A Bear Raid?

Vanity Fair talks to lots of Bear Stearns execs who think—surprise!—outsiders did them in

Was Bear Stearns murdered? Vanity Fair asks that provocative question in a riveting but overdone piece on the demise of the investment bank.

VF’s Bryan Burrough (author of “Barbarians at the Gate”) never quite gets at why it thinks Bear was taken down by nefarious outsiders, as opposed to its own catastrophic mistakes, instead pointing to CNBC, three firms and an unnamed “group of hedge fund managers”—all on the basis of anonymous Bear execs—and one anonymous vice-chairman of “another major investment firm.”

While it doesn’t make for nearly as good story-telling, it shouldn’t be so hard to believe that a firm—especially one with its reputation as a gunslinger and with a CEO who was a combination of Nero and Michael “Brownie” Brown—could suffer a crisis of confidence that would wipe out its billions of dollars in cash in a week?

After all, it reports that JPMorgan Chase itself, which ended up buying the firm for $10 a share, determined that the amount of Bear’s securities that might go bad was $220 billion—approaching twice the $120 billion Bear had estimated. In fact. JPMorgan had to be dragged into a deal by the Federal Reserve and a pledge from Uncle Sam that it would backstop $30 billion in Bear debt. That means JPMorgan could see $30 billion of losses in its purchase before its $1 billion or so of equity is affected.

But Charlie Gasparino and David Faber of CNBC are somehow responsible for Bear going down? We’re not exactly fans of the droning stock chit-chat at CNBC here, but these guys were reporting information that according to VF’s quotes doesn’t strike us as problematic (though the piece does raise interesting points about CNBC reporters’ treatment of firms that give exclusive interviews to others at the network. We just wish they were fleshed out and better-sourced) or much different than what they do there every day. A major financial institution that can’t survive these kinds of comments probably doesn’t deserve to survive.

“I don’t believe there is a liquidity problem at Bear Stearns,” Gasparino said on-air. “Bear Stearns has a problem with whether they should exist or not in the future in this sense.… What do they have left? A clearing business, a second-rate investment bank?” If the credit crisis continued, Gasparino said a few moments later, “I don’t see how they could survive independently. They don’t have enough horses out there.” Sitting on a stool beside him, Bill Griffeth appeared startled at the strength of the statement.

Pass the smelling salts! Along the way, the magazine makes some silly errors like calling housing lender Thornburg Mortgage a “hedge fund” and calling “moral hazard” a legal term.

And here’s a howler:

“According to one vague tale, initially picked up at Lehman Brothers, a group of hedge-fund managers actually celebrated Bear’s collapse at a breakfast that following Sunday morning and planned a similar assault on Lehman the next week.”

This kind of sourcing smells awfully familiar.

Still, for all its faults, the story is a nice primer on what Bear execs think happened to them (there’s a nice tidbit about a Gretchen Morgenson piece in The New York Times on Bear giving JPMorgan execs the willies on the weekend of the deal). They blame a coordinated push by Goldman Sachs and two hedge funds, Citadel and SAC Capital Partners, for spreading false rumors about Bear’s cash problems in the markets.

That’s about the only way the Bear story could get more interesting. So far, there’s not a shred of evidence for “what some believe was the greatest financial scandal in history,” but VF says the Securities and Exchange Commission is on the trail, for what it’s worth.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.