It was perhaps the single most important moment leading to the downfall of Bear Stearns.
On March 13, 2008, reporter David Faber, live on CNBC, said, “I’m told by a hedge fund that I know well…I’m told that [last night] Goldman would not accept the counterparty risk of Bear Stearns.”
Faber and that hedge fund might as well have flown an airplane into the side of Bear Stearns’s headquarters on 47th Street. Previously, there had been rumors about Bear Stearns, but this was the first time that anyone had stated as fact that a major bank was refusing to accept Bear Stearns risk. It wasn’t until Faber and that hedge fund unleashed the explosive news — right in the middle of a crucial interview with Bear Stearns CEO Alan Schwartz – that the run on the bank began.
This raises two important questions: Which hedge fund told Faber that Goldman wasn’t accepting Bear’s counterparty risk? And, was the news true?
The answer to the second question is a definitive “No.” We know this because some hours later, Faber reported that, actually, “Goldman did say alright, now we will accept Bear as a counterparty.” Oops. Of course, at this point it was too late – clients were fleeing Bear Stearns in mass, panicked by the news that Goldman might or might not have accepted Bear Stearns as a counterparty. The run on the bank had started, and Faber’s retraction did nothing to stop it.
To answer the first question, it is necessary to understand that short selling hedge funds often “foment” the markets by spreading incendiary information about the companies they are attacking. In a video sold to hedge fund managers and other high paying subscribers, CNBC’s Jim Cramer, a close associate of David Faber, once encouraged hedge fund managers to “foment.” He said, “Now you can’t foment. That’s a violation of…But you do it anyway because the SEC doesn’t understand it…This is actually blatantly illegal…But I think it’s really important to foment.”
It is also necessary to understand that one particular network of hedge funds has, for several years, have accomplished much of their “fomenting” by placing false or hysterical stories with a specific group of dishonest journalists. After the hedge funds have demolished a company’s stock price, they turn to those same journalists to cover up their misdeeds and present skewed versions of what happened to the company.
One of these journalists is Jim Cramer. Another is David Faber. A third is Roddy Boyd, formerly of Fortune magazine. Roddy is particularly humorous because he unwittingly tends to reveal the miscreancy of his hedge fund sources. By reading between the lines of his stories and turning a keen ear to his public boasting, we can often discover nuggets of truth. So it is that Roddy has revealed the likely identity of the hedge fund that crashed that airplane into the side of Bear Stearns.
In a story published on March 28, 2008, Roddy repeated the assertion that Goldman had refused to serve as a counterparty to Bear Stearns. He noted that Goldman had stated this refusal in an email that Goldman sent on March 11, 2008. And in support of this assertion, Roddy quoted Kyle Bass, the manager of a Dallas-based hedge fund called Hayman Capital. “I was astounded when I got the [Goldman] e-mail…” Bass said to Roddy. “Goldman told Wall Street that they were done with Bear, that there was [effectively] too much risk. That was the end for them.”
Kyle Bass is known to be a close friend of David Faber. The two men worked together on “House of Cards,” Faber’s CNBC special documentary on the collapse of Bear Stearns. It appears quite likely that it was Bass’s hedge fund, Hayman Capital, that fed Faber the death-knell news that Goldman had refused to serve as a counterparty. And to convince Faber that Goldman had cut Bear off, it is likely that Hayman alluded to the same supposed “email” from Goldman to Hayman that was later cited by Roddy Boyd.
Beyond these suppositions, the story gets a bit murky. Depending on whom you ask, there was either no such email, or there was an email, but it was an utterly routine email that merely stated that Goldman could not immediately process counterparty requests, but would do so in short order. While Roddy gives absolute credence to Bass’s claim that “Goldman told Wall Street that it was done with Bear Stearns,” he also states, in parenthesis, that Goldman denied that it had refused to accept Bear’s counterparty risk, which is another way of saying that Bass’s claim was an exaggeration to say the least.
