More Bear! (Part Two)

The next installment in the WSJ’s look at Bear’s Collapse hit today. To be honest, nothing interesting stood out. Well, except the following..

1. Why was a Moodys downgrade of Bear Stearns–branded RMBS bonds cause the stock to drop? Something there makes no sense. These are insulated from the credit of Bear Stearns itself and the bonds are issued by a SPV. Seems off, or, perhaps, smacks of normal financial journalism that takes a fact and conflates it with the cause of the markets moving on that day.

2. I have to profess not knowing a ton about prime brokerage, but it seems that if, as it normal to do, Bear provided leverage on trades for prime broker clients, they need to borrow that money and as funds fled they would be able to require repayment of those loans. Also, since most funds are loathe to keep a lot of cash, as it hurts their performance, there shouldn’t be much cash fleeing with these funds.

3. Spitzer hosed Alan Schwartz. There is Alan Schwartz, talking about how super awesome Bear Stearns is, and Spitzer’s scandal starts interrupts him from saying things like, “Bear made money this past quarter.”

4. They had their lawyer call the Fed. I guess I’m not sure why the chairman of Sullivan & Cromwell was charged with calling the Fed to talk about Bear Stearns situation. Seems very odd. And why was it that when Alan Schwartz called the Fed, he struck a less alarmist tone?

5. J.P. Morgan representatives arrived and were shocked at Bear’s books. We don’t know what that means (their liquidity position? the marks they had on their positions?) exactly. But here’s an odd thing: The JPM crew asked for the Fed–and they were already there! Setup in a conference room was the Fed, having already been there for several hours. Maybe it’s completely logical that the Fed would be there, even if they hadn’t been asked for help yet… Just seems to not jive with Alan Schwartz being cautiously optimistic earlier.’

Ok, like I warned earlier, no much to really talk about in this one…. Soon, part three! The conclusion awaits.

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5 Comments on “More Bear! (Part Two)”

  1. JoeBob Says:

    I agree. I’ve read many news articles that mention clients pulling cash from their prime brokerage accounts. They never connect how clients pulling THEIR OWN cash affects Bear’s liquidity. I don’t know much about prime brokerages, but maybe Bear lends clients’ excess cash to other clients (kind of like how traditional commercial banks’ deposit/loan system works?)


  2. I am guessing you are enjoying the fact that at least the two Bear hedge fund managers have been indicted and look like they might be heading to jail on several accounts…kind of scary from a marketing perspective though. Looks like now if your job is to keep investors in a fund and find new investors you have to simply quit or refuse to work until markets are reliable and positive…

    – Richard
    Richard Wilson


  3. Richard,

    I would never characterize myself as happy about someone being sent to jail. If they deserve it, then that’s the price. Never pleasant, however.

    -DJT


  4. […] to explaining and digging into economic and financial stories. Think Kate Kelly and her three part tick tock of the Bear Stearns situation as a good example. Think of the deep look into the mortgage industry […]


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