Parker J
Investment Banking

Even though Bear was involved with investment trades around the world, the Fed did not grant Bear a government bailout. The Fed did step in to help maintain stability for the market, but LTCM for Bear was out of luck. Bear differed from its downward pressure on global securities prices, market stability, the possibility and probability to crash fast and hard, and the market environment was simply too hectic. Well first and foremost, the biggest change that could have been made, would be to hold the bridge tournament a couple months earlier. I believe that would have changed the outcome of Bear Stearns and allowed Cayne to save the day. All joking aside, from reading the article or case study, CDO’s and ARM’s were not the only destruction of Bear, just the final blow. Similar to what is happening in China right now with failing/decreasing hedge funds, Bear called in $500 million of short term debt to cover its losses from an unprofitable hedge fund. There was also a $38 million dollar fine paid to the SEC for fraudulent behavior. They were caught up in the CDO craze like everyone else and accepted way too many mortgages without knowing the details. Cayne must not have grasped the situation in its entirety. I can’t believe he announced they had $11.4 billion in cash and was now taking the situation seriously. The hole was much deeper than that. March 10, 2008, I believe, is where they were caught in the biggest fraud. Even though they didn’t alert customers when they should have a year or two ago, Bear isn’t entirely to blame. Don’t forget about S&P and Moody’s, I know they were not innocent. Where was there punishment? JP Morgan certainly benefited from the fall of Bear when they acquired them for about $2 per share. This was a 97% discount from the original share price of $32 per share and upwards of $170 the year prior. With such an enormous competitor gone, JP Morgan was not the only one to benefit. Certainly not lying about liquidity could’ve helped stop the run on the bank. They may have even kept some investors. If they were honest when things were going downhill, I feel the losses would have been substantially fewer on all accounts. I think liquidity could be argued to be more important to either depending on a multitude of factors. I will side with investment banks, simply because the vast difference in size and equity.
Yes, I believe they went outside of their pure play limitations to welcome in these money printing opportunities (or so they seemed). I don’t think the research was properly done, or much at all and specific bets were not made to ensure it was a healthy risk to take on.
I don’t think the Fed should play in any of the grossly over-regulated areas that it plays in. Just let the kids play in the sand box and when someone gets hurt they’ll get over it and get back to playing. Coddling us only makes things worse in the long run.