Earlier this morning we discussed the Bryan Burrough's Vanity Fairarticle on the downfall of Bear Stearns. Since I am simpleminded and can only focus on one thing at a time--that god damn breakfast--I thought I'd share this email that's been circulating, which parses the piece in its entirety.
I read the VF piece last night. It was written almost completely from Bear's point of view. The thesis-- and the cut line-- evil short-sellers, nervous Fed officials and dupes at CNBC brought down a shining light of American capitalism in one of the biggest financial scandals ever-- is a C-R-O-C-K of S-H-I-T. Bear Stearns was massively overleveraged, and they lost more than 10-billion of their clients' money (and at least 3 billion of their own) in those two toxic waste hedge funds that imploded last July. Half of Wall Street and much of the intelligent financial press and blogosphere concluded that Bear was dead then and there. Cultural aspects of the firm also contributed to its demise: and their unwillingness to help prop up Long Term Capital Management in 1998, when literally every other firm on the street put billions on the line, was not something the rest of them forgot.
Much of the author's "exhaustively detailed portrayal" was already exhaustively covered in the Wall Street Journal's 3-part series on Bear's demise. Some of it (the Jamie Dimon birthday dinner phone call) seems directly lifted, or at least fed to both reporters by the same source.
And the central premise: that rapacious shorts used rubes at CNBC to spread rumors that forced the company into a death spiral is backed up by exactly nothing. He throws out the names Steve Cohen (of the hedge fund SAC Capital Management) and Ken Griffin (of Citadel) at the end of the piece saying perhaps they were behind it all. He produces no evidence and not even an on-the-record statement implicating them. He tries to portray Gasparino as a tool of the shorts, but then we hear about him doggedly trying to get the company's CFO on the phone for more info. The author admits that Bear hurt itself when Maria Bartiromo got the elderly Ace Greenberg on the phone and he denied the liquidity rumors outside the chain of command. That's being a dupe? And when they finally allowed the CEO Alan Schwartz to be interviewed by David Faber, the author tries to make the case that Faber's asking Schwartz about a trader who refused a trade with Bear-- something that was true-- that this one question was the straw that broke the firm's back. So lemme get this straight: Faber should have been suspicious of a trader's motives in telling him that his/her firm was backing away from trading with a firm that was listing like the Titanic. Scandal! As if CNBC has that much sway. Every media outlet on earth was on a Bear deathwatch at the time including the WSJ. The author of the VF piece also heaps blame on Goldman and Credit Suisse. Jesus Christ the only person who WASN'T responsible for their demise is O.J. Simpson.
Bear Stearns business practices were fundamentally unsound during the credit bubble. They deserved to go out of business. They weren't "killed off by the shorts and CNBC" they killed themselves with leverage. In my opinion, "the biggest financial scandal ever" is how the Fed forced $29 billion of Bear Stearns credit risk onto the taxpayer. That's a story a serious journalist in a serious publication should cover.