Friday, March 14, 2008, 2 am. In 383 Madison Avenue, between 46th and 47th Streets, New York, the world headquarters of Bear Stearns, ‘hand-wringing continued,’ even as Bear waited for some miracle to happen. “Bear treasurer Bob Upton spent half the night handling calls with officials and staffers from the Fed and the SEC, giving updates on all aspects of Bear’s balance sheet and what assets the firm thought it could pledge,” narrates Kate Kelly in ‘Street Fighters: The last 72 hours of Bear Stearns, the toughest firm on Wall Street’ (www.landmarkonthenet.com). “The key, of course, was whether J. P. Morgan would come through with something. But there was radio silence from across the street.”
Meanwhile the Fed governor Kevin Warsh was wide awake. As a Fed official, he couldn’t worry too much about Bear and its team’s collective concerns, Kelly recounts. “The US economy was on shaky ground here. Housing prices had cratered, markets had declined, and financial firms were under increasing pressure, curtailing the credit they would normally extend to American business. Warsh and his colleagues had to balance all those concerns against the short-term problems of one relatively small investment bank. Their job was to mitigate systemic risk.”
Meet also Timothy Geithner, a career public servant who had served the US Treasury abroad in India, Japan, and East Africa, with ‘heavy hitters like Dimon and Merrill Lynch chief John Thain’ among his advisers at the New York Fed. Farther below the radar, Geithner had a handful of money managers and other executives he kept in touch with by phone during business hours, polling them on how the trading day was going and what issues they saw in the markets, the author notes.
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Geithner’s approach to crises was pragmatic, she describes. “Think through the choices, be as cool-headed as possible, and decide on the best option. Key to that, he felt, was getting people focused on the realistic options from a very early stage – not allowing them to chase down fantasy scenarios that had little chance of bearing out.”
It is now 4.45 am and we are at the kitchen table inside Ben Bernanke’s Capitol Hill home, from where he is dialling in, to confer with the Fed officials. “Bernanke that morning was in Socratic mode, grilling his associates for answers to the many questions. ‘What do we know? What do we think we know? What are our options?’ he asked the group. ‘What’s the state of any private-sector discussions?’”
On the subject of bankruptcy, he asked, ‘Can they open for business if they file?’ Not in New York State, was the answer, as the author informs. “The implications of Bear’s travails were hitting the Fed chairman hard. It was possible, he thought, to be adequately capitalised under securities laws and still face a bank run. Even if federal regulators thought you looked okay, in other words, you could still be out of business overnight. A scholar of the Great Depression, Bernanke’s thoughts turned to Credit-Anstalt, the Austrian bank that had gone bankrupt in 1931…”
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Gripping narrative.