Update 2: Here’s the Bloomberg News story,
in which yours truly is quoted.
Update 3: The Wall Street Journal.
Update 4: The
New York Law Journal. This article implies that one
reason a firm-saving merger couldn’t be pulled off at the end was
"unrealistic expectations" at Coudert about the value of its franchise.
If
true, this is a textbook example of a market
failing to "clear"—meaning the situation where buyers
and sellers have competely discordant notions of value. The
most common situation in which this occurs is when a particular asset
class (just for example, say, residential real estate on the US coasts)
has experienced a sustained run-up in price.
Unsustainable
price increases come to an end typically not when buyers and sellers
both suddenly come to their senses, but when buyers get cold feet
(a/k/a start looking at intrinsic value). Sellers want to continue
to believe the 20%/year growth is still in effect, as it were, and
when they find no takers at that extrapolated level, they refuse
to lower the price and often just take the asset off the market. Liquidity
drastically declines, and it can take years for psychology to readjust. Coudert
didn’t have years.
