Maybe The New Guy Will Get A Better Grade

From All the Wrong Policies: Paulson Gets 'F-Minus' from Former Regulator by Aaron Task:

As bad a year as the stock market is having, Treasury Secretary Paulson is having an even worse one, according to William Black, Associate Professor of Economics and Law at the University of Missouri.

The professor, who was counsel to the Federal Home Loan Bank Board during the S&L Crisis and blew the whistle on the "Keating Five" in 1989, says Paulson deserves an "F-minus" for his role in the financial crisis.

He also notes Paulson steered Goldman Sachs into subprime and alt-A mortgage securities before becoming Treasury Secretary in 2006. Goldman began shorting those instruments shortly after Paulson's departure, he notes.

The current crisis is "not a hundred-year flood, that suggests it's an act of God caused by random forces," Black says. "This was one cause by bad policies, the same policies that have caused prior crises."

From Stocks surge on Treasury chief talk by Alexandra Twin:

Stocks rallied Friday, with the Dow industrials bouncing as much as 550 points, after reports surfaced that President-elect Barack Obama will nominate New York Federal Bank president Timothy Geithner as his new Treasury Secretary.

In particular, Wall Street seemed to welcome Obama's reported pick of Geithner, the vice chairman of the Federal Reserve's policy-setting committee. Geithner was the Fed's point person on the rescue of Bear Stearns and AIG.

You Fail, We Bail

Wasn’t what the government did concerning Bear Stearns supposed to stop the imminent collapse of the financial empire? For too long now the fear card has been played. “They” told us that if the government didn’t step in and throw some money around the house of cards would fall. And it will trickle down and effect YOU. Why can't the government come up with a better motivator than fear? Time and time again the government has stepped in and thrown unprecedented amounts of money around, and the house of cards is still falling down. Couldn’t they have saved a lot of money by simply doing nothing? I personally don’t care if all the investment banks fail. They don’t have any of my money. I don’t have enough to put any there. They cater to the rich and powerful. Let the rich and powerful deal with this mess. Leave the average American taxpayer out of it.

From Looks Like I Spoke Too Soon by Jeffrey Stingerstein:

No sooner does the federal government show some sensibility by not bailing out a failing company, then it shows its stupidity once again by bailing out yet another company. What the hell is wrong with our government? One bailout after another using tax payer money and it isn’t getting us anything. Is it getting us a sound economy? No! It’s getting us a delayed crash. All these bailouts are leading to one thing, more irresponsible and risky behavior by already imprudent businessmen. First these guys get tax cuts, now they get bailouts. Why not just hand them the US Treasury Department and say, “Hey, take whatever you need. We’ll just borrow more from our enemies over in China.” This is getting utterly ridiculous and I can’t imagine how this could possible be doing anything good for our economy in the long run. What a lesson to learn! You fail, we bail you out!

Where Did It Go Wrong?

From Risk is gone on Wall Street by David Weidner:

Dick Fuld, the soon-to-be former chairman and chief executive of Lehman, and Jimmy Cayne, the former CEO of Bear Stearns, tried to outdo each other with compensation.

The "hard-charging" Fuld took home about $45 million last year. But that was OK because he was a lifer at the firm who had helped rebuild it a couple of times when it neared collapse. No one ever thought that maybe the executive people liked to call the gorilla was one of the reasons the firm kept running into trouble.

Cayne's net worth soared to $1 billion at the end of 2006, but we're supposed to feel sorry for him because he lost a fortune in the collapse and has to live in a $26 million apartment in the Plaza Hotel.

The employees of these firms aren't much better. They can't figure out why the market has lost confidence in their eggshell companies built on mountains of combustible derivatives. They scowl at journalists, pay coffee vendors not to serve reporters who make a fraction of what brokers do. They blame the media for their woes, not their banking counterparts who have cold feet.

Wall Street tells investors to buy and hold and then goes on a bank run against two of its own.

Read more here.

The Greatest Financial Scandal In History?

From Bringing Down Bear Stearns by Bryan Burrough:

On Monday, March 10, the rumor started: Bear Stearns was having liquidity problems. In fact, the maverick investment bank had around $18 billion in cash reserves. But soon the speculation created its own reality, and the race was on to keep Bear’s crisis from ravaging Wall Street. With the blow-by-blow from insiders, Bryan Burrough follows the players—Bear’s stunned executives, trigger-happy reporters at CNBC, a nervous Fed, a shadowy group of short-sellers—in what some believe was the greatest financial scandal in history.

Read the rest here.

What Is The Sound Of One Invisible Hand Slapping Itself Silly?

From Bear Stearns: "Too interlinked to fail" by Andrew Leonard:

On the one hand, this makes Sen. Jim Bunning's question to Federal Reserve Bank president Timothy Geithner all the more relevant.

