The Bear Bailout: A Plea for Transparency

Financial commentary is parasitical on financial news: we pundits can’t have

opinions on what’s going on if no one tells us what’s going on. In the case

of Bear Stearns bailing out one of its troubled hedge funds, this is a big problem.

There’s some reasonably good commentary out there, from the likes of Tanta

and Yves

Smith, but all of it is hamstrung by a dearth of hard facts. To make matters

worse, the news coverage often includes commentary masquerading as news, which

can make it even harder to work out what’s true and what’s speculation. (See

Tanta for much more on this.)

In the case of the Bear Stearns situation, the rush to be first has also meant

that CNBC’s Charlie Gasparino, especialy, seems to be reporting as news things

which are really just informed speculation. (JP Morgan is liquidating its collateral!

Barclays stands to lose hundreds of millions of dollars!). If these things appeared

in a blog entry, it would be easier to take them with the requisite pinch of


Finally, there’s the problem that a lot of the financial journalists reporting

on the Bear Stearns funds don’t seem to fully grasp what’s going on, either

because they lack the facts or because they lack the requisite financial sophistication.

It’s at times like this, then, that I start really wishing for some disintermediation

of the financial press. I don’t know who the reporters at CNBC and Bloomberg

and the WSJ and the NYT are talking to in order to get their facts, but it’s

likely to be the same small group of individuals. The need to talk to all those

different reporters is a pain for the individuals concerned, which is exacerbated

by the fact that they then need to see their information presented to the public

in ways they might never have intended.

What I’d love to see would be a lot more transparency from Bear Stearns, its

prime brokers, and anybody else involved in this and other messes. Take the

facts you’re giving to a few chosen journalists, and instead put them up on

a public website for the world to see. That way all of us can draw our own conclusions

should we be so inclined – and the chosen journalists can still write

the exact same stories, based on the exact same facts.

This is the tack

taken by John Mackey of Whole Foods, who blogged

everything in order to get out his side of the story, rather than relying

on the press to get everything right.

Now that the public gets its financial information from an incredibly wide

range of sources, it’s becoming less and less useful for banks and other financial

entities to talk only to a small number of media sources. And they don’t have

the time to talk to every blogger or interested party who has questions. So

they should start to publish stuff themselves. Then we could all have a much

better take on questions such as whether the prime brokers lending to the Bear

funds really do stand to lose any money.

It stands to reason that they would: after all, in the younger, more leveraged

fund there does seem to be a high likelihood that total losses will exceed the

total amount of equity in the fund. In that case, lenders are going to have

to bear some of the brunt. But as of right now, it’s almost impossible to tell

who those lenders might be, and how much they might be on the hook for.

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