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Bear Stearns, the conspiracy…

This entry was posted by Paul Murphy on Wednesday, March 19th, 2008 at 8:32 and is filed under Capital markets. Tagged with bear stearns. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

1. Mar 21   21:37 Posted by Reginald Toms [report]

   Why was the chairman playing bridge during the week of his firms collapse and during the week of the hedge fund collapse ? unbelievable

2. Mar 21   21:31 Posted by anonymous [report]

   Bear Stearns has for many years championed its “culture” as one of entrepeneurialism and delighted in its image as being somewhat of an outsider on Wall Street, as evidenced by the almost boastfullness of Cayne’s refusal to bail out LTCM. IMHO the reality is that it was a firm completely devoid of a culture, where senior management, through either their indifference or incompetance allowed employees to roam freely as a bunch of small business men who rented the firm’s balance sheet.

   Risk management at the business level was always enforced quite judiciiously, however, whilst this was dictated by persons posessing a narrow range of business skills it was often manifested in risk avoidance or resulted in inappropriate deployment of risk in areas of “comfort” rather than areas where that risk would be best rewarded. For instance, in the last 5 years whilst Goldman Sachs moved significant employees to Europe and Lehman Brothers strove to diversify revenues on an international basis by investing in non - US markets what did Bear Stearns executives do ? They watched the stock pricce consistently de-rate by throwing money at North American businesses (such as mortgages) and paying lip service to investor’s urgings to expand abroad.

   The bull market hid their mistakes.

   Bear’s senior “management” (the firm had the highest paid treasurer in the world) were rich enough not to not particularly care about building a sustainable business over and above a throwback 1990’s style partnered investment bank, the truth was that the firm’s business heads had neither the talent nor the ambition to do the jobs that their counterparts in other Wall Street firms were doing……. looking further than their own postcode.

   Whilst the market was told that Bear was a lean operation whose employees worked harder and smarter the reality was that earnings were created by the oldest tool in the banking shed…..leverage. Is it any wonder that a poorly managed, overly levered institution presided over by arrogant incompetants failed ????

   The firm’s many talented employees who worked hard to create a nest egg that is now worth nothing must feel desperately cheated by their masters.

   Shareholders….. you could have asked more questions

3. Mar 21   20:46 Posted by Anon [report]

   Some questions

   Whilst other financial institutions have been rapidly de-levering and hoarding cash what was Bear doing ?

   Was there an emergency funding contingency or was the firm too incompetent or reckless to have one in place ?

   What had Bear Stearns executives done to make the firm rumour proof ? Their investor relations people have broadly been considered somewhat of a joke to investors… were they not aware or unable to quash rumours at an early stage ?

4. Mar 19   23:09 Posted by David Potter [report]

   Bear Stearns paid the price of not supporting the establishment on the rescue of LTCM, I believe they were the only major Wall Street firm not to support the bail out. Dog eats dog, but the basics of relationship banking and hanging together dont change. BS got too greedy in 1998 and everyone remembered.

5. Mar 19   16:57 Posted by David Merkel [report]

   In this era, even if Bear Stearns was conspired against, they ran with too much leverage, too much financing that was short-term in nature, and too much negative optionality (capital requirements rising on downgrades).

   That’s a situation that’s unsustainable with reasonable probability. Bear Stearns knew about sophisticated operators that could profit from their demise. They inadequately protected themselves; no surprise that they lost.

   They would have made less money in the short run, but they should have managed the business more conservatively.

   http://alephblog.com/2008/03/15/thinking-about-the-bear-stearns-bailout/

6. Mar 19   12:19 Posted by Graham Cox [report]

   With BSC’s price shooting up, there is a $30bn question

   Does the refinance deal with the Fed for mortgage backed securities held by BSC endure if it is sold to another party?

7. Mar 19   10:28 Posted by oj@home [report]

   this reads liek a well informed account
   http://www.nytimes.com/2008/03/18/business/18sorkin.html?_r=1&oref=slogin

8. Mar 19   10:07 Posted by Cahagnes [report]

   Paul: the Alea/jck post you refer to (below, 8:48) is NOT about JPMBS exposure, but about the aggregate notional amounts of JPM and BS derivative transactions. That’s a qualitative difference which corresponds to a difference of several orders of magnitude between the quantities involved.

9. Mar 19   9:38 Posted by VP [report]

   Anyone been buying HBOS puts today?

10. Mar 19   9:25 Posted by Monkey [report]

    Pesto seems to think it is all the nasty hedge funds fault for withdrawing all their cash (from an institution that evidently didn’t have enough liquidity). Not sure how the scenario is all that different from investors taking their money out of Northern Rock in unison … a situation he himself exaccerbated by running the story on his blog. A little hypocritcal me thinks.

11. Mar 19   9:20 Posted by Jnr T [report]

    How did the man on the grassy knoll find time to buy all these puts and still fit in filming a fake moon landing? Incredible!

12. Mar 19   9:13 Posted by Paul Murphy [report]

    jck — yes, i know i am being cynical. I’m aware the volumes were highly unusual, but these are highly unusual times. I meant the piece to be taken in jest!

    http://www.thesun.co.uk/sol/homepage/news/columnists/fergus_shanahan/article872154.ece

13. Mar 19   9:03 Posted by jck [report]

    Paul:
    You are being cynical here, this has nothing to do with twin tower type conspiracies but with FACTS. You can’t hide trading volume on a public exchange and the FACT is that there was EXTREMELY abnormal high volume of trades in put options that some of your colleagues in the funny papers called: “spectacular long-shot bet,” on march12th,that is the strike price were very far away from the market and the expiration time very close.
    This happened respectively on march11/12 and 13th when bear stocks closed respectively at 62.97, 61.58 and 57.00 with volumes order of magnitude above normal. Given that this happened before the bank run, the SEC investigation is quite welcome. Some trades just look far to prescient to be taken as normal.

14. Mar 19   8:49 Posted by Helen Thomas [report]

    In WSJ today
    http://online.wsj.com/article/SB120587881717146583.html?mod=rss_whats_news_us_business

    Now, the planned acquisition of Bear means the risks that derivatives are meant to disperse may be getting more concentrated among fewer players. J.P. Morgan’s influence in the market has risen because it is now standing behind Bear’s derivatives book.

15. Mar 19   8:48 Posted by Paul Murphy [report]

    Re JPMBS exposure see:

    http://www.aleablog.com/100-teradollar/

16. Mar 19   8:39 Posted by Anonymous [report]

    how does buying BS change JPMC’s derivatives exposure - larger balance sheet!

17. Mar 19   8:36 Posted by bsb [report]

    yes - there were huge amounts of puts being bought early last week. someone bought puts for $0.35 that eventually were worth $26, and made $50m for less than $1m invested.

    also thoughts that bringing down bear stearns was ultimately all about saving jp morgan? they have the largest derivatives exposure of all the banks by far. maybe absorbing bear stearns will put them one step further towards recovery?