Who Gained When Bear Stearns Fell?
Last week I wrote that a certain kind of Savage Capitalist was responsible for a good deal of market manipulation. Just how powerful that force was, leaked out at yesterday's Senate hearings on the Bear Stearns bailout.
Pummeled by market rumors of insolvency, the investment house lost more than $10 billion —or more than 80 percent — of its available cash in a single day. Only a few days earlier, the chairman of the S.E.C., Christopher Cox, had sought to calm investors, telling reporters that “we have a good deal of comfort about the capital cushions” at Bear and other large investment houses.
Maybe Chris Cox should take his head out of the sand and investigate who gained from the fall of Bear Stearns? Who was spreading the rumours of insolvency because they were shorting the stock? Who created the self-fulfilling prophecy?
None of these questions will be answered by the current regulatory regime that shuns Hedge Fund Transparency. Whenever Democrats like Charlie Rangel have tried to go after the Hedge Funds either in taxing their profits or in creating more transparency, two of the Presidential candidates have stood with the embattled Billionaires. John McCain, who had Lord Rothschild host his London fundraiser and Hillary Clinton worked to block Rangel's latest efforts.
Hedge fund and private equity managers are up in arms over the bill, not wanting to give up any of the perks of the business They’ve hired a coterie of lobbyists to fight the changes, with the Blackstone Group being one of the major sources of money for the efforts.And they have some unlikely support. Both New York Senators, Democrats Charles Schumer and Hillary Clinton, who’s also running for President, have quietly indicated that they won’t support the bill, according to news reports.
Comments (11)
I'm sure the SEC is reviewing the trade data, and I am also sure they will find nothing. If someone is plugged in enough to foment a rumor, they would not be dumb enough to leave finger prints, for example a massive short position and sell off. Proving that someone fomented is very challenging.
April 4, 2008 1:07 PM | Reply | Permalink
There are ALWAYS rumors. The real question is why this one was powerful enough to bring down Bear Sterns. Maybe $10 billion was inadequate because they had at least $30 billion in worthless paper? Hmm...?
By the way, demanding transparency is quite different than demanding money (taxes)? Worth noting, don't you think?
April 4, 2008 2:06 PM | Reply | Permalink
Bear Stearns wasn't brought down by rumors of insolvency. It was brought down by its insolvency! Don't blame the hedge funds here. They were the messengers.
April 4, 2008 2:11 PM | Reply | Permalink
This whole episode stinks! If mere rumors can bring down an investment house like Bear Stearns overnight, then our economy is obviously built on a house of cards.
Ben Bernanke was at a loss to tell the US Senate how much liability the US taxpayers have in this deal. I'm no expert but it seems to me that you should know your liability before agreeing to anything.
The Fed put it's finger in the dike, using the American taxpayers as the equity to back J.P. Morgan's takeover, but to what end? To prevent a run on the banks? If our system relies upon the Fed to cover high stakes players from their own folly, we are well and truly screwed.
April 4, 2008 2:30 PM | Reply | Permalink
Bear Stearns obviously made many stupid moves that brought on their demise. By economics teaches us for evey loss their is an equal gain. I'd just like to know who had the big short positions in Bear in the week running up to the end.
April 4, 2008 2:43 PM | Reply | Permalink
I understand that you're curious about which funds shorted Bear and made bundles of cash but I really don't think that "for every loss their is an equal gain" is something that economics teaches us.
April 4, 2008 3:49 PM | Reply | Permalink
Chris Cox,a Business champion when he was in Congress, was appointed to head the FTC by the Bush/Cheney gang. Anyone that thinks Cox will do more than pander to the Business community is smoking too much of that funny weed.
Any investigation by Cox into Bear Stearns will be a carbon copy of any investigations Alberto Gonzales mounted into the Bush administration.
April 4, 2008 3:07 PM | Reply | Permalink
Too right, John. In fact, this entire administration has demonstrated the "fox guarding the henhouse" theory of government.
April 4, 2008 3:33 PM | Reply | Permalink
Too right, John. In fact, this entire administration has demonstrated the "fox guarding the henhouse" theory of government.
April 4, 2008 3:33 PM | Reply | Permalink
The big question -is the former Bear CEO still going to get to land his helicopter on that golf course in New Jersey? He still is worth $100 million or so and has all the time in the world to do what he loves!
James Cayne gone golfing
April 4, 2008 8:14 PM | Reply | Permalink
the sad aspect of all this is that you don't know the bsc positions, do you?
that has been hidden.
just for the sake of illumination, what if bsc had gold, silver long. that bsc was on the opposite side of the fed's banker, jpmorgan chase. that bsc was primed to take out the fed's favorite banker with the largest exposure to derivatives[whatever they are, however they are valued].
let us never forget, though it goes completely undiscussed, jpmorgan chase is the largest stockholder of the federal reserve bank.
anyone care to think about helicopter ben dancing to that piper's tune?
April 6, 2008 12:20 AM | Reply | Permalink