Tag Archives: Bear Stearns

Trump’s Economic Adviser Said the Economy Was Fine—Right Before It Imploded

Trump’s economic adviser was the chief economist for Bear Stearns… smh…

Did we mention he worked for the investment bank that lit the fuse on the financial meltdown?

Mother Jones:

On Friday, ahead of a big economic policy speech Trump is expected to deliver next week, the Trump campaign released a list of his economic advisers. The roster of 13 men—all are men and five are named Steven or Stephen—includes a handful of billionaires and financial moguls, several of them longtime Trump friends. Also on Trump’s economic brain trust is an economist, David Malpass, who downplayed concerns about the economy shortly before his firm collapsed and the economy cratered.

Malpass is a former economic adviser to Ronald Reagan whom the Trump campaign touts as having “extensive private sector experience.” That experience includes serving for 15 years as the chief economist for Bear Stearns—the Wall Street firm that was deeply enmeshed in the subprime mortgage market—in the lead-up to the investment bank’s spectacular March 2008 collapse.

The fall of Bear Sterns lit the fuse on the economic crisis. And perhaps more so than its competitors, the 85-year-old investment bank came to exemplify the excesses and short-sighted economics that led to the financial meltdown. If Trump is counting on Malpass for economic advice, he had better hope it’s an improvement on the wisdom the economist dispensed as the financial system hurtled toward a cliff. Nine months before his company fell apart, Malpass wrote a column for the Wall Street Journal titled “Don’t Panic About Credit Markets.” He derided the “hyperventilation over the coming U.S. economic slowdown” and wrote:

The slowdown talk weighing on equities also reflects the Wall Street view that debt, mortgage and takeover businesses have replaced General Motors as the economy’s bellwether. According to the bears: As goes the credit market, so goes the economy. Fortunately, Main Street is not that fickle. Housing and debt markets are not that big a part of the U.S. economy, or of job creation. It’s more likely the economy is sturdy and will grow solidly in coming months, and perhaps years.

So, that was wrong.

Malpass did fine, though. He currently sits on the board of New Mountain Capital, a multi-billion-dollar private investment firm, and runs his own market research firm.

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Bear Stearns securities fraud suit revisited

MANHATTAN — The Second Circuit on Thursday affirmed dismissal of a time-barred securities fraud suit by SRM Global Master Fund Limited Partnership against Bear Stearns, which collapsed in 2008 and settled class-action claims years ago.

Source: Courthouse News

Here is the court document. Click here.

Unsealed Bear Stearns emails shows Executives lied about Bank Failure

I followed this Bear Stearns story a few years ago.The real question is that whether the DOJ will take this information and investigate criminal charges (not civil charges or non-prosecution agreement) against the Bear Stearns execs. Great reporting by Teri Buhl!

Teri Buhl website:

For a few months I’ve been fighting behind the scenes to get a private civil fraud lawsuit against Bear Stearns and its senior leaders Jimmy Cayne, and Warren Spector unsealed. I won that battle last month in Manhattan federal court and discovered a war chest of internal emails by over a dozen Bear Stearns executives and confidential communications to its regulator, the Securities and Exchange Commission, that showed these men have misled the public for 8 years on the how, when, and why Bear Stearns really failed. I then chose to partner with one of my favorite and highly respected investigative journalist Roddy Boyd to report a story on how the SEC knew as far back as 2005 that something wasn’t right about the way Bear Stearns was disclosing its risk in the fixed income-mortgages department, run by Tom Marano, that eventually took down the bank. Shockingly the unsealed emails showed Bear’s CFO and public face to investors, Sam Molinaro, tell his team “we need liquidity ASAP” on the same day (Aug 3rd 2007) he held a public investor call reassuring Bear Stearns investors capital levels and liquidity was just fine.

The fact pattern I uncovered, which shows the depth of internal awakening by Bear Stearns executives back in the summer of 2007 that their beloved 100-year-old bank was in serious trouble and they planed to keep it quite from The Street and investors, is beyond troubling. But when I realized the SEC could have published a letter Molinaro sent them detailing what their real subprime risk was (and not disclosed in their financial statements) months before the bank failed and admitting they could go under; feels like the SEC aided these executives in their crimes of investor fraud and complete breach of their fiduciary duties.

I urge all my readers to take the time to read our story at the non-profit investigative journalism publication www.sirf-online.org.

 

Goldman Sachs and Bear Stearns: A Financial-Crisis Mystery Is Solved

Source of CNBC report revealed in commission report

So…Kyle Bass, former Bear Stearns exec and hedge fund manager that killed Bear Stearns…

WSJ:

It has been called the bombshell that blew up Bear Stearns.

It happened on Wednesday, March 12, 2008, shortly after 9 a.m. in an interview broadcast on CNBC. There, reporter David Faber asked Bear Stearns chief Alan Schwartz to respond to reports thatGoldman Sachs wouldn’t “accept the counterparty risk of Bear Stearns.”

Mr. Schwartz said the firm’s counterparties still were trading with Bear Stearns. Hours later, CNBC reported that Goldman was indeed still doing trades with Bear Stearns.

In the eyes of many on Wall Street, however, the damage was done. Confidence in Bear Stearns quickly evaporated—and with it the firm’s ability to survive.

