Bear Stearns: Natural Causes or Murder?

9 07 2008

Bryan Burrough has penned a riveting article in the August issue of Vanity Fair exploring the death of Bear Stearns.  Did CNBC reporter David Faber murder it?  (No, but what an interesting media angle the piece contains.)  Was it a hit job by shadowy speculators?  Or did it just die of exposure to years of toxic, high-leverage mortgage shenanigans?

Excerpt:

“The numbers, scribbled out on a yellow legal pad, told the story. Standing in Molinaro’s conference room, Schwartz listened as Robert Upton guided them through the wreckage. A full $30 billion or so of repo loans would not be rolled over the next morning. They might be able to replace maybe half that in the next day’s market, but that would still leave Bear $15 billion short of what it needed to make it through the day. By seven it was obvious they had only two options: an emergency cash infusion or a bankruptcy filing the next day. The one thing everyone agreed upon was the need for secrecy. “If word gets out, it might be the end,” one participant recalls saying…

Schwartz was stricken. He had genuinely thought they would make it. By early evening, realizing that Bear’s life expectancy might now be numbered not in days but hours, he hit the phones. The regulators—the S.E.C., Treasury, the Fed—had been watching the situation all day and were waiting when he called to brief them. Gary Parr, the Lazard banker, had already touched base with J. P. Morgan’s C.E.O., Jamie Dimon, that afternoon, letting him know where Bear stood. J. P. Morgan was the obvious candidate for overnight cash. The two firms had long-standing ties. Their headquarters faced each other across 47th Street.

That day was Dimon’s 52nd birthday, and he was celebrating with a quiet family dinner at Avra, a Greek restaurant on East 48th Street. He was irked when his private cell phone rang; it was to be used only in emergencies. On the line was Parr, who put Schwartz on as Dimon stepped outside onto the sidewalk. Schwartz quickly explained the depth of Bear’s plight and said, “We really need help.”

Still irked, Dimon said, “How much?”

“As much as 30 billion,” Schwartz said.

“Alan, I can’t do that,” Dimon said. “It’s too much.”

“Well, could you guys buy us overnight?”

“I can’t—that’s impossible,” Dimon replied. “There’s no time to do the homework. We don’t know the issues. I’ve got a board.”

“For the first time in history the entire world was looking at the failure of a major financial institution that could lead to a run on the entire world financial system,” a Fed official recalls. “It was clear we couldn’t let that happen.”

An amazing story of high finance, PR and perception-becoming-reality, and what might be the first in a long line of Wall Street financial collapses.

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