Blog Post

Fortune is running an interesting piece on Bear Stern. The article suggests that Goldman Sachs may be responsible for kindling the panic amongst hedge funds.

The last days of Bear Stearns – Mar. 31, 2008
…
Still, momentum was turning against the firm. That morning Goldman Sachs’s credit derivatives group sent its hedge fund clients an e-mail announcing another blow. In previous weeks, banks such as Goldman had done a brisk business (for a handsome fee, of course) agreeing to stand in for institutions nervous, say, that Bear wouldn’t be able to cough up its obligations on an interest rate swap. But on March 11, Goldman told clients it would no longer step in for them on Bear derivatives deals. (A Goldman spokesman asserts that the e-mail was not a categorical refusal.)

“I was astounded when I got the [Goldman] e-mail,” says Kyle Bass of Hayman Capital. He had a colleague call Goldman to see if it was a mistake. “It wasn’t,” says Bass, who is a former Bear salesman. “Goldman told Wall Street that they were done with Bear, that there was [effectively] too much risk. That was the end for them.”

It was ominous, but it wasn’t yet the end. Bear continued absorbing blows. The cost of insuring $10 million in Bear debt via credit default swaps, which had hovered near $350,000 in the month before, shot past $1 million. By the end of March 11, the rate was irrelevant: Banks refused to issue any further credit protection on Bear’s debt…

Is this a whole new way of getting competition out of the way?
I don’t think so, it’s just an investment bank being smarter than the pack and taking measures to limit the risks it’s taking and survive. If casualties are necessary, so be it.