Mar 17, 2008 6:08 pm
by Bill Singer Blog Home | Past Entries Ode to Bear Stearns. Requiescat In Pace Written: March 17, 2008
This morning is March 17, 2008, and the world of Wall Street has changed...a bit. JPMorgan acquired Bear Stearns. The tremors and aftershocks of the demise of that powerhouse institution roil our stock markets. It is as if there will be no tomorrow.
But those of us who have been around for decades, who have seen earlier recessions, who have seen market crashes and panics, who have seen the comings and goings of the Drexels and the Kidders and the Shearsons and the Baches and so many other household names--we wizened veterans know that the sky is not falling. At best, it is a solar eclipse. Rare. Impressive. Transforming. But not the end of mankind.
Truly, each of these market catasrophes is somewhat the same as its predecessors but with just enough variance as to stamp it with its own unique name: The Tech Wreck, the S&L crisis, the October crash. This time around Wall Street has been brought low by unbridled mortgage lending practices and the attendant securitization of that detritus. Our credit markets are in gridlock.
Why did this happen? Well, to some extent, trot out the usual suspects. Wall Street built a head of steam when it discovered the joys of a heretofore unknown financial product and sought to fully exploit its potential. All hail the King of Subprime! Long life to CDOs and CLOs!! Reduced to basics: greed was fed and ran amok.
Why did none of the failsafe devices work? For one reason, it's because those alarms weren't really meant to work--they were meant to look impressive and give you false comfort. Think of the contractor who years ago literally glued sprinkler heads to the ceiling of his building. It was just cheaper than running all the plumbing. Nonetheless, to the naked eye, the anti-fire system looked just as good as the real thing. . . well, that is, until there was a fire.
All of which leads to the explanation as to why now and why here.
Wall Street has been humbled because it is incapable of controlling its ever ravenous appetites. Who is supposed to do that? Why, the regulators, of course. Did they? No. Why not? Because they are too much like the corrupt contractors who prefer to glue sprinklers to the ceiling. Far too often, those who regulate Wall Street prefer to give you comfort rather than substance, and since the building rarely catches fire, you only see the danger of such lackadaisical regulation when it's too late.
The most critical role of regulation is to protect an industry from its own folly. How all the state, federal, and self regulators failed to see the smoke and sound the alarm is as much a puzzle as a tragedy. One hopes that lessons are learned, but, then again, that is always the hope after such sadness. There have been other fires on Wall Street. There have been other casualties. Still, the sprinklers are glued on. Worse, there is a growing sense in this country that nothing works anymore and that no one knows how to fix what’s broke. That too is an age old fear. Knowing that, however, is of little comfort.
In 1859, Abraham Lincoln gave a speech before the Wisconsin State Agricultural Society. Among his remarks was this famous story:
"It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: "And this, too, shall pass away." How much it expresses! How chastening in the hour of pride! -- how consoling in the depths of affliction!"
But that we now had a Lincoln in the White House. But that legislators of wisdom and good will drafted our political and economic policies. But that regulators with commonsense and fairness patrolled the beat of Wall Street.
Still, after my quarter of a century in the securities industry--time served at a wirehouse, two regulators, a mutual fund, an investment adviser, and as a law firm partner -- I take great comfort that foolish men cannot command the wind nor the tides. And it is in such trying times that one finds comfort in odd places. In concluding this blog entry, the stirring words of Ecclesiastes comforts me. In part because its message remains timely across the millennia:
I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all.