The Financial Crisis Inquiry Commission (FCIC) had the former execs of Bear Stearns under the hot lights on Wednesday. It seems it wasn’t their fault, they said. Which caused Chairperson Phil Angelides to quip that the whole thing must have been an “immaculate calamity.” Great line and it’s been going around the blogosphere like a virus.
Here is what the executives said:
- None of the former Bear Stearns executives could point to particular actions they took that they felt contributed to the collapse.
- “The market’s loss of confidence, even though it was unjustified and irrational, became a self-fulfilling prophecy,” Former Bear Stearns Chief Executive Officer James Cayne told the Financial Crisis Inquiry Commission in Washington.
- Mr. Molinaro said that “market fears surrounding mortgage-backed securities and rumors and innuendo in the end resulted in fear-induced, irrational behavior that caused a run on the bank.”
- Cayne said Wednesday that his firm’s risk level was too high in the year before it collapsed. ”That was the business,” Mr. Cayne told a hearing held by the Financial Crisis Inquiry Commission, a congressional panel scrutinizing the financial crisis. “That was really industry practice. In retrospect, in hindsight, I would say leverage was too high. [42:1]
- Alan Schwartz, who became CEO at Bear Stearns after Mr. Cayne, agreed that the firm’s leverage was high, but he also said gross leverage is “one of the most misleading” measurements. Schwartz told the panel the firm was well capitalized and blamed its failure partly on market rumors and speculation. He called Bear Stearns “the first firm to fall victim to the credit and liquidity crisis.”
- Former President Warren J. Spector said Bear Stearns had better risk management than many of its competitors.
- Mr. Cayne said he had hoped that the Securities and Exchange Commission would launch an investigation into a possible conspiracy against Bear Stearns as rumors began circulating that the firm was sinking.
- “Regardless of whether there was a conspiracy or not, the bottom line was that the firm came under attack,” Mr. Cayne said. ”In my heart I believe there was some stuff going on,” Mr. Schwartz said. “Can I prove it? It’s very hard to distinguish when a bunch of people are running out of a crowded theater, which one yelled, ‘Fire.’”
In other words, insanely high leverage (up to 42:1), large holdings of MBS, poor risk management, and overnight borrowing from the repo market ($50 to $60 billion) had nothing to do with their collapse. They did nothing wrong and were the victims of a conspiracy of evil traders who seized upon their temporary lack of liquidity and sent them over the edge when investors irrationally lost confidence. Talking about an alternate universe, these folks should be sent to St. Helena to think about cause and effect for a while. Jimmy Cayne would probably just play bridge there. … Continue reading Bear Stearns: The ‘Immaculate Calamity’
Ack! Where do they get these people:
Thomas Baxter, general counsel of the Federal Reserve Bank of New York, said Saturday that incentive compensation fueled the global credit crisis and there is a need for greater loan discipline.
“Incentive compensation can and has led us into temptation,” and is one of the causes of [...]
President Obama used his bully pulpit on Thursday to chastise banks and bankers while announcing a punitive tax on them to assuage an angry populace. Is his rage against the big paydays justified? Not for the reasons he thinks. [...]
I get a number of e-mails from readers seeking advice, usually investment advice. I politely advise them that I do not give investment advice. Last year I received messages of a theme that can be described as folks who felt The Great Collapse was happening. Armageddon and that type of thing.
Here is some [...]
By Jeff Harding.
In order to understand the present state of the U.S. economy you have to understand that there are two things happening at once. For the most part they are in conflict with each other, in that one track can negatively impact the other.
Lest I be accused of putting out conflicting information, there [...]
By Jeff Harding.
The Commerce Department announced Thursday that GDP grew 3.5% in Q3 2009. This is the “Third Quarter Bump” I had been expecting.
Economists and the news media are jumping on the “It’s Over!” bandwagon. Their conclusion is based on the premise that government spending (“stimulus”) will actually create real economic growth. It [...]
By Jeff Harding
This is a compilation of film clips of Ben Bernanke making various prognostications as the financial crisis unfolded and he is shown to be embarrassingly wrong. What I think you will see from this video is that Ben is just another economist who looks to the future by incrementally adjusting from past data [...]
Like most pragmatists he can say one thing and do another. 
I’m trying to figure Barack Obama out. He says that he has an open administration and that he is willing to work with everyone to see “what works.” Yet in his Inaugural Address he says the debate about large versus small government is over. In a speech yesterday he said “just say no” is not a valid response to an economic crisis. He’s trying to shut off the vigorous debate about the economy that’s raging outside the confines of the White House. It’s as if we squabbling children should shut up and let the “adults” (i. e., Barack Obama and his advisers) get to work to solve the problems we face.
I for one really resent his professorial demeanor that belittles his opponents. He believes he has a mandate from the American electorate. He needs to face up to the fact that people voted against Bush far more than they voted for Barack Obama. No offense, but he doesn’t have any better clue of how to solve our problems than do at least 10 million of your very smart fellow Americans who have gone to college and grad school and have serious opinions about the issues in our lives. Yet he claims to have the answers.
So who is he? A Chicago hardball politician? A dedicated liberal with a liberal/socialist agenda? A centrist trying to find the middle way? A reformer who wants to find “solutions” that work?
Here’s the rub: I think he is all of those things. That makes him a pragmatist, which is a dangerous thing. … Continue reading Who is Barack Obama?
Another Example of the Law of Unintended Consequences
I listened to the well meaning Republican senator Mitch McConnell of Kentucky propose government mortgage lending to homeowners at below market interest rates. Like many Republicans he advocates “curing” the housing market as the way to revive the economy.
“Most people recognize that housing is at the root of the current economic downturn. So we should fix this problem before we do anything else.
“Republicans believe that one way to do that is to provide government-backed, 30-year fixed mortgages at approximately 4% to any credit-worthy borrower, reducing monthly mortgage payments and increasing demand for homes. According to this proposal, the average family would see its monthly mortgage payment drop by over $400 a month, which comes out to over $5,000 a year. Over the life of a 30-year loan, that’s a savings of over $150,000.”
The Republicans propose refinancing 80% of the mortgages in the country. By issuing 10 year notes, the Treasury can borrow money at 3% and lend at 4%. If these numbers are correct, then with 80% of home owners refinancing as they predict, the savings would amount to $160 billion per year. This, they claim would add up to a lot of stimulus to the economy. Sounds great. … Continue reading Republicans Propose Nationalization of US Mortgage Market
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