Who Killed Bear Stearns?

01_bear_stearns0808
Fascinating read in the August edition of Vanity Fair: They wades into the"Did short sellers kill Bear Stearns" (BSC) debate:

"At Phi Kappa Wall Street, most of the frat boys are instantly recognizable. There’s the big, backslapping Irishman, Merrill Lynch, the humorless grind, Goldman Sachs, and the straitlaced rich kid, Morgan Stanley. And then, off in the corner, wearing its beat-up leather jacket and nursing a cigarette, was the tough-guy loner, scrawny Bear Stearns, who disdained secret handshakes and towel snapping in favor of an extended middle finger toward pretty much everyone. Bear was bridge-and-tunnel and proud of it. Since the days when the Goldmans and Morgans cared mostly about hiring young men from the best families and schools, “the Bear,” as old-timers still call it, cared about one thing and one thing only: making money. Brooklyn, Queens, or Poughkeepsie; City College, Hofstra, or Ohio State; Jew or Gentile—it didn’t matter where you came from; if you could make money on the trading floor, Bear Stearns was the place for you. Its longtime chairman Alan “Ace” Greenberg even coined a name for his motley hires: P.S.D.’s, for poor, smart, and a deep desire to get rich.

Bear Stearns was an investment bank, but the traditional banking roles, such as advising on corporate mergers and trading stocks, were always an afterthought there. What the P.S.D.’s at Bear Stearns did best was trade bonds. The firm’s executive history was the story of three bond traders, each with his own outsize personality. From the mid-1930s till the late 1970s, Bear was the province of Salim “Cy” Lewis, the cantankerous Wall Street legend who forged a cutthroat culture run less as a modern corporation than as a series of squabbling fiefdoms, each vying for his approval. Ace Greenberg, an avuncular sort who kept his desk on the trading floor and answered his own phone, took over after Lewis’s death, in 1978, and while his edges were softer, Bear remained a Mametesque pressure cooker where top traders could pull down $10 million a year while runners-up were tossed into the alley."

The Vanity Fair piece blames everyone from shorts to CNBC to Charlie Gasparino and David Faber.

Yet bottom line remains: If your financial condition is so precarious that rumors can bring you down, then its the finances, and not the rumors, that are to blame . . .

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Hat Tip: Dealbook

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Source:
Bringing Down Bear Stearns   
BRYAN BURROUGH
August 2008   
http://www.vanityfair.com/politics/features/2008/08/bear_stearns200808

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What's been said:

Discussions found on the web:
  1. Scott commented on Jun 30

    VF does not think too highly of your friend Charlie Gasparino:

    Sam Molinaro felt it was time for another public assurance. CNBC’s Charlie Gasparino had been peppering him with phone calls seeking comment. Molinaro talked to Russell Sherman, who felt Gasparino could be played. “He’ll say something negative if you shut him out. But if you talk to him, he’ll go positive,” one Bear executive told me.

  2. Nanuk commented on Jun 30

    The five phases of dying…
    Maybe the Market gets a bit angry :)

  3. Ed H commented on Jun 30

    People are looking for a scapegoat. It’s not unlike what is going to happen in the subprime meltdown. Scapegoats will be found. And we will heap all the blame on them instead of taking a look in the mirror.

  4. Philippe commented on Jun 30

    Is the capitalist system so simple that shorting a Bank share price may make it less profitable and at contrary purchasing a bank share make it more profitable? Then no need of TAF, Swaps agreement between Central Banks, release of Bank’s reserves, the solution has been found to all malaise.

    Of course it is always more convenient to have a high share price when looking for capital increase or bank funding.

  5. Bob commented on Jun 30

    Anyone know what “Mametesque” means? It does not appear in the dictionary.

  6. SLUGGO commented on Jun 30

    Sluggo likes the description of Mer, Ms, Gs, and last Bsc, how about that big, backslapping Irishman Merrill Lynch how about cheap whiskey Irishman!!!

    I wish Charlie Gasparino would do a book about war stories from the floor or pits

  7. zackattack commented on Jun 30

    They went away because they had money-losing positions and poor account discipline.

    Any trader will tell you, it doesn’t matter how you got there. Mr. Market takes your marbles and sends you away.

  8. Steve Syrett commented on Jun 30

    Googled: Mamet – American Playwrite; Mamet has also suffered from being so identified with a particular genre, which he more or less invented: that of all-male workplaces bursting with an inventive and poetic dialect of American profanity.

  9. michael schumacher commented on Jun 30

    bear stearns killed themselves…..anything else is just noise to distract from the fact that they were clowns.

    If anyone needed more proof how about tanking those two “investment” vehicles in the Caymans so that they escaped further lawsuits?

    Poor decisions begets poor results.

    Ciao
    MS

  10. Chief Tomahawk commented on Jun 30

    WHAT?!?

    Somebody blamed Charlie f-ing Gasparino???

    He of the late-day Ambak/MBIA report which turned the markets on their HEADS a few months ago?

  11. MitchN commented on Jun 30

    Anyone catch Gasparino on Squawk Box this morning? Kiernan wouldn’t even look at him, even though Gassbag was on his best behavior. Weird.

  12. HCF commented on Jun 30

    Bear Sterns is a giant warning about leverage:
    You live by the gun, you die by the gun…

  13. pc commented on Jun 30

    “If your financial condition is so precarious that rumors can bring you down, then its the finances, and not the rumors, that are to blame”

    But still it happens. So that means people take it for granted that it is okay to build banks on credibility alone without solid finances.

  14. Chester White commented on Jun 30

    You lever up 30-1 and you make big money for a while.

    Eventually you get caught.

    Simple.

