Get ready. Now that Bear Stearns (BSC) has been forced to run hat in hand to the Fed and whimper that it’s “too big to fail,” the mewling is about to begin:
- It’s not our fault! It’s a run on the bank!
- We never could have seen this coming!
- Blame those jerks who stopped lending us money!
Give us a break. If Bear Stearns goes to zero, there will only be one party to blame: Bear Stearns management.
Yes, companies that live and die on short-term loans (such as every brokerage firm on earth, along with Enron) depend on the cooperation of third-parties. And, yes, when those companies can’t roll over their short-term paper, the folks who actually deliver the death-blow are those that refuse to lend them any more money.
But the first responsibility of any brokerage firm management team is to ensure that under no circumstances can the firm be put in a position where its short-term financiers might lose confidence. This is why there is ultimately only a couple of people who are responsible for the Bear firesale: Bear’s CEO Alan D. Schwartz and former CEO Jimmy Cayne.*
Meanwhile, who will pay for this bailout?
Do you really have to ask?
The Fed has promised Bear Stearns saviour JP Morgan (JPM) that it will guarantee the value of whatever crap Bear has piled onto its balance sheet. In other words, the Fed is effectively assuming the liabilities of Bear Stearns. And the Fed’s source of capital, ultimately, is you.
*UPDATE: I had originally laid this all at Alan’s feet, but a smart reader is right: Cayne deserves a lot (most) of the blame.