In hopes of getting to the bottom of this, I called Hayman Capital. Hayman’s lawyer, Chris Kirkpatrick, told me that neither Bass nor anyone else at the hedge fund would comment on the matter. Apparently, Hayman only speaks to Roddy Boyd, David Faber and a few other journalists known to be tools of short selling hedge funds. Certainly, Hayman would not provide me with a copy of the famous email.
The most I could get out of Kirkpatrick was a vague statement that “what has been reported in the media is not accurate.” I do not know if he meant that Roddy’s story was inaccurate – that Bass, in fact, no longer claims that “Goldman told Wall Street that it was done with Bear Stearns.” I do not know if he meant that it was inaccurate to suggest that Bass had received an email that said as much.
What I do know is this: at the time that Faber and his hedge fund source (probably Hayman) delivered that deadly blow to Bear Stearns, Goldman Sachs was accepting Bear Stearns counterparty risk. That is an absolute fact.
So here’s the kindest scenario: Goldman at one point sent out some kind of email. It is possible that Goldman is lying (it does that sometimes), and this email did, in fact, state that Goldman would not serve as a counterparty to Bear Stearns. Or it is possible that the email stated no such thing. Either way, by the time of Faber’s report Goldman was accepting Bear as a counterparty so the email was no longer relevant.
Although the email was no longer relevant, Hayman Capital was either confused or super-excited by said email, and in its tizzy, Hayman couldn’t control itself – it just had to call David Faber with the shocking news right before Faber was to conduct a life-or-death interview with Bear Stearns CEO Alan Schwartz. But that’s all it was – an innocent tizzy. Hayman certainly did not mean to spread inflammatory information about Bear Stearns.
The other scenario is that a cabal of hedge funds, including Hayman capital, orchestrated a “conspiracy” to destroy Bear Stearns for profit. That is the scenario that Bear Stearns’ former CEO, Jimmy Cayne, laid out for Fortune magazine. When a Fortune reporter (not Roddy Boyd) quoted Cayne’s “conspiracy” remark, Hayman Capital’s lawyer, Kirkpatrick, wrote a letter to Fortune in which he stated that “Cayne’s rant” was a “feeble attempt to deflect blame…”
Hayman’s lawyer added that Hayman “did not have any positions in Bear Stearns’ securities at the time of its failure…In short, Hayman did not stand to profit from [Bear Stearns’s] failure.”
Because our markets are defined by their opacity there is no way to confirm whether Hayman had any “positions in Bear Stearns’ securities” or any other kind of bet against Bear Stearns. The SEC does not require hedge funds to report their short sales, their credit default swap positions, or any of the myriad other derivatives by which a hedge fund might profit from the demise of an investment bank.
But given that Hayman reportedly was betting big iagainst subprime mortgage derivatives, and given that the value of such derivatives plummeted as the result of the Bear Stearns fiasco, it is a bit disingenuous for Hayman to suggest that it “did not stand to profit” from Bear’s failure.
Moreover, Hayman failed to mention that one of its most important investors was Dan Loeb, manager of a hedge fund called Third Point Capital. As Deep Capture has detailed elsewhere, Loeb is very much a part of that network of short sellers that has habitually disseminated false information through a clique of dubious journalists, including David Faber and Roddy Boyd.
Most of these hedge fund managers, including Loeb, are connected in some way to the famous criminal Michael Milken or his close associates. (Loeb worked side-by-side with many of Milken’s former traders at Jefferies & Co., and got his first big break by obtaining preferential access to certificates of beneficial interest that had been issued by Milken’s bankrupt operation at Drexel Burnham Lambert). And members of this network, including Loeb, were by far the biggest short sellers of Bear Stearns stock.
Most of these hedge funds invest in smaller hedge funds with the expectation that the smaller hedge funds will somehow participate in their attacks on public companies. I do not know what preconditions came with Loeb’s investment in Hayman, but I think it’s fair to say that Hayman is an honorary member of the network.
