Street Fighters

Street Fighters (The Last 72 Hours of Bear Stearns), by Kate Kelly, The Penguin Group, 2009, 229 Pages.

The author Kate Kelly previously published most of the material in this book in a three-part series of articles in the Wall Street Journal, in May 2008. Apparently that was when I was on vacation and had temporarily stopped my paper as I did not then see it. This book will be of extreme interest to all the workers at Bear Stearns at the time who lost their jobs. But there is not much substance here other than an insight into just what goes on in a failing firms last days. The title is very mis-leading; the book has very little to do with Bear Stearns employee reputations as street fighters. The book merely chronicles the three-day plunge into the arms of J.P Morgan when they were bought out at $2 per share, later raised to $10 per share. In January 2007 Bear shares had hit their all-time high of $172.

The fall of Bear Stearns in March 2008 was the leading wave of global financial turmoil that continues to impact the financial community to this day.. Although Bears leaders had a reputation as arrogant and didn’t play nice, little of that is present in this book.

Notes:
Pg. 1: Kelly writes: “For Street Fighters, I selected the most dramatic three days of the Bear saga and examined them hour by hour; from the evening of March 13, 2008, when Bear executives realized they were nearly out of cash, to the evening of March 16, when Bar directors approved the firm’s original sale to J.P. Morgan for $2 per share.”

Pg. 112: To get a sense of how fast this collapse of Bear was in March 2008, it is interesting to note that at the beginning of March Bear appeared to have earned a profit of $1.23 per share. This was despite wide-spread markdowns in the value of mortgage securities held by the firm and many of its competitors. Bear had the lowest debt from leveraged loans of any of the major investment banks. And, unlike some others, Bear was not exposed to the complex mortgage-backed securities known as CDOs. Yet by March 16th they were out of business.

Pg. 156: In January 2007 the mortgage market had its first major hiccup. Securities backed by mortgages that had been issued to subprime borrowers began to crater. Housing prices around the U.S. began to fall. The packaging of mortgage loans into new securities slowed as a result. Then Bear’s two hedge funds fell apart. Starting in June 2007, when news of investors requesting their money back first hit the trade magazines, the implosion of the High-Grade Structured Credit Strategies Fund and its more leveraged sister fund played out on the pages of the WSJ, Bloomberg, and other financial outlets.

Pg. 221: Bear failed because the credit crisis of 2008 killed every firm with a large mortgage business, too little diversification to offset the losses from bad loans, and the inability to be proactive. Those factors ruined Lehman Brothers, and, directly or indirectly, almost sank Fannie, Freddie, AIG, and Merrill Lynch—until te government, private industry, or both stanched the bleeding.