How Bear Failed

Did you have time to read more than 10,000 words by Kate Kelly on the fall of Bear Stearns? It's an interesting series, full of color. My favorite bit is Jamie Dimon vs Vikram Pandit:

Late Sunday night, as lawyers raced to finalize the merger agreement, executives of the New York Fed convened a call for Wall Street CEOs...
Mr. Pandit -- who did not initially identify himself -- asked a shrewd but technical question: How would the deal affect the risk to Bear Stearns's trading partners on certain long-term contracts?
The query irked Mr. Dimon. "Who is this?" he snapped. Mr. Pandit identified himself as "Vikram." Offended that Mr. Pandit was taking up time with what he considered granular inquiries, Mr. Dimon shot back, "Stop being such a jerk."

For a smart critical reaction to the series, check out Dear John Thain (1, 2, 3). He explains why it made no sense for Bear to unwind its "chaos trade", and wonders, as I do, what "a nonequity stake of as much as 10% in Bear Stearns" might be - apparently Pimco was in talks to acquire such a thing, but the talks fell apart. He also asks why Bear was so convinced that it could file for Chapter 11 bankruptcy, when there was no reason to believe that any brokerage could do such a thing.

My feeling after getting through the whole thing was that if there was one main cause for Bear's demise, it was simply mismanagement. The people in charge were good at taking risks in bull markets, but very bad at managing risks when credit markets were getting crunchy. They found reasons not to raise equity, they bickered with each other, and they had zero goodwill to draw on from the rest of Wall Street. No one wanted to rescue Bear, and Hank Paulson, in particular, was adamant that it should be done with as much pain as possible to Bear's shareholders (who, of course, were largely its employees).

Put it this way: if Morgan Stanley or Lehman Brothers had been in Bear's position, the story would likely have been much happier. They have friends; Bear Stearns simply didn't.

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