The Bear Bailout: A Plea for Transparency

Financial commentary is parasitical on financial news: we pundits can't have opinions on what's going on if no one tells us what's going on. In the case of Bear Stearns bailing out one of its troubled hedge funds, this is a big problem. There's some reasonably good commentary out there, from the likes of Tanta and Yves Smith, but all of it is hamstrung by a dearth of hard facts. To make matters worse, the news coverage often includes commentary masquerading as news, which can make it even harder to work out what's true and what's speculation. (See Tanta for much more on this.)

In the case of the Bear Stearns situation, the rush to be first has also meant that CNBC's Charlie Gasparino, especialy, seems to be reporting as news things which are really just informed speculation. (JP Morgan is liquidating its collateral! Barclays stands to lose hundreds of millions of dollars!). If these things appeared in a blog entry, it would be easier to take them with the requisite pinch of salt.

Finally, there's the problem that a lot of the financial journalists reporting on the Bear Stearns funds don't seem to fully grasp what's going on, either because they lack the facts or because they lack the requisite financial sophistication.

It's at times like this, then, that I start really wishing for some disintermediation of the financial press. I don't know who the reporters at CNBC and Bloomberg and the WSJ and the NYT are talking to in order to get their facts, but it's likely to be the same small group of individuals. The need to talk to all those different reporters is a pain for the individuals concerned, which is exacerbated by the fact that they then need to see their information presented to the public in ways they might never have intended.

What I'd love to see would be a lot more transparency from Bear Stearns, its prime brokers, and anybody else involved in this and other messes. Take the facts you're giving to a few chosen journalists, and instead put them up on a public website for the world to see. That way all of us can draw our own conclusions should we be so inclined – and the chosen journalists can still write the exact same stories, based on the exact same facts.

This is the tack taken by John Mackey of Whole Foods, who blogged everything in order to get out his side of the story, rather than relying on the press to get everything right.

Now that the public gets its financial information from an incredibly wide range of sources, it's becoming less and less useful for banks and other financial entities to talk only to a small number of media sources. And they don't have the time to talk to every blogger or interested party who has questions. So they should start to publish stuff themselves. Then we could all have a much better take on questions such as whether the prime brokers lending to the Bear funds really do stand to lose any money.

It stands to reason that they would: after all, in the younger, more leveraged fund there does seem to be a high likelihood that total losses will exceed the total amount of equity in the fund. In that case, lenders are going to have to bear some of the brunt. But as of right now, it's almost impossible to tell who those lenders might be, and how much they might be on the hook for.

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