By now, it's pretty much common knowledge that Bryan Burrough, in his opus on Bear Stearns Cos. in the August issue of Vanity Fair (tough luck, Portfolio), fingers four entities as the possible culprits behind the firm's sudden death: SAC Capital Management; Citadel Investment Group LLC; Goldman, Sachs & Co.; and, of course, CNBC. The first three accusations, while provocative, are easy to dismiss, mostly because Burrough waits until the third-to-last paragraph of a 10,000-plus word story to name them, and when he does, he sources the information to anonymous "Bear executives." Well, that's reliable.
But Burrough spends considerably more time developing his case against CNBC Inc., taking the cable network to task for failing to separate rumors about Bear's liquidity from fact.
Burrough maintains that in the days leading up to Bear's collapse, CNBC anchor Erin Burnett announced there was a credit issue at the firm, "never mind that there was no such thing." And he says that once David Faber told Bear CEO Alan Schwartz on air that he knew of a credit department that had held up a trade with Bear, the firm's fate was pretty much sealed.
Writes Burrough: "You knew right at that moment that Bear Stearns was dead, right at the moment he asked that question," a Wall Street trader of 40 years told me. "Once you raise that idea, that the firm can't follow through on a trade, it's over."
We can debate until we are blue in the face -- and the blogosphere is fully engaged in this fight -- whether rumors of a liquidity crisis equal an actual liquidity crisis. After all, if you can't cover withdrawals, whether they're caused by rumors or something more "real," you're facing illiquidity. But that argument doesn't totally render moot Burrough's finger-pointing at CNBC. For one thing, the scene he paints of Bear's top brass trying to pick a CNBC correspondent to interview Schwartz is alone worth the price of admission; the fear is that whoever doesn't get the nod will retaliate on air. What's more, when Bear tries to identify an executive in charge of all the network's talking heads, it fails. "Everyone at Wall Street knows the joke," a Bear exec tells Burrough. "At CNBC, there is simply no adult supervision." Ouch!
The charges against CNBC (and the hedge funds and Goldman) give the piece something that The Wall Street Journal's earlier three-parter on Bear lacked. But they also raise questions about how the media is covering and perhaps even fanning the current banking crisis.
Indeed, no sooner had the ink on Burrough's piece dried than another Wall Street firm, Lehman Brothers Inc., saw its stock fall 8% on June 30. The next morning, Lehman was topic A on CNBC, with The New York Times' Andrew Ross Sorkin playing guest host. Sorkin quickly debunked the previous day's rumor that Lehman would be taken over by Barclays plc but added that the firm is not in the clear yet: "Every time we talk about this story, the headline issue, if you will, puts them in a more precarious place," he said.
Clearly, Sorkin had read Burrough's piece and didn't want to be tarred as a malevolent Chatty Kathy if Lehman succumbed. But he and the CNBC gang kept gabbing anyway; it's what they're there for. Soon enough, Sorkin is happily sparring with Charlie Gasparino, who came in for some drubbing in Burrough's story for stating that he didn't see how Bear could survive independently because "they don't have enough horses out there." Now, he was making a similar prediction for Lehman.
"It's kind of what happened with Bear Stearns, minus the fact that [CEO] Dick Fuld is considered a better manager, and they have the Fed window and they just raised capital," Gasparino says of Lehman. "In the future, what is their relevance?"
Well, that's a lot of facts we have to subtract. But is Gasparino right? We have no idea. And we're pretty sure nobody else does either; if Bear postmortems teach us anything, it's that nobody, from Alan Schwartz to Jamie Dimon to Hank Paulson, knew that firm's future until the Sunday it was sold to J.P. Morgan. But the media will keep guessing anyway, and theories and rumors will echo from CNBC to the blogosphere to the newspapers to trading floors and back again. It's a wonder Fuld gets any work done at all.