How did we get to the point that the failure of one firm can bring us to the edge of collapse, our whole financial markets? We know the Fed and others did not do their job in regulating lending practices and supervising the risks banks were taking on, but how do you let the entire financial system become so fragile that it could not tolerate one failure?

…both the Clinton and Bush administrations and Congress accepted Wall Street's plea to let them proceed with a light regulatory hand, and accepted the argument that new derivative instruments, such as credit default swaps, would increase the stability of the overall financial system by spreading risk more broadly. We all now know how ridiculous that argument turned out to be. The invisible hand of Wall Street ended up slapping itself silly. Now we're going to need a little more socialism to clean up the mess.

Fleeing A Sinking Ship

Bear Stearns Chairman James Cayne sold his entire stake in the company the other day. He made $61.3 million by selling all of his stock in the company. At one time his shares were worth one billion. I have no sympathy for him. He is partly responsible for the collapse of Bear Stearns and the economic mess we now are in, and he still gets sixty-one million dollars.

If there is a federal law for a minimum wage, why is there no federal law for a maximum wage?

Yet Still More On Bear Stearns

Why write so much about Bear Stearns? To me they are a symbol of what is currently wrong with the United States. When you put making money above all else you are dooming yourself, as well as others around you. Just ask the compulsive gambler. I don’t make this comparison lightly. Strip away all the bright lights, big city Wall Street trappings of Bear Stearns, and what remains are a bunch of compulsive gamblers. Albeit, compulsive gamblers who are paid to be compulsive gamblers. What a twisted racket. The worst part of all of this is that they weren’t just playing with their own money. Is giving the compulsive gambler more money to gamble with a good thing to do? No. Then why is the government giving more money to Bear Stearns? Money that the government doesn’t really have, by the way.

Ethics and morals. Isn’t that what George W. Bush ran his first campaign on? I’d laugh, but it’s just not funny. Right now, impeaching Bill Clinton over a sexual indiscretion and one lie seems farcical. Especially when compared to the moral bankruptcy and lies of George W. Bush, his administration, and yes, Bear Stearns.

Add fear to the mix and all hell breaks loose.

Moral bankruptcy, fear, and lies got us into Iraq. Moral bankruptcy, fear, and lies caused the downfall of Bear Stearns. So it seems perversely fitting that one immoral liar is bailing out another immoral liar because they are afraid. And like the situation in Iraq they are rushing into it without thinking and without considering the moral high ground. By placing this bet on Bear Stearns the government is risking becoming a compulsive gambler itself. Oh, wait a minute, they already crossed that line with the invasion of Iraq.

In Rescue Me: A Fed Bailout Crosses a Line Gretchen Morgenson has some good questions:

What are the consequences of a world in which regulators rescue even the financial institutions whose recklessness and greed helped create the titanic credit mess we are in? Will the consequences be an even weaker currency, rampant inflation, a continuation of the slow bleed that we have witnessed at banks and brokerage firms for the past year?

Or all of the above?

Stick around, because we’ll soon find out. And it’s not going to be pretty.

There is one question I would add to this list of questions posed by Gretchen Morgenson. What are the moral consequences of a world in which regulators rescue even the financial institutions whose recklessness and greed helped create the titanic credit mess we are in?

Still More On Bear Stearns

Here are three quotes from Aftershocks of a Collapse, With a Bank at the Epicenter:

More so than other firms on Wall Street, Bear had encouraged its employees, from secretaries to top executives, to be long-term holders in the company’s stock, and the employees own over 30 percent of the company.

“My life has been flushed down the drain,” said one person. There was talk Monday that with their life savings nearly depleted, some executives had moved quickly, putting their weekend homes on the market.

But to most Bear employees, many who face the prospect of not only losing their jobs but of a retirement without savings, such a thought is perhaps too elusive to contemplate.

Huh? How can this be? I could retire on what these guys make in one year. Look at this quote from The Evolution of an Investor about former stockbroker Blaine Lourd:

Still, he was a 29-year-old earning $200,000 a year, and he was, as he puts it, "ramping up the lifestyle." Rival firms noticed his success: He left Bear Stearns for Dean Witter, which would later become Morgan Stanley. Blaine’s business grew to the point where he became somewhat famous. Name a prominent director or big-time movie star, and there was a fair chance that Blaine Lourd was giving her financial advice. He lived near the beach in Malibu, drove fancy cars, and indulged an expensive taste for young women who had moved to Los Angeles to become movie stars. He routinely ranked in the top 10 percent of revenue producers for whichever firm he happened to be working for. In his best years, he grossed more than $1 million. His father had been right: His persuasiveness and ability to get people to like him went far on Wall Street.

