Lies, and the Lying Liars Who Tell Them

I feel like I need a shower, after borrowing the title of Al Franken's bitter leftist diatribe. But this is the Wall Street version, and it's a fitting title (moreso than of Franken's tome).

Remember when we called into question Bear Stearns CEO Alan Schwartz's assertion, in an interview with CNBC's David Faber, that the rumors swirling about Bear's lack of liquidity were just rumors? That led to a Tuesday morning rally, as investors were quick to drink Schwartz's Kool-Aid.

Well, Friday morning JPMorgan, the New York Fed, and Bear announced a plan whereby Morgan would provide a funding conduit to Bear that would allow Bear to borrow from the Fed's discount window. Bear can't directly access the window because it's not a bank, but a stand-alone broker/dealer, whereas Morgan also has a banking unit. So it's like you loaned your friend, who doesn't have a bank account, your ATM card. Bear's using Morgan's PIN to access the discount window at the New York Fed.

Why? Apparently, Bear lacks liquidity and can't access the capital markets.

Oops - didn't Schwartz say there's not a liquidity crisis at Bear? That they're able to get deals done? That the $17 billion cash they had parked at the holding company level in December is still there?

Schwartz's Kool-Aid flavor of the day on Friday was that conditions worsened dramatically over a 24-hour period, and while there wasn't a problem on Tuesday when he talked to Faber, there was a critical one now.

Riiiiight. And I've got some houses in Florida, California and Vegas I'll sell you.

Schwartz didn't know on Tuesday? Well gee, traders at Goldman Sachs seemed to, since they wouldn't accept Bear's counterparty risk. If they knew the problem was there, and Bear's CEO didn't until Friday, he should be canned. Without a healthy exit package.

Bear traded as low as $27 a share on Friday, less than half its price the previous day, so those buyers of $30 March puts made out like bandits (maybe they should be running Bear's trading desk - or maybe they already are). And its debt - which S&P downgraded to A - is trading at spreads similar to the junk-graded bonds of the Indonesian government.

Bear's earnings announcement is next week, and it'll be well below forecasts, in spite of Schwartz's assertions Tuesday that they would be "within the range of estimates." And that'll tank Bear. Bear's toast. Bear will be bought in the second quarter.

Speaking of liars, let's turn to S&P. In downgrading Bear, they said the JPMorgan/NY Fed rescue is a short-term solution to a long-term problem for Bear.

Really? Is this the same S&P that told us Thursday that subprime losses would slow, and things would get better soon? Well, if things are going to get better "soon," how is Bear's problem "long-term?"

S&P is blowing sunshine to cover for the fact that if it followed its own rules, it would double its downgrades from AAA status. Which would make S&P look even more criminally stupid. Which would lead Congress to step up the pressure on the ratings agencies to explain how they screwed this one up so bad.

Just remember: you read the truth here on Thursday (or at least had the opportunity to). The rest of the world didn't reveal the truth until Friday. If you want the truth, you know where to turn. If you want to keep listening to the guys who look like Kevin Bacon in the chaotic closing scene of "Animal House," running through the streets yelling "All is well!" while the parade implodes around him - keep drinking the Kool-Aid.