As a measure of the lengths to which this network goes to spew false information, consider that Loeb once contracted with an outfit called Magic Consulting – owned by convicted stock manipulator Michelle McDonough (formerly Michelle Sarian). Emails obtained by Deep Capture show that McDonough’s job was to coordinate a stable of internet stock message board posters and journalists who bashed stocks shorted by Loeb and his friends. McDonough was herself a fairly prolific message board basher, prior to going to prison.
One of the internet message board bashers in McDonough’s stable was Floyd Schneider, a former employee of a Mafia-connected short seller named Anthony Elgindy, who is currently serving an 11-year sentence for short selling crimes. One of the journalists in McDonough’s stable was the above-mentioned Roddy Boyd.
In one email to Schneider, Roddy refers to McDonough as “our mutual best friend.”
So we might question Roddy’s version of the Goldman email story. We might question Roddy’s relationship with Hayman Capital. We might question Hayman Capital’s relationship with Loeb and his network of “fomenting” short sellers. And we might also question whether these short sellers deliberately set out to destroy Bear Stearns.
Actually, it is not we who must question. It is the SEC. But as Jim Cramer said, the SEC “doesn’t understand.”
Too byzantine for our SEC and legislators to understand, I’m afraid.
So, what’s the hold up? “Hold Up”! Get it?
Where are the indictments? Trillions of dollars, so many innocent folks suffering intense pain, all so these morons can get a faster car, and better looking hooker.
Somebody soon better stand up for the average man. You don’t even want to be around when the average man stands up for himself. He won’t stand on ceremony.
The s.e.c. remains a farm team for our friends legal department. Nothing has really changed. So much for “ceremony”.
the market rap copy of this has 2007 instead of 2008 on the faber action
There was a hearing this week.. Wm Black and Russell Roberts testified. Black, in hindsight, totally discounted the market activity and blamed the entire banking meltdown on Hank Paulson.
There were some not so subtle hints about going after the top snakes. Some of the legislators still seem engaged in getting to the bottom of this while others seemed overwhelmed and discouraged. Although the top people who were responsible for the meltdown because they refused to regulate, Paulson demanded more leverage and got it.. Congress isn’t looking at the vast network of fomenting and shorting. Congress was as responsible as anyone for all this because they were bought off by the players and didn’t regulate.
When it is all done, they call the players back to testify to give explanations and accept that there were fundamental mistakes made.
So Greenspan goes to his grave knowing that he destroyed the economy of the world with his easy money. These old farts like Phil Gramm and Greenspan were probably most responsible for all the terrible things that have happened. Why aren’t they held up to public ridicule?
Instead of getting regulation and enforcement back, Congress is making more indeciperable laws about energy and healthcare… both of which are made more out of reach for most of the world because financial miscreants have destroyed the economy and stolen the assets.
Maybe Cuomo would like to investigate this. I don’t trust him as he has some serious skeletons at HUD.. He does know how the game is played.
There is a new senator who seems to have the right thinking.. He wants to PREVENT fraud by rather simple means and increase oversight. He has offered up his first bill. Stopping fraud and waste is logical rather than allowing it and chasing down the lost money and criminals. http://lemieux.senate.gov/public/?p=NewsReleases&ContentRecord_id=c9481f34-eb45-453e-9731-a4374293196a The legislators create the situations that allow fraud with the way they allocate resources and fail to increase regulation when they create new spending. They don’t increase oversight at the same time.
This is the dismal Halloween truth and the reason why a bloody revolution is not impossible in the US.
9-11 should have been about planes flying into Goldman Sachs buildings.
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Sorry, I addressed my last post to Patrick, when it should have been Mark.
Madoff’s friends in the regulatory agencies deny his statements: Nope, Nada , None..The lawbreaking will continue as always.
“For example, Mr. Madoff claimed he knew Mr. Levitt “very well’ and had lunched with him on one occasion. But according to a memo, Mr. Levitt testified that he “did not believe he ever met with Mr. Madoff alone” and that he “did not have a personal friendship with Mr. Madoff,” and “had never socialized with him.”
