US: Bear Sterns execs arrested
Diversion or witch-hunt or justifiable investigation? So far, it's impossible to tell. But inevitably someone would be hauled before a court over the collapse of Bear Sterns. The question is whether the current arrests are the only ones, or even the right ones.
Ralph Cioffi and Matthew Tannin who ran funds a BS will appear in Court this afternoon - but it's not clear whether charges will be laid at that time.
It's not even clear what charges are under consideration.
Both were involved in sub-prime funds that collapsed and ultimately brought about the failure of the bank. That led to political embarrassment and someone has to pay.
But the pair are merely symptomatic of a wider problem. After all, in 2001, Fed Chairman Greenspan said that asset backed securities were an ideal vehicle for the US banking industry: an industry that was just coming to terms with a dot com collapse (that it had caused by company valuation policies that are fictitious) - and before the knock on effects of 11 September and SARS.
Were the securities rubbish? Yes - but if Cioffi and Tannin are to blame, so are hundreds, if not thousands, of others in the industry including the ratings "agencies" - which in truth are commercial concerns that clearly failed to understand the risks involved in the securitisation of bundles of mortgages that were, from the outset, designed to be of poor quality.
You can call it "sub prime" if you want - but the reality is that the loans were doomed to a higher failure rate than normal - yet bundled they were classified with ratings up to and including AAA.
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