By that evening, Bear Stearns’s ability to borrow in the overnight repurchase market was drying up, with some money-market funds warning that they might be hesitant to provide repo funding in the morning, according to government records. The following evening, Bear Stearns informed the Securities and Exchange Commission that it would be “unable to operate normally on Friday.”

On Friday, the Federal Reserve agreed to back a rescue loan from J.P. Morgan Chase & Co. Over the weekend, the firm was forced to sell itself outright to J.P. Morgan at a fraction of where shares had been trading when the week started. ​​Recently released materials from the U.S. government’s investigation into the financial crisis give new detail on how this incident came about.

A former Bear Stearns executive named Kyle Bass of Hayman Capital Management LP—a well-known hedge-fund manager—was the source for Mr. Faber, according to formerly confidential government records.

​Mr. Bass, who is based in Dallas, is best known for making a fortune during the housing crisis by betting against subprime mortgages. His fund now has a multibillion-dollar bet that the Chinese yuan and Hong Kong dollar will fall.

​Mr. Bass’s role ​came to light in the Financial Crisis Inquiry Commission records released by the National Archives earlier this month. Those include a memorandum describing an interview withThomas Marano, former head of mortgages at Bear Stearns. Mr. Marano told a panel of investigators that Mr. Bass was Mr. Faber’s source.

Messrs. Bass and Faber declined to comment.

At the time, hedge funds were concerned about Bear Stearns’s financial health. They were attempting to get other Wall Street firms to take their place in trades with Bear Stearns on credit-default swaps used to short mortgage-backed securities, in a trade known as a “novation.” Those trades would reduce or eliminate a hedge fund’s exposure to Bear Stearns.

“There were several investors who tried to novate, but Kyle Bass was memorable because I reached out to him to find out his concerns. I heard on CNBC that he had told them that he had tried to novate with Goldman, and they said that they would maybe take it, but he wasn’t sure,” Mr. Marano is quoted in the memo.

CNBC hadn’t, however, actually disclosed Mr. Bass’s role. Mr. Faber has never said publicly who his source was.

“I reached out with a Bear salesperson to Kyle, and he indicated that he attempted to novate to Goldman and that he shared a conversation about Goldman not wanting to novate with David Faber of CNBC. I said it’s all over CNBC, and he said that he couldn’t believe that David Faber put that all over the air. He was shocked that it was out there,” Mr. Marano said, according to the memo.

 

Bear Stearns sued

PHILADELPHIA – The collapse of the auction-rate securities market led Reading Health System to sue Bear Stearns & Co., now known J.P. Morgan Securities, in Federal Court over its issuance of nearly $519 million of ARS debt.

Source: Courthouse News

JPMorgan settles Bear Stearns’ lawsuit, pays $500 million

JPMorgan Chase (JPM) has agreed to pay $500 million to settle more than six years of class action litigation overBear Stearns’ sale of $17.58 billion of mortgage securities during the financial crisis, according to an article in Reuters.

It resolves claims that Bear, which JPMorgan bought in 2008, misled investors when it sold certificates backed by more than 47,000 largely subprime and low documentation “Alt-A” mortgages in 14 offerings from May 2006 to April 2007.

Bear was accused of making false and misleading statements in offering documents about underwriting guidelines used by its EMC Mortgage unit, Countrywide Home Loans, Wells Fargo and other lenders, and the accuracy of associated property appraisals.

The settlement still requires approval by U.S. District Judge Laura Taylor Swain in Manhattan.

Source: Reuters
Link

NY judge: JPMorgan/Bear Stearns committed MBS fraud; dismisses case anyway

NY judge: JPMorgan/Bear Stearns committed MBS fraud; dismisses case anyway

For the last two years, MBIA Insurance Corp. and J.P. Morgan Securities have been fighting in court. In September 2012, MBIA sued JPMorgan (and Bear Stearns, which was acquired by JP Morgan in 2008), alleging that Bear Stearns altered a third-party due diligence report so that MBIA would insure a $1.16 billion mortgage securitization.

The securitization in question, 2006-HE4 Securitization, originated from a pool of risky mortgages and MBIA alleged that Bear Stearns, as lead underwriter, manipulated the deal’s due diligence report to make the securitization look safer than it actually was. 

And according to New York State Supreme Court Justice Alan Scheinkman, that’s exactly what Bear Stearns did. But Scheinkman dismissed the case anyway because MBIA could not prove that it used the fraudulent information in its decision to insure the securitization.

According to Scheinkman’s ruling (which can be read in full here), Bear Stearns sent the “altered report” to MBIA “a scant few hours” before closing on the insurance policy. Scheinkman’s ruling states that there is evidence to support MBIA’s assertion that Bear Stearns “altered due diligence information (and) intentionally misrepresented existing material facts.”

But MBIA also claimed that it “relied on this misinformation to its detriment.” Scheinkman’s ruling states that there is no evidence of that.

“Had the underwriter (Bear Stearns) simply passed on the third-party due diligence information without alteration, the insurer (MBIA) would have only itself to blame for failing to review the information before issuing the policy,” Scheinkman wrote.

“Likewise, had the third party merely sent on the unaltered due diligence information, the underwriter could have kept to itself its opinion of what that information revealed,” Scheinkman continued. “But there is evidence that is not what happened.”

Scheinkman writes that there is evidence that shows that Bear Stearns realized that the due diligence results showed the loan pool was problematic and that if MBIA had seen the unaltered report, it may have balked at insuring the deal.