Is CNBC To Blame For Bear Sterns' Implosion?
CNBC's rumor-mongering on March 10 about Bear Stearns' liquidity crisis may have ultimate brought down the investment firm. Or so writes Bryan Burrough in the August issue of Vanity Fair, adding that the day was as bad for the integrity of financial journalism as it was for Eliot Spitzer and people with mortgages: "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."
It started at noon when CNBC anchor Bill Griffeth remarked on the drop in Bear's stock by more than $7: "There are rumors out there that some unnamed Wall Street firm might be having liquidity problems." He then brought on Dennis Kneale, a former Wall Street Journal reporter, who announced, "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."
According to Burrough, this precipitated a Wall Street frenzy that resulted in Bear's stock price falling to $2 per share, and its eventual sale price to J.P. Morgan going for less than the estimated value of its Manhattan office building.
However, the Columbia Review of Journalism doesn't buy the "CNBC Did It" argument:
"While it doesn't make for nearly as good story-telling, it shouldn't be so hard to believe that a firm-especially one with its reputation as a gunslinger and with a CEO who was a combination of Nero and Michael "Brownie" Brown-could suffer a crisis of confidence that would wipe out its billions of dollars in cash in a week?"
Though CRJ does find one aspect of Burrough's coverage convincing - namely, that after the first mutterings about a hemorrhaged cash flow were made on the air, Bear's mode of damage control was confined to determining which of the CNBC screaming heads it wanted to alienate least:
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 from attacks. Sherman, however, couldn't identify a single CNBC executive who seemed to have control over the correspondents. "Everyone on Wall Street knows the joke," says another Bear executive involved in the discussions. "At CNBC, there is simply no adult supervision."
On a related note, my ex-girlfriend managed to furnish my apartment with the hand-me-down Ikea of a (former?) Bear vice president who actually did work in collateralized mortgages. Every time there's a knock at the door, I worry it's him come to collect.