Economist who triggered 2008 crash named

Скайл бэссThe name of the manager who provoked the bankruptcy of investment bank Bear Stearns in 2008, generally recognized as the start of the 2008 recession, has come to the surface. The culprit is Kyle Bass, the founder of Hayman Capital Management fund. His name is mentioned in the recently unveiled documents of the Financial Crisis Investigation Commission (FCIC). When on March 12, 2008, CNBC reporter David Faber interviewed Bear Stearns president Alan Schwartz, he asked him among other things to comment on “actively spreading rumors about a risk of default” by Bear Stearns, citing partners’ reluctance to cooperate with the bank. At the time, the bank had already been in a rather difficult situation for a couple of months, and about a year earlier, hedge funds under the bank’s management suffered losses to the tune of $1.7 billion (in secured bonds). Schwartz diplomatically dodged allegations, but the journalist assured him that proven sources at one of the hedge funds had spoken to him of the fears at Goldman Sachs, one of Bear Stearns’s main partners at the time. Despite the fact that after a couple of hours the CNBC channel was able to ascertain that Goldman Sachs was indeed working with Schwartz’s bank as before, the interview gave rise to panic. As a result, in the afternoon of the next day, Bear Stearns sent a request for urgent financing of its obligations to the Fed, as the funds had expressed distrust of the bank after a wave of speculations and rumors swept over the market.
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So, on March 14 the Fed resolved to issue an emergency loan of $30 billion in the form of an asset purchase, and after awhile Bear Stearns bought out JP Morgan Chase bank for the price of $2 per share (down from the market value of $30). nara Among the FCIC documents provided by the US National Archives for reference, representatives of the media discovered a memorandum containing the minutes of financier Thomas Marano’s meeting with members of the commission. Currently, Marano runs a real estate and tourism group Intrawest in Denver, but from 1983 to April 2008 Marano had been the head of the international mortgage business department at Bear Stearns. And according to Marano, it was Kyle Bass who told Faber about liquidity problems at Bear Stearns. Goldman Sachs employees sort of made it clear to Bass that they were not going to take responsibility for his obligations to Bear Stearns under credit default swaps. «I and another Bear Stearns trader contacted Bass, and he confirmed having contacted Goldman Sachs about a potential exchange of obligations of that sort and then filled CNBC’s Faber in on the situation,” said Marano to the Commission. “Sam Bass was shocked to find out that Faber eventually told the story on air.»
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Noteworthy, analysts later on subjected CNBC and Faber himself to criticism on the grounds that his actions could have been taken in the interests short sellers who, as a result, benefited from the collapse of Bear Stearns. But at the same time, emails attached to FCIC documents indicate that Goldman Sachs had indeed refused to deal in Bear Stearns securities on March 11, 2008, just one day before Schwartz was interviewed. It also became known that this position of Goldman Sachs had not been related to market sentiment alone but that it had been caused also by an unexpected increase in the number of requests from funds about similar deals involving transfer of obligations. According to the FCIC documents, on March 11, Bass’s hedge fund was going to close a risky $5 billion deal by night, but Goldman Sachs traders had already refused to do that in the morning, virtually refusing to work with Bear Stearns securities. Later on, by 9 am the bank did give consent to Bear Stearns as a counterparty (this was just the time Schwartz was being interviewed by Faber). «The news report shocked Wall Street with the fact that Goldman Sachs had refused a simple deal in their colleague’s papers involving five of the largest investment banks. The message was clear: do not count on Bear Stearns,” commented FCIC. bsc_bear_stearns_obituaryAfter confidence in the Bear Stearns fell, investors began to massively lose trust and other investment banks that operated in the field of mortgage lending at the time. This wave of distrust led to the bankruptcy of Lehman Brothers in September 2008. Later on, journalists and world media reported that the reason behind the bankruptcy of the two banks and the global crisis was unsecured speculative short selling, a claim that a University of Oklahoma study refuted as far back as 2009 over lack of evidence that the short selling had a significant effect on the collapse in share prices.

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