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.The relief, though, was short-lived.The U.S.Treasury was forcedto announce in July that it was prepared to provide financial supportfor Fannie Mae and Freddie Mac, which between them underwritehalf of the mortgages in America, and this time the rally on stockmarkets lasted just two weeks.When Hank Paulson announced thathe was taking Fannie and Freddie into conservatorship national-ization by any other name the rally lasted twenty-four hours.Bythe end of September 2008 the ideological retreat was complete.The U.S.government had nationalized the biggest U.S.insurer,AIG, and it had agreed to use public money to buy up $700 billionof so-called toxic waste from banks the worthless securities thathad looked like good bets in the years when the markets werebooming.In March 2008 it had taken a week to see the demise ofBear Stearns; in September 2008 it took a week to get rid of the restof the American investment banking industry.Lehman Brothers?Allowed to go bust after the U.S.Treasury decided there would beno Bear Stearns style bailout.Merrill Lynch? Taken under the wingof Bank of America.Morgan Stanley? Goldman Sachs? Faced withmarket mayhem, the last men standing converted themselves intocommercial banks in order to get easier access to credit from theFed s money tap.Bear Stearns had always been a company that did things its ownway.It was founded by three men Joseph Bear, Robert Stearns, andHarold Mayer in the Roaring Twenties, and one of the company sproudest boasts was that it survived the Great Crash without layingoff a single employee.In Wall Street s pecking order, Bear Stearnswas the fifth biggest investment bank but lacked the patrician hauteurof Morgan Stanley or Goldman Sachs.Many of its staff lived in theless fashionable boroughs of New York rather than in the exclusive the rock and the bear 31town houses of the Upper East Side. Bear was bridge and tunnel andproud of it, said one writer (Bryan Burrough, Bringing Down BearStearns, Vanity Fair, August 2008). Since the days when the Gold-mans and Morgans cared mostly about hiring young men from thebest families and schools, the Bear cared about one thing and onething only: making money.Brooklyn, Queens, or Poughkeepsie; CityCollege, Hofstra, or Ohio State; Jew or gentile it didn t matterwhere you came from; if you could make money on the trading floor,Bear Stearns was the place for you.Its longtime chairman Alan AceGreenberg even coined a name for his motley hires: PSDs, for poor,smart, and a deep desire to get rich. Some of Greenberg s PSDs were, it is fair to say, hard-nosed aboutthe way they got rich.There was some irony in the fact that on twooccasions in the 1990s Bear Stearns showed no mercy to companiesthat had found themselves in financial difficulty when their trade inexotic instruments went sour.A dry run for the crisis of 2007 oc-curred in 1994, when a surprise decision by the Fed to raise interestrates caused turmoil in the market for collateralized mortgage oblig-ations, an early form of the mortgage-backed securities of the 2000s.David Askin ran a hedge fund with a $2 billion CMO exposure andleverage of 3 to 1, modest by the standards of the recent past.Higherborrowing costs played havoc with the complicated math on whichthe CMO model was based because it reduced the value of the fund sfixed income assets.Creditors had the right to demand additional col-lateral to secure their loans, and when Askin tried to sell some of hisCMO paper he found that its value was virtually zero.Bear Stearnsproved the most aggressive of Askin s creditors and moved to seizethe company s assets.This was not the only early warning of the trouble that lay aheadin the crisis of 2007 2008.Long Term Capital Management was ahedge fund founded in 1993 by John Meriwether, a former trader atSalomon Brothers.Among the partners were Myron Scholes andRobert Merton, who had come up with a sophisticated mathemati-cal model for pricing investments.(Experience has shown that the ac-tual definition of sophisticated is incomprehensible and wrong. )Predictably enough, the whiz kinds at LTCM came unstuck in the 32 the gods that failedsummer of 1998 when their model failed to take account of the pos-sibility that the Russians would show the same ruthlessness to in-vading bond dealers as they had to Napoleon and Hitler.When theKremlin defaulted on its debts, LTCM was left in a parlous position [ Pobierz całość w formacie PDF ]
