As the Tom Hanks character, Capt Miller, says in a pivotal scene in Saving Private Ryan, “We are in uncharted waters here, and things have taken a turn for the surreal.”
Predictably, the finger-pointing regarding the mortgage bailout/credit crisis mess is well underway–even while the fallout is far from over and office pools on which Wall Street lion is next to fall (Lehman? Citi?) rivals the betting pools on some March Madness brackets. Perhaps fittingly, certain Wall Streeters whose banks were elbow deep in subprime mortgage CDOs are now adopting the “blame the victim” strategy as a way to allay their own damning culpability.
Wall Street firms in general, and Bear Stearns in particular, were never considered soft and fuzzy places of employ. As more than one former Bear banker recalled to me, Bear Stearns was a place where stabbing in the back was not only OK, it was rewarded. How ironic that the firm legendary for its sharp elbows and tough love demeanor (remember their refusal to help in the 1998 Long Term Capital Management bailout, anyone?) is now whining that, in effect, the bald-pated devil by the name of Ben Bernanke made them do it.
As Dennis Millermight say, I don’t want to go off on a rant here, but…This latest argument emanating from the economists at Bear Stearns is unmitigated gall.
John Ryding, Bear’s chief economist, and his cohorts argued in a recently released report that the Fed’s fast-and-loose monetary policies were squarely to blame for the housing crisis and–by extension–for the fall of the house of Bear. Mr. Ryding is a bright fellow. I actually know him personally and have enjoyed more than a few adult beverages with him at any number of overpriced Manhattan hotel bars discussing all manner of subjects. But, on this issue, he is clearly overreaching.
Yes, it’s fairly evident that Fed policy–principally under Greenspan, although Bernanke was a Fed governor during the relevant period–did stoke the housing and credit bubble. It can also be persuasively argued that the Fed dragged its feet on taking away the punch bowl once the froth starting appearing with earnest in 2004-2006. Blame can also be squarely placed on both political parties for either blocking legislation to regulate predatory lending or simply not enforcing existing laws and oversight responsibilities. No matter. The unravelling has begun.
What’s positively laughable is that these Bear economists are making the argument that the Fed is responsible for the egregious risks their bank and its affiliated hedge funds took–even while the sub-prime market was clearly beginning to buckle. Other Wall Street banks may have sipped from the same glass but they had the foresight to back away and maintain proper exposure. Losses are now being sustained throughout Wall Street’s pedigreed firms, but not to the extent that they have been at Bear Stearns as to wreck the legendary firm. Bear Stearns doubled down, pure and simple. It took enormous risks. Had those risks paid off, I doubt there would have been any appetite among the Bear Stearns partnership to share those spoils with the US taxpayers. Now that those bets have imploded, it is the US taxpayer (through a complex arrangement worked out in the JPMorgan deal) that will be on the hook for as much as $29 Billion. That’s Billion with a “B.”
I’ll search my files from other equally comical excuses in US business lore, but it won’t be easy. Heck, I’ll even settle for run-of-the-mill excuses. The infamous case of the woman suing McDonalds because her coffee was too hot comes to mind, but it’s not nearly good or ironic enough. How about, “sorry I totalled your Lamborghini, Dad, but you made the garage too easy to break into and I am young and impressionable.” Actually, that’s not all that funny–happened to a friend of mine.
In any event, all manner of crises bring out creative finger-pointing but these from Bear Stearns may represent a new level of cowardice, hubris and gall. Bravo, gentlemen. Braaavo.