How sad that Wall Street proves once again to be full of hot air, and the Federal Reserve too. Last week I wrote that Bear Stearns (NYSE: BSC) was being sold way too cheap and I was not alone in my thinking. Now, all of a sudden, JPMorgan Chase (NYSE: JPM) increases its offer for the Bear 500% -- from $2.00 to $10.00 per share.

There are many aspects to this story that rub me the wrong way! If JPM can swallow this deal at an increase of 500% without even blinking (maybe sheepishly smiling) then it shows that it drove a hard bargain with the Federal Reserve negotiators and probably was even in shock itself realizing what a steal it walked away with. And stealing is what it was. At least from a shareholder perspective.

The Federal Reserve now has egg on its collective face and the public confidence became weaker in the government's ability to come to grips with the problem of Wall Street.

Bear Stearns got in trouble last week for a lack of liquidity, not a lack of assets. BSC lost its liquidity because there was a modern day "run on the bank." The new offer from Chase basically ups the ante to approximately the value of Bear Stearns' headquarters building, which last I read was worth $1.1 billion.

This story is far from over. Consider this: The most questionable loans on the Bear balance sheet are to be guaranteed by the federal government, and if I understand the deal so far, that is for an amount of $30 billion. Those financial instruments might be the derivatives from hell, but no matter, because even if 50% were in default (unheard of), there would still be $15 billion of value. This does not even take into account other debt that is not in the scary category.

From everything that has been explained so far, it seems that JP Morgan Chase wants to swap JPM shares for BSC shares only to the degree that it will pay something for the headquarters and nothing else. Then, the Fed will guarantee potential losses (so there won't be any), and all Chase will have to do is manage the portfolio until the debt obligations are paid off to whatever degree, to then collect the billions of dollars that Bear Stearns would have recouped if it did not have a run on its bank.

If I do not have this picture drawn correctly, I hope one of my many astute readers will correct me, but I'm afraid that the Fed is giving away the farm. I guess that's something it is used to. We cannot actually blame Chase, it is its function to maximize JPM shareholders returns. But the Bear Stearns folks and the Fed's do not have the same calling. Why are they trying to maximize the returns of Chase shareholders at the expense of the Bear Stearns shareholders (including me) and the American taxpayer?

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I am a shareholder in BSC.