The Bear Stearns Blame Game

New York, NYIt seems that Bear Stearns is blaming everyone but themselves. However, the Securities and Exchange Commission is looking into whether or not it was market rumors that led to the firm's demise. If so, such rumors would cause investors to pull their funds and provoke lenders to cut off their credit, leaving the firm wide open for J.P. Morgan Chase to grab it up at $2 per share. It was either agree to the buyout by Chase or file bankruptcy. Bear Stearns agreed to the buyout.

Ironically, just two days after Chase agreed to the Bear Stearns buyout, Bear Stearns stock jumped from $2 per share to $5 per share. Chase has agreed to buy the firm for just $2 per share, so those buying could lose that $3. However, the investors are banking on the possibility that there will be a rival offer.

As far as rumors being the cause for the firm's downfall, that is definitely a hard thing to prove, but any information may help the SEC figure out what has led to some heavy trading on the market lately.

However, Bear Stearns is blaming their demise on more than just rumors. They are also blaming this collapse on certain clients such as Jim Simons of Renaissance Technologies who, just a few weeks earlier, pulled his prime brokerage account from the firm. They also say that it is the short sellers that spread the rumors, causing other clients to pull their funds from the firm. Also in the blaming game are the Greenspan Fed and the Bernanke Fed. They blame Greenspan for not giving iBanks a place at the discount window and Bernanke for not raising rates fast enough.

In the Bernanke complaint, Bear is saying that the low rates led to the high foreclosures, the housing crisis, the sub-prime implosion, the recession, and so on. However, Bear was an aggressive player on the market, especially in mortgage backed underwriting. There are also other issues that are believed to have led to the Bear Stearns downfall that started as long as 10 years ago in 1998 when they refused to be part of a $3 billion bailout when the New York Fed President brought the major banks together.

However, it is alleged that Bear Stearns is the correct party to blame due to aggressive risk taking, poor judgment, their leverage, enemies they have made due to not taking part in such activities as the 1998 bailout, and various other factors involving their positions in the mortgage back market and lack of reserves.

It is believed that the pulling of credit lines was escalated when CEO Alan Schwartz said on television that the firm's liquidity position was fine. However, the entire market was going the other direction.

As for a counter offer on the buyout, that might be unlikely since not many companies are equipped to make such an acquisition. The Fed is also putting up $30 billion to make the deal possible. It is not likely that anyone else can get such an incentive from the Fed. Without the Fed's backing, it is unlikely that another company would be willing to take on the massive risk.

By Ginger Gillenwater