Bear Stearns mostly hires college educated “smart” people. So why were these people not smart enough to follow a basic investing rule that has been pounded into every American brain since the collapse of Enron? You know the rule I mean: “Diversify.” I simply can’t believe that everyone (except for the lower paid employees who do all the actual real work) who works at Bear Stearns doesn’t have substantial amounts of money stashed away in something other than Bear Stearns stock. Get real.

Also, it goes without saying that all these “smart” people at Bear Stearns were ignorant of the first two rules of investing:

1. Don’t lose money.
2. See rule number one.

Greed is not good.

My Recommendations To Bear Stearns

Honesty is the best policy. I recommend that Bear Stearns implement a policy of honesty and full disclosure. The first thing they should do is change their ticker symbol from BEAR to BS. Next, change their name to Bull… Well, you get the idea.

All I want is the truth.

Bear Stearns Fiasco

George W. Bush hates sick children, but he loves rich bankers. Actions speak louder than words. He has vetoed health insurance for children who need it, not once, but twice. He can’t or won’t find money for helpless children, but he is all too happy to open the government coffers for millionaires and billionaires who screwed things up because of their own greed and incompetence. How does he get away with something like this? JP Morgan Chase is taking over Bear Stearns with help from the federal government. How much more of this insanity do we have to put up with?

If Bear Stearns were to go under who does it hurt? Rich people. Rich people who were so dumb that they invested their money there. Read The Evolution of an Investor if you don’t believe that previous sentence. It is about former stockbroker Blaine Lourd and it contains this gem:

The older brokers in the office all threw around Buffett's name, so Blaine did too. Buffett was useful because everyone knew who he was and everyone thought he had made his money picking stocks. Blaine was picking stocks just like Buffett but using different criteria. The traders in New York would accumulate a block of shares, driving the price up, and then get brokers like Blaine to unload the shares quickly at the higher price—whereupon the price would, often as not, fall. "Seven months in at Lehman, I was one of the top rookie producers," Blaine says, "but every stock I bought went down." His ability to be wrong about the direction of an individual stock was uncanny, even to him. At first, he didn’t understand why his customers didn’t fire him, but soon he came to take their inertia for granted. "It was amazing, the gullibility of the investor," he says. "When you got a new customer, all you needed to do was get three trades out of him. Because one of them is going to work. But you have to get the second one done before the first one goes bad."

It wasn't exactly the career he’d hoped for. Once, he confessed to his boss his misgivings about the performance of his customers' portfolios. His boss told him point-blank, "Blaine, you're confused about your job." A fellow broker added, "Your job is to turn your clients' net worth into your own." Blaine wrote that down in his journal.

I don’t know anyone rich enough who could even consider investing at Bear Stearns. This is from Bear Stearns own web site:

At Bear Stearns, we have been helping high-net-worth individuals and families build and manage their wealth for over fifty years.

Bear Stearns is a company whose former CEO spent time playing golf and bridge rather than working. This same CEO refused to bail out Long-Term Capital Management in 1998.

From JPMorgan close to deal for Bear Stearns at Forbes.com:

The funds' collapse and subsequent problems in the credit markets called into question Bear Stearns ability to manage its own risk and the leadership ability of then-Chief Executive James Cayne. Critics of the company said Cayne spent too much time away from the office last year playing golf and bridge as the problems unfolded.

Cayne is the same executive who refused to let Bear Stearns provide support as part of a Federal Reserve Bank-led plan to rescue Long-Term Capital Management in 1998. His reticence was said to deeply anger some of his fellow Wall Street CEOs, and the episode came up every time Bear was reported to be in trouble in recent months.

Tonight on the Nightly Business Report a video clip of George W. Bush was shown with him saying, “Our financial institutions are strong.” Clueless George, lying George. Does George Bush know the definition of the word "strong." Because Bear Stearns sure ain't it. As long as George W. Bush remains in office I will be mad as hell. The problem is I still have to take it because no one will impeach him. The way things are going he will surely destroy this country of ours before his term is up.

How much more damage do we have to suffer before George W. Bush is thrown out of the White House?

Maybe The Inmates Should Take Over The Asylum

Sometimes I think that all economists, CEO’s and politicians are total idiots. Do they know anything at all? How can someone run Bear Stearns into the ground? It boggles the mind. Hey, I can destroy a huge company as well as the next guy. Where’s my multi-million severance package? Where is my bailout from Dubya and Ben?

The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis.

Brownie, oops I mean Ben, your’re doing a heck of a job:

The action won praise from the administration, with President Bush saying that Fed Chairman Ben Bernanke was "doing a good job under tough circumstances."

I’m sure that hearing this kiss of death from Bush really made Bernanke’s day.