Wall Street Shocker: Goldman Sachs Destroyed Bear Stearns!
*UPDATE: Goldman Sachs (GS) taking the rest of Wall Street to the cleaners is nothing new, but now comes word that Goldman played a direct role in the destruction of Bear Stearns (BSC). According to Fortune's Roddy Boyd, several days before the collapse, Goldman decided to stop backing up Bear Stearns derivatives deals--and it announced this decision to hedge-fund clients in an email that spooked an increasingly panicked Wall Street:
[On the morning of Tuesday, March 11],
Goldman Sachs's credit derivatives group sent its hedge fund clients an
e-mail announcing another blow. In previous weeks, banks such as
Goldman had done a brisk business (for a handsome fee, of course)
agreeing to stand in for institutions nervous, say, that Bear wouldn't
be able to cough up its obligations on an interest rate swap. But on
March 11, Goldman told clients it would no longer step in for them on
Bear derivatives deals. (A Goldman spokesman asserts that the e-mail
was not a categorical refusal.)
"I was astounded when I got the
[Goldman] e-mail," says Kyle Bass of Hayman Capital. He had a colleague
call Goldman to see if it was a mistake. "It wasn't," says Bass, who is
a former Bear salesman. "Goldman told Wall Street that they were done
with Bear, that there was [effectively] too much risk. That was the end
for them"...
When word of the Goldman e-mail leaked out, the floodgates opened. Hedge funds and other clients, eventually running into the hundreds, began yanking their funds.
The next afternoon, Bear CEO Alan Schwartz announced on CNBC that everything was hunky-dory (which, according to Boyd, it wasn't). And two days later, Bear Stearns effectively went bankrupt.
Should Goldman be blamed for this? Absolutely not. Bear Stearns was under-capitalized, over-leveraged, and stuffed to the gills with crappy debt. Once again, Goldman seems to have outsmarted the rest of Wall Street, spotting a problem before everyone else did. Because "runs on the bank" are often started when smart players cut and run, however, Goldman's decision appears to have at least contributed to the stampede.
Goldman Sachs: Giving new meaning to "crushing the competition."
1. It was a business decision, not a grand conspriracy to crush BSC. Goldman basically thought the risk of Bear failing was not worth the profits they were making.
2. Alot of other institutions thought Bear was in trouble if they were purchasing insurance from Goldman.
I just point this out because I heard a late night talk show saying how this was basically an orchestrated gift to JPM.
We will never get a look at their books, because this is how the fascist business model runs.
Anyone for taxation without representation? LOL
After all, the bank was bailed out.
So, it is my understanding that the credit swaps would be sold at a high premium and never be exercised.
Where am i going wrong ?
perfectly plausible that
they got flooded with requests for novations
they raised the price and still got flooded
they emailed CDS clients who they did business with to alert them they were maxed out
based on the article, it's hard to conclude worse than that the email may have been hamhanded. it certainly didn't start the situation. it's not like the whole firm decided to stop doing business with Bear out of the blue.
There will be all sorts of conspiracy theories spawned by these unfortunate events, as many of the rants on various blogs already indicate. Late last night a labour specialist, an elderly man I have know for many years but who does not really know who I really am, called to vent about Bear Sterns and "Wall Street" and slipped in the phrase "those Jews." I was dumbstruck. But on consideration, even here in the 21st century this poison will be part of the discussion, and not just from the lunatic fringe and clumps of religious extremists.