Read Online House of Cards by William D. Cohan - Free Book Online
Authors: William D. Cohan
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patented Cramer tirade: “No! No! No! Bear Stearns is fine. Do not take your money out! If there is one takeaway other than the plus 400, Bear Stearns is not in trouble! If anything, it is more likely to be taken over. Don't move your money from Bear. That's just being silly! Don't be silly!”
If Cramer had the last word of the night about Bear Stearns, the first word the next morning belonged—finally—to Alan Schwartz, Bear's CEO. Schwartz had emerged from the shadows of the emerging crisis in a live news feed from the Breakers Hotel in Palm Beach. The decision that Schwartz would appear had been made late the prior afternoon in the wake of ongoing speculation about the firm's liquidity position. Prior to his CNBC appearance, Schwartz had just finished interviewing Sumner Redstone, the Viacom emperor, in the hotel's Ponce de Leon IV Room about the wonders of consuming antioxidants and living a long and prosperous life.
Schwartz appeared live on CNBC just after nine o'clock on the morning of March 12. He looked tired and pale but spiffy in his blue-and-white-striped spread-collar shirt and Hermés tie. In his lead-in to the interview—a scoop, to be sure—CNBC's David Faber reminded viewers that it had been a “hard week” for Bear's stock since the firm had been “buffeted by constant rumors of a looming liquidity problem.” Faber's first question to Schwartz was about rumors that Wall Street firms no longer wanted to take counterparty risks with Bear Stearns. Was this true?
“No, it's not true,” Schwartz answered calmly. “There has been a lot of volatility in the market, a lot of disruption in the market, and that's causing some problems administratively on getting some trades settled out, and we're working hard on getting that done. We're in a constantdialogue with all the major dealers and the counterparties on the Street and we are not being made aware of anybody who is not taking our credit as a counterparty.”
Without naming Kyle Bass at Hayman Capital, Faber then asked Schwartz about the novation that Bass had tried to execute the day before with Goldman Sachs. (Goldman completed the novation on the morning of March 12, around the time of Schwartz's CNBC appearance.) “I'm not aware of a specific trade from one counterparty to another and where we're a third party,” he said. “We have direct dealings with all of these institutions and we have active markets going with each one and our counterparty risk has not been a problem.” Schwartz's answer was counter to the explanation offered by Gary Cohn, Goldman Sachs's co-president, that he had spoken with Schwartz about Bass's novation request.
Where then, Faber asked, had all these rumors originated, especially if they weren't true? “Well, you know, it's very hard to say,” Schwartz replied. “Why do rumors start? If I had to speculate, I would say that last week was a difficult time in the mortgage business. There was talk about problems at GSEs”—government-sponsored entities, such as Fannie Mae and Freddie Mac. “There were certainly some problems with some funds that were invested in very high-quality instruments but on a lot of leverage, and there were some problems there, and some people speculate that Bear Stearns could have some problems in those since we're a significant player in the mortgage business. None of those speculations are true. It's a market that's concerned about things”—and here CNBC anchor Erin Burnett broke into the interview with the news that New York Governor Eliot Spitzer would resign later in the day after revelations about his involvement with high-priced prostitutes.
“So I don't know where the rumors started,” Schwartz continued after the news flash. “Maybe I can just say this: I think that part of the problem is that when speculation starts in a market with a lot of emotion in it and people are concerned about the volatility, then people will sell first and ask questions later, and that creates
If Cramer had the last word of the night about Bear Stearns, the first word the next morning belonged—finally—to Alan Schwartz, Bear's CEO. Schwartz had emerged from the shadows of the emerging crisis in a live news feed from the Breakers Hotel in Palm Beach. The decision that Schwartz would appear had been made late the prior afternoon in the wake of ongoing speculation about the firm's liquidity position. Prior to his CNBC appearance, Schwartz had just finished interviewing Sumner Redstone, the Viacom emperor, in the hotel's Ponce de Leon IV Room about the wonders of consuming antioxidants and living a long and prosperous life.
Schwartz appeared live on CNBC just after nine o'clock on the morning of March 12. He looked tired and pale but spiffy in his blue-and-white-striped spread-collar shirt and Hermés tie. In his lead-in to the interview—a scoop, to be sure—CNBC's David Faber reminded viewers that it had been a “hard week” for Bear's stock since the firm had been “buffeted by constant rumors of a looming liquidity problem.” Faber's first question to Schwartz was about rumors that Wall Street firms no longer wanted to take counterparty risks with Bear Stearns. Was this true?
“No, it's not true,” Schwartz answered calmly. “There has been a lot of volatility in the market, a lot of disruption in the market, and that's causing some problems administratively on getting some trades settled out, and we're working hard on getting that done. We're in a constantdialogue with all the major dealers and the counterparties on the Street and we are not being made aware of anybody who is not taking our credit as a counterparty.”
Without naming Kyle Bass at Hayman Capital, Faber then asked Schwartz about the novation that Bass had tried to execute the day before with Goldman Sachs. (Goldman completed the novation on the morning of March 12, around the time of Schwartz's CNBC appearance.) “I'm not aware of a specific trade from one counterparty to another and where we're a third party,” he said. “We have direct dealings with all of these institutions and we have active markets going with each one and our counterparty risk has not been a problem.” Schwartz's answer was counter to the explanation offered by Gary Cohn, Goldman Sachs's co-president, that he had spoken with Schwartz about Bass's novation request.
Where then, Faber asked, had all these rumors originated, especially if they weren't true? “Well, you know, it's very hard to say,” Schwartz replied. “Why do rumors start? If I had to speculate, I would say that last week was a difficult time in the mortgage business. There was talk about problems at GSEs”—government-sponsored entities, such as Fannie Mae and Freddie Mac. “There were certainly some problems with some funds that were invested in very high-quality instruments but on a lot of leverage, and there were some problems there, and some people speculate that Bear Stearns could have some problems in those since we're a significant player in the mortgage business. None of those speculations are true. It's a market that's concerned about things”—and here CNBC anchor Erin Burnett broke into the interview with the news that New York Governor Eliot Spitzer would resign later in the day after revelations about his involvement with high-priced prostitutes.
“So I don't know where the rumors started,” Schwartz continued after the news flash. “Maybe I can just say this: I think that part of the problem is that when speculation starts in a market with a lot of emotion in it and people are concerned about the volatility, then people will sell first and ask questions later, and that creates
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