Mr. Madoff also stated that the current chairwoman, Mary L. Schapiro, was a “dear friend” of his, and that she “probably thinks ‘I wish I never knew this guy.’ “ But Mr. Kotz released a statement on Friday saying that there was no evidence that Mr. Madoff had a close friendship with Ms. Schapiro.”
Does’nt this assesment by Madoff sound familar??
It wasn’t enough for felonious Ponzi patriarch Bernard Madoff to bilk his clients of over $60 billion in assets. Now, the jailbird stock swindler is trash-talking about the very federal authorities who should have caught him and stopped the largest financial scam in history. In a jailhouse interview released late Friday by H. David Kotz, the Securities & Exchange Commission’s inspector-general, Madoff disses SEC investigators as bumbling bureaucrats and says he was “astonished” that no one caught him earlier.
“It would have been easy for them to see,” Madoff said of the clueless financial cops who failed to perform what he called “accounting 101.” The interview was among more than 6,000 pages of assorted documents Kotz released on Friday that he has collected during his investigation of years worth of the SEC’s Madoff-related actions.
The young government investigators failed to check such basic information as Madoff’s account with Wall Street’s central stock-clearing office, not to mention his dealings with the companies that supposedly handled his fictitious trades, the Ponzi master said.
“If you’re looking at a Ponzi scheme, it’s the first thing you do,” Madoff said during the the June 17 jailhouse interview. “It never entered the SEC’s mind that it was a Ponzi scheme.”
If it had, Madoff asserted, the SEC could have easily uncovered what turned out to be the largest such financial fraud in history and a black eye for the regulatory commission charged with monitoring and stopping exactly such crimes. Instead, SEC examiners relied on Madoff’s word — which turned out to be worth mud — and other materials he provided, which also were fabricated.
mark. Another excellent article.
You are being misquoted here
They show March 13, 2007 as the date.
Jim Cramer giving out stellar stock advice again, just like he did for Bear Stearns!!LOL!
Here is what Cramer said on CIT yesterday.
“Because no one forced CIT into bankruptcy, it can live to play again, and when I read in the New York Post that Paulson owns CIT debt, I realized that he’s powerful enough to save this company, particularly because he is one of the investors in IndyMac and knows his way around the bottom of the debt barrel.
These two stocks represent lottery tickets that are no longer rip-ups because they have made it out of the “critical care” stage and are recovering.
I would buy them both.”
Commercial lending giant CIT files bankruptcy
Government to likely lose $2.3 billion it spent to prop company up last year
From Deep Capture on Twitter:
How Goldman secretly bet on the U.S. housing crash
WOW, another example of how Fraud on Wall Street committed by Wall Streeters is NOT called Fraud!!
Alan Greenspan, does this make you feel proud?
Hey Patrick, Judd or Mark,
Any reason why I can not pull up comments for this article by Partick? Sam Antar: PS And is that Mr. Goniff? It is showing some 22 comments but the comments do not appear when I open the article.
I’m having the same problem pulling up the comments for the article by Patrick Byrnes.
The issue appears to affect imneternet explorer and not google chrome. It’s a coding error.
At what point will our government investigate these scumbag so-called journalists? Those subpeonas to the scumbags were squashed and we can only imagine how much damage would have been averted if those bastards were called in for investigation and stopped in their tracks.
Lets see if the government has the balls to avert the next disaster and put thse miscreants where they belong… in JAIL!
Freedom of speech has gone too far when the essence of what used to be considered journalism is prostituted to the highest bidder.
Cramer, et al. should watch his back.
Another wolf/fox hired to guard the henhouse..
Norm Champ Named Associate Regional Director For Examinations In SEC
New York Regional Office. He was general counsel for the hedgefund Chilton Investment Company and a member of the Board Of Directors for MFA the powerful Hedge Fund Lobby. http://www.sec.gov/news/press/2009/2009-231.htm
There is a Yahoo boards user who goes by “InvestmentGuru2001” who constantly issues FUD on those boards. I wonder what the real life person behind that particular sock puppet does via other outlets?
Protect yourselves because no one else will, and the U.S. judicial system is busy supporting big business.
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