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watching the calendar tick off the days until February’s end. He sweated out an entire extra day—leap day, February 29—but Bear made it. Preliminary figures showed they would report a quarterly profit of $1.10 or so a share. With luck, Schwartz said, that would end the whispers.

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The next day, Thursday, Schwartz flew to Palm Beach, where the firm’s annual media conference was poised to start the following Monday at the Breakers hotel. The conference, one of Bear’s best-attended events, brought together a host of media titans, many of them Schwartz’s longtime clients: Murdoch, Redstone, Viacom’s Philippe Dauman, Time Warner’s Jeff Bewkes, Disney’s Robert Iger. On Friday, while checking in with headquarters, Schwartz heard the rumors again, now a bit stronger: Bear was having liquidity problems. He trained his eye on a key auction of municipal bonds that Friday afternoon. Bear was providing $2 billion in liquidity to various buyers. “That was the trip wire,” another Bear executive recalls. “If anyone refused to take our name there, we knew we were in real trouble.” All through the afternoon and into the evening, Schwartz monitored the note sales. To his relief, they went off without a hitch.

The storm struck full force without warning on Monday. That morning, when Sam Molinaro returned to his sixth-floor corner office from a week-long trip in Europe, he expected a normal day, nothing special; they would release the new, positive earnings the following week. After the trading day opened, at 9:30, one of the rating agencies, Moody’s, downgraded another grouping of Bear’s bonds. It was to be expected; the agency had been downgrading most of its offerings. Then, around 11, Bear’s stock suddenly began to fall, gradually at first, then sharply. All the “financials”—Lehman, Merrill, Citi—were falling. Molinaro shrugged. But as he checked with the trading floor, he heard the rumors: Bear was having liquidity problems. Molinaro rolled his eyes. Not again.

Bear’s P.R. man, Russell Sherman, heard the rumors, too. As the stock continued to slide, Sherman began calling reporters, trying in vain to pin down their source. As he did, Molinaro checked to see what could be fueling the rumor. Bear itself had no liquidity problem—he knew that. That morning the firm sat atop $18 billion in cash reserves. Molinaro checked with his finance desk, the repo desk, his treasurer. Had anyone heard of anything like a margin call (in which a lender was demanding a huge chunk of cash back)? A trade gone bad? Was anything out of the ordinary? “Across the board, it was ‘No, no, no, no—no problems,”’ a Bear executive says.

At one point, Schwartz called in from Palm Beach to assess the situation. “I’m getting a little nervous,” he said. Molinaro assured him there was no substance to the rumor.

At that point the rumor went public—on CNBC, the cable network that serves as Wall Street’s daily backdrop. On every trading floor dozens of TV sets, mounted high on the walls, are perpetually tuned to the network, which runs nothing but shows about finance and money—from Squawk Box to Closing Bell to Jim Cramer’s Mad Money.

By noon, when CNBC anchor Bill Griffeth opened Power Lunch, Bear’s stock was down more than $7, to $63. “There are rumors out there that some unnamed Wall Street firm might be having liquidity problems,” Griffeth noted. A correspondent on the show, Dennis Kneale, a veteran of The Wall Street Journal, said, “The speculation at this point is that it’s Bear Stearns. They’re down the most in the market today. Supposedly, a couple of weeks ago, they started looking at a way to try to shop their clearing operations [They] couldn’t find a buyer. At least that’s what one guy says.”

At Bear Stearns, 80-year-old Ace Greenberg was already pelting senior officials with phone calls, demanding that someone go public to rebut the rumor. “Ace was kind of freaking out that morning,” one senior Bear executive says with a sigh. “He just couldn’t contain himself.”

A few minutes past 12, another CNBC correspondent, Michelle Caruso-Cabrera, reached Greenberg at Bear. He told her the rumor was “totally ridiculous.” CNBC reported his comments within minutes, then incorporated them into a running headline—bear stearns’ ace greenberg tells cnbc liquidity rumors are “totally ridiculous”—the rest of the hour. In his office, Molinaro saw the headline and fumed. Addressing the rumor at this stage, he and others felt, merely appeared to legitimize it.

From Palm Beach, Schwartz telephoned Greenberg in frustration. “Ace, you can’t just do that!” he said.

“Well, I had to!” Greenberg replied.

Once the CNBC headline began running, reporters began calling Russell Sherman’s office. Sherman told the Bloomberg reporter the rumor was untrue, but Bear’s stock was going crazy. The total volume was over 50 million shares; on a normal day it might trade 7 million.

At a little after one CNBC correspondent Charlie Gasparino, an especially aggressive reporter who for months had been suggesting Bear’s possible indictment on criminal charges in the hedge-fund collapse, joined an on-air roundtable to discuss the rumor. Gasparino was the bane of Bear Stearns; more than once he had predicted that the firm would go under. “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.

“You’re on record, then,” he remarked.

Gasparino laughed. “Wouldn’t be the first time I was wrong,” he said.

At Bear Stearns, no one was laughing. Publicly speculating on a firm’s liquidity is akin to shouting “Fire!!!” in a crowded theater; in catastrophic cases it can trigger panic selling. It risks, in other words, becoming a self-fulfilling prophecy.

For the next hour the Bear Stearns rumor became a topic of conversation between CNBC correspondents and various market traders and analysts. At 1:50, Matthew Cheslock remarked, “The sentiment [on Bear] is pretty negative. The general consensus is ‘Where there’s smoke, there’s fire.’ ”

A few minutes later, Griffeth, perhaps sensing the network might have gone a bit too far, asked Dennis Kneale, “What about the jittery nature of this market right now? Are we starting to believe some rumors that may or may not be true?” Kneale agreed. “Someone,” he observed, “is always making money on the other side of that bad news or that rumor.”

