The Danger from Bear Stearns New CEO

Scarsdale Equities holds a regular luncheon, immortalized in the book The Money Game. I am privileged to occasionally break bread with the interesting group of traders, thinkers and fund managers assembled by Rudy Beutell.

I received an email this morn reminding me of my own comments to the group back in August 2007. A NYT article on Bear Stearns — Extrication Time at Bear Stearns — must have jogged the memory.

I thought it was worth sharing. Over the summer, I had said:

“Just wait until Jimmy Cayne gets dinged out of Bear Stearns. The new CEO will look at all the junk on the books – problems he had nothing whatsoever to do with – and likely say ‘Get all this shit off of my books. All of it. I don’t care what it cost, I don’t care what its worth, I want all this garbage outta here.’

That’s only the beginning. There’s a danger is that these sales will further reveal the mark-to-model as the fairy tale it is. Even more ominous, it will force other houses carrying this junk to price them realistically.  That could lead to some even larger write downs then we have seen so far.

I suspect that the finance sector still has lots of work ahead of it . . .




Extrication Time at Bear Stearns
NYT, January 9, 2008

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What's been said:

Discussions found on the web:
  1. michael schumacher commented on Jan 9

    Watch Mer and C for what comes next… they already have new CEO’s. BSC won’t get a clean bill until Cayne is out for good.

    You can’t piss on the chairman in public…


  2. Ross commented on Jan 9

    CNBC is interviewing Al Swartz on their Power Lunch program today.

    Alan is truely one of the nicest guys you will ever meet. He is an atypical Wall Street huberistic BS er. I have no idea if he has the skill sets to turn things around. My guess is he is there to sell the company. Just a hunch.

  3. BDG123 commented on Jan 9

    Here’s the problem. Can they actually price them as they should be priced? Can they afford to take the losses given their capital positions? Can they foretell unrealized losses still on their books that will deteriorate over time? Csn they, can they, can they? Then answers are likely no, no and no. There is no point in time analysis that will allow any of these institutions to clear their problems or their conscience. That is an the problem with deflation.

  4. wally commented on Jan 9

    You will never find a more wretched hive of scum and villainy.

  5. Johnny Vee commented on Jan 9

    The pressure on the Fed to put the fed fund rate on the floor must be crushing.

  6. Stuart commented on Jan 9

    Their main problem is they can’t do a final valuation of their balance sheet. Ultimately the value of their balance sheet depends on the real estate market and it’s decline isn’t over for at least a year or perhaps several. It’s going to be a downward sliding scale for many quarters to come for all financials.

  7. Barry Ritholtz commented on Jan 9

    What a great name for a blog: The Wretched Hive of Scum and Villainy.

  8. Eric Davis commented on Jan 9

    Spielberg would come and get you though.

  9. Bob A commented on Jan 9

    and to continue the fairy tale theme, we have fearless leader playing Fairy God Mother, dancing about in glass slippers and waving his magic wand, pretending all our problems will be solved by handing out red envelopes and pushing us deeper into debt. Be sure to bring back those tax credits for Suburbans and Range Rovers too mister… that’ll help.

  10. Steve Barry commented on Jan 9

    CNBC just quoted new BSC CEO as saying “the marks are good and we don’t need any more capital.”

  11. Stuart commented on Jan 9

    “Den of Thieves” would also be a good blog name.

    Good luck with managing the advertising though…LOL

  12. Blano commented on Jan 9

    Actually that would be George Lucas chasing his butt, given it was good ol’ Obi-Wan Kenobi who said it.

    Yes, a great line.

  13. Ope Juan Karoake commented on Jan 9

    I said it first……….

    Deferred contracts soybeans in the TEENS!

    Why does that make me happy, I buy cattle critter feed!


  14. Al Czervik commented on Jan 9

    From “Minyan Peter” over at Minyanville . . .

    “I think the most overlooked article in the Wall Street Journal yesterday was about CIBC. In the article it states that “CIBC wasn’t sure ACA Financial, a unit of ACA Capital Holdings Inc., could continue to be a “viable” counterparty to about $3.5 bln in the bank’s subprime real-estate exposure.” As I have written previously, I expect that in 2008 we will see many firms, both financial and otherwise, announce that while their hedges were correct, their counterparties for those hedges were not. CIBC is the first major firm I have seen put this issue out there front and center. And as you can see, the notional amounts are large.”

  15. A Dash of Insight commented on Jan 9

    Will Bear Stearns “Clean out the Garbage?”

    As usual, Barry Ritholtz has been setting the table with a number of interesting questions. We shall try to catch up. Today he points out a forecast he made months ago about a possible transition at Bear. Here is the

  16. Businomics Blog commented on Jan 9

    When Banks and Investment Houses Dump Bad Assets

    Barry Ritholtz over at The Big Picture has a good insight into the new guy at Bear Stearns. Last summer he anticipated a change in senior management and said this:“Just wait until Jimmy Cayne gets dinged out of Bear Stearns.

  17. BDG123 commented on Jan 10

    You are indeed correct. I wrote about the risk of counterparty positions. Of course, what is this really? A lack of regard for risk management. An unwavering belief in the Frankenstein of quantitative finance. We saw this before on a much smaller scale. It was called the 1987 crash. And, if that were the only problem facing us………

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