Thanks for the Apology, Jimmy, But Bear Stearns Death Wasn't An Act of God

Bear Stearns chairman Jimmy Cayne (JPM) personally apologized to the firm's employees yesterday (and, as the NYT describes it, heard silence in return). He also implied that Bear Stearns failed because it ran into a "hurricane."

This interpretation is convenient -- because it makes it sounds as though Bear's collapse was just an act of God. As Goldman Sachs (GS), Merrill Lynch (MER), Morgan Stanley (MS), and dozens of other Wall Street firms that are still standing prove, however, it's possible to build companies that survive hurricanes. In fact, it's wise to do so, given the mind-numbing regularity with which the financial markets are hit by them.

Yes, Bear Stearns got caught by a quick market reversal, but it wasn't the only firm that did. And the reversal wasn't even impossible to foresee. On the contrary: many analysts had been shouting from rooftops for years that the housing bubble was a disaster in the making. Bear Stearns, like many other Wall Street firms, chose to ignore this view and double down on the bet that was making it pots of money: staying long.

When business bets turn out badly, burned managers often invoke Cayne-ian-like excuses:

* "hurricane"
* "hundred-year flood"
* "perfect storm"

These excuses, of course, serve a purpose, which is to let managers off the hook: "It was just an act of God."

But here's a more accurate description of what happened at Bear Stearns.

"We took a lot more risk than we should have. In hindsight, in fact, we bet the firm. And we lost."

See Also:
My Life At Bear Stearns: Not Just Sitting Around Waiting to Get Fired!
Bear Stearns Sale Price Reveals True Worth of All Stocks

Comments

[Bobotheclown]

The Bear Stearns rescue was not a good deal, it was a political deal. Mr. Bernake was chosen as the new Chairman of the Fed because he was the greatest proponent of "easy money" of all the Fed govenors. This appointment happened at a time when the colapse of the housing bubble had been long predicted, as was the damge that it would cause to the economy in this election year. For political purposes it is good not have a recession in the fourth year of an admimnistration or the party in power will lose the election. (See second H.W. Bush term) Bernake is not a political tool, he is a true believer with academic credentials. But he is acting like the administration hoped he would and he will delay the inevitable until the first year of the next Democratic administation. In fighting a regulatory problem with monetary policy he will exacerbate the damage and create a bigger mess for his successors.

Ultimately this is not about greed (a common wall street atribute in good times and bad) or secrecy (a common attribute of all national security establishments) it is about apathy. Democracy depends on the checks and balances of an informed and enlightened electorate who vote for the common good because they are dedicated to preserving the founders concept of freedom for all. When that breaks down no part of the system functions properly. We will ultimately get the economy we derserve.

[fairandjust]

Irresponsible business decisions, or better known as GREED. But greed, bailed-out with taxpayer money, while people are losing their homes and home values are significantly decreasing - sounds a little criminal.

Why is this bail out so secret? If it is financed by taxpayer money - then let's see if it was a good deal or not.