The Power Lunch Where They Planned the Take Down of Bear Stearns

NationalEconomist.com ^

[drbasketball]

Suppose they held a lunch of all the major Wall Street brokerage players and investment bankers , except no one invited anyone from Bear Stearns. Then immediately following the lunch, no one wants to buy securities from Bear Stearns and the Fed walks in to give JPMorgan Chase a multi-billion dollar ticket to buy Bear Stearns on the cheap because of the “panic” about Bear Stearns liquiditiy.

The lunch actually happened and here’s who was there...

[DannyTN]

Didn’t read the entire article, but if true, shouldn’t this be prosecutable under the hardly ever enforced anymore anti-trust laws.

[massgopguy]

Does this mean that Chelsea doesn’t get a six figure bonus after Mom drops out?

[2banana]

If Bear Sterns had a positive cash flow, conservative assets, no level III junk...etc...they would tell them to blow it out their ear.

[theDentist]

SOunds like a conspiracy, and Federal Reserve Chairman Ben S. Bernanke was in the middle of it.

[JSteff]

bump for later

[wideawake]

This article makes an enormous leap: it says that "immediately following the lunch, no one wants to buy securities from Bear Stearns" and then it quotes Dealbreaker as saying: "Hours after the meeting every bank on Wall Street reportedly began refusing to issue credit protection on the debt of Bear."

Further, it quotes Eric Salzman as saying: "the Fed, who maintained that they only became aware of Bear Stearns dire liquidity situation Thursday night, March 13."

The Fed did not say that they were unaware of Bear's difficulties before March 13 - just that they did not have full details of the extent of the crisis until the 13th - likely true. Bear's competitors probably raised their concerns at the lunch meeting, but Bear's competitors could not speak with perfect knowledge of Bear's books.

There is a difference between not buying securities from a firm and not selling credit default swaps on a firm.

The author is trying to portray the refusal to sell third-party swaps on Bear as a refusal to do business with Bear.

Either the author has no clue what a credit default swap is, or he is intentionally misleading his readers.

[wideawake]

See post 7.

[wideawake]

I would also point out that major French bank Societe Generale had lost almost $8B in one day on bad trades a few weeks before the lunch.

Bank liquidity was uppermost on everyone's minds, since SocGen had almost failed - which would have been extremely bad news for everyone at that table.

Additionally, Bear Stearns had had a meltdown in one of its internal hedge funds a few months before - their stock had almost halved in the months preceding the meeting - so the whole market was aware that Bear was in trouble.

Also, Alan Schwartz was conducting a telephone conference on Bear Stearns financial condition that day and meeting with investors - so Bear would have been a natural topic of conversation. Well before the meeting the CDS spread on Bear debt had risen from 400 to 640.

[Arguendo]

SOunds like a conspiracy

A "conspiracy" by itself is not illegal.

[Mind-numbed Robot]

Thanks for adding perspective.

[drbasketball]

Hey Wideawake,

You make it sound like just an ordinary day on Wall Street. Three things completely destroy your scenario:

1. If everything was peachy dandy, why was EVERYBODY at this meeting EXCEPT Bears Stearns?

2. If everything was peachy dandy between Bear Stearns and
the rest of the street, how did Bear get into a liquidity crisis? Somebody stopped providing them with funds.

Why did the Fed AFTER forcing the Bear sale to JPM then open up their resources to other investment banks? If they openned those resources to Bear, Bear wouldn’t have had to sellout.