Yet CNBC’s coverage remained anything but skeptical of the rumor. At two the network’s new “money honey,” Erin Burnett, headlined the hour by announcing “credit issues at Bear,” never mind that there was no such thing. She turned to correspondent David Faber, who observed, “Of course, no firm’s ever going to say that they are having trouble with liquidity, and, in fact, you’ve either got liquidity or you don’t. So if you don’t have it, you’re done. Those are the kinds of concerns in this market, concerns of confidence You can have crises of confidence, causing meltdowns.”

At 2:07 came shocking news: the first mention that New York governor Eliot Spitzer had had dealings with a prostitution ring. That news shoved Bear Stearns out of CNBC’s headlines, much to the relief of the firm’s executives. At day’s end, Sherman issued a formal statement denying any liquidity problems. On Monday night, Schwartz and Molinaro held their breaths, hoping the worst was over. In fact, it had just started.

Tuesday morning the Federal Reserve announced a novel new securities lending program for major Wall Street firms to help them weather the credit crisis. Most financial stocks rebounded, but not Bear. After lunch, Gasparino went on-air and said the Fed initiative was being interpreted as an effort to save one firm—Bear. By early afternoon the rumors were once again flying, now stronger than ever.

The first to pull their money from Bear were several major hedge funds. So Molinaro and his men canvassed the repo lenders, which give banks billions of dollars in overnight loans that have to be renewed each day. However, Molinaro found that all planned to “roll over” Bear’s loans the next morning. “Nobody was cutting us off,” says a Bear executive involved in the events. “There was a lot of chatter, though. The hedge funds were agitated. That was concerning, because they could influence the outcome by pulling out cash balances.” That same day Bear executives noticed a worrisome development whose potential significance they would not appreciate for weeks. It involved an avalanche of what are called “novation” requests. When a firm wants to rid itself of a contract that carries credit risk with another firm, in this case Bear Stearns, it can either sell the contract back to Bear or, in a novation request, to a third firm for a fee. By Tuesday afternoon, three big Wall Street companies—Goldman Sachs, Credit Suisse, and Deutsche Bank—were experiencing a torrent of novation requests for Bear instruments. Alan Schwartz thought it strange that so many requests were being channeled to the same three firms, but did his best to assure them all that Bear remained on sound footing. “Deutsche Bank we talked to, and they said, ‘We’re getting killed!”’ says a Bear executive. “We said, ‘We’ll take you out of your positions,’ and we did. But it was too late.”

Too late—because, before Bear could calm the waters, executives at both Goldman and Credit Suisse told their traders to hold up all novation requests dealing with Bear Stearns, pending approval by their credit departments. The Credit Suisse memo, a “blast” e-mail to much of its trading staff, quickly became the subject of widespread rumor and gossip. Both memos were essentially routine, a way to handle the deluge of novation requests rather than comments on Bear’s viability, but they nevertheless served as the first concrete sign that some of Wall Street’s biggest firms were having concerns about doing business with Bear.

Sam Molinaro felt it was time for another public assurance. CNBC’s Charlie Gasparino had been peppering him with phone calls seeking comment. Molinaro talked to Russell Sherman, who felt Gasparino could be played. “He’ll say something negative if you shut him out. But if you talk to him, he’ll go positive,” one Bear executive told me.

Around three, Molinaro spoke to Gasparino, telling him, “I’ve spent all day trying to track down the source of the rumors, but they are false. There is no liquidity crisis. No margin calls. It’s all nonsense.” Gasparino’s on-air comments were mild, but for the first time he raised the specter of a nightmare scenario: “They are really worried about this inside [Bear], that these rumors are taking a very nasty turn, and they might cause a run on the bank.” Still, by day’s end, there was no rush among Bear’s lenders to withdraw cash from the firm. At that point, this executive says, “the notion of a liquidity crisis seemed silly.”

That night Schwartz, Molinaro, and others discussed what to do. The talks centered on whether Schwartz should go public in an interview with CNBC. “We debated putting Alan on the air a long time,” says one board member. “Yes, it might draw attention to the rumors. But it would definitely answer the questions. Our view was: we had to get him out.”

Schwartz, though, wanted some assurances first. From experience, he knew he faced a risk in picking the wrong CNBC correspondent for the interview. All the network’s talent—Gasparino, Maria Bartiromo, Faber, Larry Kudlow—had requested the interview, and whoever didn’t get it, Schwartz feared, might retaliate on the air. “Each of these correspondents has his own producer, and they all seem to hate each other,” one Bear executive told me. “If you choose Faber, you know Bartiromo will bash you the next day.” Schwartz directed Russell Sherman to identify the CNBC executive who supervised the correspondents, explain the situation, and ask that the correspondents who didn’t get the interview refrain f nWww Mortagesmortgagebank Category Cinemas Mortgages Mortgage Bank A Category very readable article on Bear Stearn's demise.未名空间(mitbbs.com) - 海外华人第一门户q g Mortgages Mortgage Bank Mortgages Mortgage Bank Mortgages Mortgage Bank zWww Mortagesmortgagebank Category Cinemas Mortgages Mortgage Bank A Category very readable article on Bear Stearn's demise.未名空间(mitbbs.com) - 海外华人第一门户p Mortgages Mortgage Bank Mortgages Mortgage Bank