The notion of an Irish wake on St Patrick's Day seems a bit morbid but fitting nonetheless for the venerable institution known as Bear Stearns. Its fall from financial grace was swift and sure. Financial markets today are unsure what to make of the once proud and powerful firm's untimely collapse. Thursday night's news that the Fed and JPMorgan were stepping in to prop up Bear was a clear harbinger that the end was near.The Bear Stearns that I knew in the 90s was aggressive and smart. It had some of the most sophisticated technology on Wall Street to measure and manage their exposure to the mortgage market. Their block desk was one of the best in the business. Their support for the emerging ECN segment made them stand out. But somewhere along the way, their appetite for risk got ahead of their capacity to manage it. And in the end, what many of us feared finally came to pass: the credit crisis brought down a Tier 1 player.
The capital markets have been tested by many crises. What has consistently impressed me over a 20 year career is how resilient the market is. We are now testing new lows, personally and professionally, emotionally and financially. Many will survive and perhaps even thrive in their new home at 270 Park Avenue. That said, the swashbuckler culture that, at times, characterized Bear Stearns is no doubt gone for quite a while.
I hate to say it but perhaps the market for almost any form of risk is illiquid. If so, then it's a true Greek tragedy because firms like Bear helped create new markets by methodically and brilliantly chopping up cash flows, assigning them different risk profiles, and then packaging and selling them. Firms like Sun aided that process by providing powerful workstations for quantitative calculations and then later, when "the network (became) the computer," delivering even more powerful capability via server technology. That said though, this post is about Bear.
No doubt it's a very quiet day at 383 Madison Avenue. To colleagues and friends, my sympathies on the end of an era. To JPMorgan, please be diligent stewards of a valuable, albeit broken, asset. To the markets, use this opportunity to reprice risk not mis-price it (again). And now a moment of silence as we listen to the sound of one hand clapping.
Lawrence Scott
thanks Lawrence:)
