone, reports that Countrywide had outstanding debt of about $97.23 billion as of Dec 31, including Federal Home Loan Bank advances of about $47.68 billion, which it expects will remain outstanding until repaid by Countrywide Bank. And according to this Bloomberg report, Countrywide would be split into good and bad companies, with the debt going into the junky one.

And Bank of America is now being urged to reconsider their Countrywide bid. Ari Levy and Christopher Stern, Bloomberg News, report that Sen Chuck Schumer (D-NY) wants BofA to consider cutting the $4 billion price tag for the deal. Investors have speculated that Bank of America may seek better terms or cancel its takeover of Countrywide because housing markets and the mortgage lender's performance have deteriorated since the January accord. Friedman, Billings, Ramsey Group Inc. analyst Paul Miller said Bank of America should walk away because Countrywide's loan portfolio would be a ``drag on earnings.''

Point is, the deal has been slowly falling apart inch by inch in the last couple of months, as it becomes apparent that BofA has no intention of saving anyone but themselves. Before we get into a deeper analysis about the wisdom of propping up failing firms, let's cut to Bear Stearns.

The reasons for bailing out Bear have been probed exhaustively by everyone and their aunt, so let's just cut to the chase. The deal may have been a tad bit more than JPMorgan can handle, and while the Fed and public money stand to lose first, the deal still adds to JPMorgan's derivative exposure. Roddy Boyd, Fortune Magazine, has an article which explores the reasons behind the urgency when JPMorgan upped the Bear share price from $2 to $10. It wasn't just investor pressure, it seems. The dispute that nearly brought Bear down a second time turned on whether JPMorgan would stand behind Bear Stearns' massive credit default swap book and other liabilities.

To make a long story short, JPMorgan agreed. And that has brought JPMorgan to place where it stands on slightly dicey ground. But while the deal is now securely in place, it's not certain that a happy ending is in sight. After the merger, JPMorgan - with around $91.7 trillion in total derivative exposure - will solidify its position atop the derivative league tables. Citigroup is a distant second at $34 trillion, according to the Office of the Comptroller of the Currency.

Anyone want to bet how long it takes before JPMorgan decides that the whole Bear thing was a just a bit too much, and asks the Fed for help in unwinding the deal? Would anyone have cared two hoots about this when Bear Stearns was on the edge of bankruptcy and Wall Street was trembling? Nope, but now that Bear's problems no longer threaten anyone else, the worms are starting to crawl out, and again, inch by inch, Bear's problems are slowly taking a toll on JPMorgan. This is the same pattern that was followed by Countrywide-BofA.

Yahoo's shares were around $19, and Yahoo was in the middle of 'corporate restructuring' and layoffs, when MS announced the takeover bid. Admist all the well-documented hoopla of the takeover, the issue that was lost was why Yahoo was in trouble in the first place, and whether there any systemic problems which could become a drag on Microsoft once the deal was consummated. That question still stands. Will Microsoft, after paying over $40 billion, be able to turn around the failing internet properties of Yahoo! Inc.? Just beacuse they want to compete with Google, MS can't afford to keep Yahoo's blaoted web properties as they are, and make MSFT shareholders pay for it. Which means, in all probability, that the Yahoo-MS deal, if agreed upon, will follow the same path as Countrywide-BofA and Bear Stearns-JPM.

Inexorable forces on Wall Street push the deal towards completion, and then, when reality sets in, well...the renegotiation starts. Point of all this is that unlike finding value in a downturn, these deals gone bad represent the ugly side of Wall Street. To placate investors and keep the markets from going into a tailspin, unmanageable assets are being taken on by buyers, a status quo that doesn't last more than a couple of months. A more long term solution would be to do what BofA is likely planning on now. Split the ailing company into good and bad, keep the good parts and sell off the bad piece by piece, and let the company's shareholders take the hit. What these companies need are bankruptcy managers, not bailouts.