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Thursday, March 20, 2008

There is no Bear in the Woods

Oh, snap!

Rampant card-playing was a symptom of a bigger disorder at Bear [Stearns] – the bank’s inward-looking and obstreperous culture. It grew up as a scrappy bond-trading firm that did not care about how others regarded it. That culminated in Mr Cayne’s (with hindsight ironic) decision in 1998 to shun the Fed-backed attempt to save the hedge fund Long-Term Capital Management from collapse.

Throughout the year-long rolling crisis that ended in disaster, its leaders took the stance that it would be OK as long as its employees kept the faith. They did too little to reassure outsiders and to let them know what was going on. Last week, Bear reacted to growing uncertainty by issuing a bland and detail-free statement that it had no problems with capital or liquidity.

Nor did Bear’s leaders do enough to strengthen its balance sheet and cut leverage while they had the chance. It tried to swap $1bn stakes with Citic, the Chinese broking firm, but it was stuck with a big slice of its assets in mortgage-backed securities, which were hard to shift, and it needed more capital and longer-term secured funding to ride out trouble.


I can't believe the FT's corporate masters just published this, but they did. Time to duck? Yikes.