How the cookie crumbles

Implications: 1.Too much confidence in a fund is not good for wealth 2.A case of regulators blinking while the bear hugs.

Analysis:  

The rich got poorer. Poor remained poor.The bear told a bull story. Coming from a bear the rich rode the bull. Ended up on the horns of a dilemma. To fight or not to fight.The subprime has a long tale.

Jimmy Cayne the Chairman and CEO of Bear Stearns rubs shoulders with the likes of Warren Buffett and Alan Greenspan. Prides himself for being a rigorous risk analyser, assessor and controller. It gets trashed by the CDO.He is today an angry man. Can’t take umbrage under a sales talk. It is all bull now.

All the sales talk during the roadshows netted billions but squandered a reputation.Now not a penny. How investors, the rich ones, failed to read the lips is a mystery.Now, the rich investors in the funds have gone to town claiming they were fooled ! who do you trust ? When you have your own instincts why trust someone else.

The securities held by the funds were supposed to be ultra-safe, and had excellent backing too! AA or AAA credit ratings. But when mortgage defaults began to rise, it became apparent that some of these ratings were a little optimistic. By middle of June, the rival banks Merrill Lynch and JP Morgan Chase were trying to pull out of the Bear Stearns funds. The experts.Who fell for the sales talk? So what of the ordinary investors.Investors invested in the leadership of the experts.

What is the role of the credit rating agencies ? Why not ask a few questions of them.Again the experts. Looking at the picture in hindsight, the sales talk appears to have been endorsed by experts and novices alike. Who is fighting whom? Where has all the financial engineering skills gone ? Short memory has a long tail.The sales tale.

What about the regulators. Why did they blink ? Maybe there should be rules on what happens at the roadshows.No hype only facts and figures. Interpretations to the experts.

Looking at the way everyone behaved, did Bear Stearns have to soft -pedal the risks ? Not by a long stretch. The story is short and sour.