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Authors: William D. Cohan
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senior investment banker at the firm: “Alan is usually a very effective guy, but how bad was he on Wednesday morning? He was awful on TV. He looked like he was warmed-over death on Wednesday morning. That didn't provide any comfort to anyone…. The fact that he was where he was and that he wasn't here, that was bad enough. But he showed just terribly.”
What Schwartz may not have realized—or more likely was in no position to admit publicly—was that there were powerful forces aligned against Bear Stearns at that very moment, ones that stood to benefit from the firm's failure to “stabilize”: short sellers, buyers of put options and credit default swaps, and competitors who hoped to scoop up some of the $9.2 billion in net revenue Bear took in during 2006. By March 12, billions of dollars had been invested on this dour bet. Others—such as journalists and research analysts—also stood to benefit from enhanced reputations if they could cut through the rumor and innuendo and be able to quickly and definitively predict for their readers or clients that Bear's demise was imminent.
Roddy Boyd, at
Fortune,
knew in his gut that the firm was in serious trouble but was also acutely aware of his responsibility as a journalist not to fan the flames with his reporting. His March 6 call with Marano left him infinitely more curious but seriously worried. “I was thinking, ‘I'm going to poke around in this more,’” he said, “but then I was thinking, ‘This is strange.' This is like a situation where you can abuse your position as a reporter. When you're at
Fortune,
you have to do stuff right. When you're at the
New York Post,
you have to be there first and fastest. At
Fortune,
you write the first draft of history, and you have to get it right and you have to be consistently right. I'm thinking, ‘I don't really want to screw with this company'—I don't want to spread rumors. I don't want to become part of the story. I don't want to hurt people unnecessarily. I'm an aggressive guy and I'll pick fights with anyone or anything, but there's a right way of doing my job and there's a wrong way. I weighed my duty as an employee here versus the right thing to do.”
He decided to lie a bit low and went off on a long-delayed vacation. “One of the media's major problems in this is that you lose track of forests and woods, and if the swap spread is doing this”—widening out—“thatmeans what exactly? Just because X exists does not logically mandate Y occurring, let alone Z. So I said to myself, ‘Okay I am going to'—and discretion here is going to be the better part of valor for me—'I'm going to sit back and watch this,' and a couple things [could] happen. One is that nothing is going to happen. Yeah, whatever. He's just hearing some BS. It all works out, and in the morning it's all good. Life is okay. The second situation, which is more gripping, is there's going to be trouble in the repurchase market for them. So I did my best to quietly monitor that. I had some sources there, and they had heard roughly similar stuff. But they weren't being told by their credit officers, nor were they themselves demanding more money or more collateral from Bear Stearns to put on repurchase agreements. But everybody's hearing the same stuff. That's sort of more confirmation bias to me—and this is a problem for reporters—that you hear the same thing from five or six people you respect at the same time, so you know something's happening but you can't prove a damn thing. You can't prove it's happening. You're just aware of a current of thought. I called up repurchase desks and they're like, ‘Yeah, look what's going on. Bear Stearns, the swaps are getting killed. The stock is getting killed. We're hearing the same stuff. I have a billion with them right now, overnight. And it's clearing. We're not asking for anything special. We've had the same trade on.' Same old, same old.”
Like Boyd, Meredith Whitney, a well-respected
What Schwartz may not have realized—or more likely was in no position to admit publicly—was that there were powerful forces aligned against Bear Stearns at that very moment, ones that stood to benefit from the firm's failure to “stabilize”: short sellers, buyers of put options and credit default swaps, and competitors who hoped to scoop up some of the $9.2 billion in net revenue Bear took in during 2006. By March 12, billions of dollars had been invested on this dour bet. Others—such as journalists and research analysts—also stood to benefit from enhanced reputations if they could cut through the rumor and innuendo and be able to quickly and definitively predict for their readers or clients that Bear's demise was imminent.
Roddy Boyd, at
Fortune,
knew in his gut that the firm was in serious trouble but was also acutely aware of his responsibility as a journalist not to fan the flames with his reporting. His March 6 call with Marano left him infinitely more curious but seriously worried. “I was thinking, ‘I'm going to poke around in this more,’” he said, “but then I was thinking, ‘This is strange.' This is like a situation where you can abuse your position as a reporter. When you're at
Fortune,
you have to do stuff right. When you're at the
New York Post,
you have to be there first and fastest. At
Fortune,
you write the first draft of history, and you have to get it right and you have to be consistently right. I'm thinking, ‘I don't really want to screw with this company'—I don't want to spread rumors. I don't want to become part of the story. I don't want to hurt people unnecessarily. I'm an aggressive guy and I'll pick fights with anyone or anything, but there's a right way of doing my job and there's a wrong way. I weighed my duty as an employee here versus the right thing to do.”
He decided to lie a bit low and went off on a long-delayed vacation. “One of the media's major problems in this is that you lose track of forests and woods, and if the swap spread is doing this”—widening out—“thatmeans what exactly? Just because X exists does not logically mandate Y occurring, let alone Z. So I said to myself, ‘Okay I am going to'—and discretion here is going to be the better part of valor for me—'I'm going to sit back and watch this,' and a couple things [could] happen. One is that nothing is going to happen. Yeah, whatever. He's just hearing some BS. It all works out, and in the morning it's all good. Life is okay. The second situation, which is more gripping, is there's going to be trouble in the repurchase market for them. So I did my best to quietly monitor that. I had some sources there, and they had heard roughly similar stuff. But they weren't being told by their credit officers, nor were they themselves demanding more money or more collateral from Bear Stearns to put on repurchase agreements. But everybody's hearing the same stuff. That's sort of more confirmation bias to me—and this is a problem for reporters—that you hear the same thing from five or six people you respect at the same time, so you know something's happening but you can't prove a damn thing. You can't prove it's happening. You're just aware of a current of thought. I called up repurchase desks and they're like, ‘Yeah, look what's going on. Bear Stearns, the swaps are getting killed. The stock is getting killed. We're hearing the same stuff. I have a billion with them right now, overnight. And it's clearing. We're not asking for anything special. We've had the same trade on.' Same old, same old.”
Like Boyd, Meredith Whitney, a well-respected
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