A new book argues that not only was the doomed investment firm way overexposed to risky assets and beleaguered by bad management, but it also made the wrong choice when it was requested to help out LTCM ten years earlier. From a review:
Bear had been the only big firm that refused to help out Long-Term Capital Management, a hedge fund that came close to the brink in 1998. Some wondered if this was the reason Hank Paulson, then treasury secretary and a former boss of Goldman Sachs, insisted on Bear being sold for a mere $2 per share (though this was later quintupled after shareholders revolted). There were certainly many on Wall Street, including a fair few at the firm itself, who felt Bear had it coming.
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Many talking heads have mentioned that letting Bear Sterns fail precipitated the crisis. I have found this hard to believe, and harder still that somebody would take this seriously. I believe the Bear Sterns case will serve as an example by the feeble-minded to justify the bailouts – “Hey, we don’t want another Bear Sterns, do we???”
The implication is that Bear Stearns was allowed to fail as payback for not propping up the near failure of Long-Term Capital Management. Plainly spoken, Bear Stearns was the victim of revenge.
This clearly illustrates that those in power can and will wield their power to reward their friends and exterminate their enemies. Americans and every other kind of -cans are fools to embrace omnipotent government as our savior.
I, for one, am absolutely shocked at this news!
I mean, whoever would’ve thought that power would be wielded in support of the empowered, as opposed to serving the faceless, nameless widows and orphans far removed from Wall St.?
Voters, is there any evil they cannot empower?
I think this a distraction. Bear went down because of redemptions on money market funds. It was nothing sort of a bank run. The fact that they didn’t get a “bailout” may have a personality behind it, but it’s inconsquential to the assets and liabilities of the bank itself.
I get the feeling that putting a narrative behind a bank run only plays to the public’s wealth envy.
I’ve worked on Wall Street for almost 3 decades. There is NO question that revenge for LTCM, and countless other slights, was a background theme in the demise of Bear Stearns. They made countless enemies over the years, and never allowed for the possibility they might someday need friends at other shops.
Not to say Bear Stearns had some kind of holistic motives back then, but you could argue bailing out LTCM was wrong in the first place. At some point people had to stop just recklessly printing up money, and that’s exactly what banks and hedge funds were doing, leveraging funds 30+ times.
Maybe if LTCM had been allowed to fail the bubble might not have gotten out of hand as much as it did in the end.
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