  15. Roger Bigod commented on Jun 30

    There’s a story that one of the execs, Schwartz IIRC, had a trade on that would have protected them in the event that the derivatives markets went crazy. He and his traders thought that was the one event that could destroy the firm. He was forced to reverse the trade, and the rest, as they say, is history.

    Not that 30:1 leverage is a inspired idea, of course.

  16. Shaun Miller commented on Jun 30

    The Wall Street brokers have always carried the risk of not being able to fund themselves. If we hadn’t been in the midst of a credit crunch, Bear would most likely have survived. I think this situation needs to be scrutinized for collusion/conspiracy.

  17. Scott sst3d commented on Jun 30

    Oh Hell..Bear blew itself up. They were leveraged at approx. a gazillion to one, and hedged at approx. “screw it, we don’t need to be hedged..” The mortgage “assets” were always garbage, and unlike GSA Bear did nothing, nothing, nothing to protect against even a hiccup, let alone the obvious sub-prime razor slide that was coming. Aside from Bear (within the Bear story, that is) the Fed was the only other bad actor; they should’ve let ’em go to zero.
    Shorting Bear was smart, solid trading. WTF, when things go bad does everyone turn into a schoolgirl? Even the badasses at Bear? America is so frikkin’ pussified! Sheeeeeeesh!

  18. Scott sst3d commented on Jun 30

    Oh Hell..Bear blew itself up. They were leveraged at approx. a gazillion to one, and hedged at approx. “screw it, we don’t need to be hedged..” The mortgage “assets” were always garbage, and unlike GSA Bear did nothing, nothing, nothing to protect against even a hiccup, let alone the obvious sub-prime razor slide that was coming. Aside from Bear (within the Bear story, that is) the Fed was the only other bad actor; they should’ve let ’em go to zero.
    Shorting Bear was smart, solid trading. WTF, when things go bad does everyone turn into a schoolgirl? Even the badasses at Bear? America is so frikkin’ pussified! Sheeeeeeesh!

  19. Scott sst3d commented on Jun 30

    Oh Hell..Bear blew itself up. They were leveraged at approx. a gazillion to one, and hedged at approx. “screw it, we don’t need to be hedged..” The mortgage “assets” were always garbage, and unlike GSA Bear did nothing, nothing, nothing to protect against even a hiccup, let alone the obvious sub-prime razor slide that was coming. Aside from Bear (within the Bear story, that is) the Fed was the only other bad actor; they should’ve let ’em go to zero.
    Shorting Bear was smart, solid trading. WTF, when things go bad does everyone turn into a schoolgirl? Even the badasses at Bear? America is so frikkin’ pussified! Sheeeeeeesh!

  20. Scott sst3d commented on Jun 30

    Oh Hell..Bear blew itself up. They were leveraged at approx. a gazillion to one, and hedged at approx. “screw it, we don’t need to be hedged..” The mortgage “assets” were always garbage, and unlike GSA Bear did nothing, nothing, nothing to protect against even a hiccup, let alone the obvious sub-prime razor slide that was coming. Aside from Bear (within the Bear story, that is) the Fed was the only other bad actor; they should’ve let ’em go to zero.
    Shorting Bear was smart, solid trading. WTF, when things go bad does everyone turn into a schoolgirl? Even the badasses at Bear? America is so frikkin’ pussified! Sheeeeeeesh!

  21. Scott sst3d commented on Jun 30

    The David Mamet reference was a nod to the great, superior, testosterone driven play, GlenGarry GlenRoss. In which a boilerroom of salesmen break their balls (and each others’)trying to sell crappy vacation lots. Awesome stuff, one of Mamet’s finest works. ABC, gentlemen…Always Be Closing.

  22. Scott sst3d commented on Jun 30

    The David Mamet reference was a nod to the great, superior, testosterone driven play, GlenGarry GlenRoss. In which a boilerroom of salesmen break their balls (and each others’)trying to sell crappy vacation lots. Awesome stuff, one of Mamet’s finest works. ABC, gentlemen…Always Be Closing.

  23. Scott sst3d commented on Jun 30

    The David Mamet reference was a nod to the great, superior, testosterone driven play, GlenGarry GlenRoss. In which a boilerroom of salesmen break their balls (and each others’)trying to sell crappy vacation lots. Awesome stuff, one of Mamet’s finest works. ABC, gentlemen…Always Be Closing.

  24. Scott sst3d commented on Jun 30

    The David Mamet reference was a nod to the great, superior, testosterone driven play, GlenGarry GlenRoss. In which a boilerroom of salesmen break their balls (and each others’)trying to sell crappy vacation lots. Awesome stuff, one of Mamet’s finest works. ABC, gentlemen…Always Be Closing.

  25. Risk Averse Alert commented on Jun 30

    Are you trying to tell me JPM, the derivative king, is any less leveraged? This was a take down by gangsters, and the clown at the top of JPM is not a very good liar at that. Oh please, Mr. Dimon, do tell me all about the mysteries you and your board pondered during the explosion of private label mortgage and how “no one knew where this would lead.” That’s rich! If I were at that dinner where you told that beaut I would have puked … all over you, coward. Pity neither you nor “Pinky” at Treasury see how y’all are being set up by the heirs to tyranny. 9/11 was your first clue…

  26. John Scott commented on Jul 1

    Barry, I cannot answer your question regarding Excel, but I do have a suggestion: Check out Apple’s relatively new spreadsheet program called Numbers. It does most of what can be done with Excel and is much easier to use.

    -john

  27. eh commented on Jul 1

    Given low enough reserve requirements, it seems to me that even a solid bank could be brought down by rumors if the run the rumors produced was big enough.

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