Sunday Sep 7 2008
All times are London time
Here is a column I wrote for today’s Financial Times on the Bear Stearns rescue, examining why the event is so unusual and what it means for global financial markets. You can comment below.
About this blog
I am the FT's chief business commentator and this blog is about business, finance, media, technology and related matters. I live in New York so there is a bias towards US topics but I range more widely. Comments and criticism, which hopefully are at least as interesting as anything I write, are welcome. There is more about me on my columnist page.
While Bear was a prolific MBS house with an eclectic blend of business her loss would not be a significant body blow to the global economy or even to Wall Street if not for the role she played as counter party to speculators in the $45 trillion derivatives markets. When the wheels came off the two ‘BS’ hedge funds it revealed something about the firm’s perception of risk and its ability to mitigate that risk. The funds were run like private fifedoms with sufficient leverage to implode at the first signs of goldilocks departure from the macro econ scene.The BS funds were probably among the worst structured and run since they broke first under the market strain.Risk management teams were either oblivious or shut off in a corner. Either way the rest of the street and particularly the banking circles closed the liquidity door on Bear when additional trust might have bought Bear more time and money.Its cool to be the renegade until you need to rely on others for a leg up.Trust and liquidity are ethereal and fleeting and they travel hand in hand.How fitting that it might be JP Morgan coming to the rescue of the misfiring financial sector just as its founder did 100 yrs ago.That would be the hollywood ending.In real life the rescue plan will likely resemble the RTC with taxpayers footing the bill. The real answer might be for the Feds to assume the county party risk of the derivatives markets and let the miscreants sink.( As an aside,let vultures buy the Muni Insurance business, the Fed takes the counterparty business and MBIA, AMBAC, Bear etc. can sink slowly into the financial abyss. But thats for another time.)
Posted by: gym-bob | March 15th, 2008 at 11:19 pm | Report this commentI liked the comment ‘It’s cool to be the renegade’. It also fits the bill where Northern Rock are concerned after they had set out (wrongly) to show the City that against the odds a small provincial mortgage lender could take them on and win.
While these two were in different businesses, what brings them together is that while they were busy creating disasters for their respective taxpayers to clean up, their regulators were looking the other way.
Posted by: figurewizard | March 16th, 2008 at 10:10 am | Report this comment