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.The relief, though, was short-lived.The U.S.Treasury was forcedto announce in July that it was prepared to provide financial supportfor Fannie Mae and Freddie Mac, which between them underwritehalf of the mortgages in America, and this time the rally on stockmarkets lasted just two weeks.When Hank Paulson announced thathe was taking Fannie and Freddie into conservatorship national-ization by any other name the rally lasted twenty-four hours.Bythe end of September 2008 the ideological retreat was complete.The U.S.government had nationalized the biggest U.S.insurer,AIG, and it had agreed to use public money to buy up $700 billionof so-called toxic waste from banks the worthless securities thathad looked like good bets in the years when the markets werebooming.In March 2008 it had taken a week to see the demise ofBear Stearns; in September 2008 it took a week to get rid of the restof the American investment banking industry.Lehman Brothers?Allowed to go bust after the U.S.Treasury decided there would beno Bear Stearns style bailout.Merrill Lynch? Taken under the wingof Bank of America.Morgan Stanley? Goldman Sachs? Faced withmarket mayhem, the last men standing converted themselves intocommercial banks in order to get easier access to credit from theFed s money tap.Bear Stearns had always been a company that did things its ownway.It was founded by three men Joseph Bear, Robert Stearns, andHarold Mayer in the Roaring Twenties, and one of the company sproudest boasts was that it survived the Great Crash without layingoff a single employee.In Wall Street s pecking order, Bear Stearnswas the fifth biggest investment bank but lacked the patrician hauteurof Morgan Stanley or Goldman Sachs.Many of its staff lived in theless fashionable boroughs of New York rather than in the exclusive the rock and the bear 31town houses of the Upper East Side. Bear was bridge and tunnel andproud of it, said one writer (Bryan Burrough, Bringing Down BearStearns, Vanity Fair, August 2008). Since the days when the Gold-mans and Morgans cared mostly about hiring young men from thebest families and schools, the Bear cared about one thing and onething only: making money.Brooklyn, Queens, or Poughkeepsie; CityCollege, Hofstra, or Ohio State; Jew or gentile it didn t matterwhere you came from; if you could make money on the trading floor,Bear Stearns was the place for you.Its longtime chairman Alan AceGreenberg even coined a name for his motley hires: PSDs, for poor,smart, and a deep desire to get rich. Some of Greenberg s PSDs were, it is fair to say, hard-nosed aboutthe way they got rich.There was some irony in the fact that on twooccasions in the 1990s Bear Stearns showed no mercy to companiesthat had found themselves in financial difficulty when their trade inexotic instruments went sour.A dry run for the crisis of 2007 oc-curred in 1994, when a surprise decision by the Fed to raise interestrates caused turmoil in the market for collateralized mortgage oblig-ations, an early form of the mortgage-backed securities of the 2000s.David Askin ran a hedge fund with a $2 billion CMO exposure andleverage of 3 to 1, modest by the standards of the recent past.Higherborrowing costs played havoc with the complicated math on whichthe CMO model was based because it reduced the value of the fund sfixed income assets.Creditors had the right to demand additional col-lateral to secure their loans, and when Askin tried to sell some of hisCMO paper he found that its value was virtually zero.Bear Stearnsproved the most aggressive of Askin s creditors and moved to seizethe company s assets.This was not the only early warning of the trouble that lay aheadin the crisis of 2007 2008.Long Term Capital Management was ahedge fund founded in 1993 by John Meriwether, a former trader atSalomon Brothers.Among the partners were Myron Scholes andRobert Merton, who had come up with a sophisticated mathemati-cal model for pricing investments.(Experience has shown that the ac-tual definition of sophisticated is incomprehensible and wrong. )Predictably enough, the whiz kinds at LTCM came unstuck in the 32 the gods that failedsummer of 1998 when their model failed to take account of the pos-sibility that the Russians would show the same ruthlessness to in-vading bond dealers as they had to Napoleon and Hitler.When theKremlin defaulted on its debts, LTCM was left in a parlous position [ Pobierz całość w formacie PDF ]