Fall of a Bear

I was going through Bear Stearns‘ website and found Shareholder FAQ. A naive question in there is: “How could this have happened to an 85 year old firm?”. The answer sights “extraordinary condition” and tightened credit as reasons. Moreover they blame the rumors about their liquidity which caused the investors to withdraw the funds.

The very fact that they are 85 years old must have fed the impression that they had the ability to sail through “under normal conditions”. Everyone knows that no investor stays invested when you are not able to deal with your problems. This had to be incorporated in their calculations. Maybe it’s unsaid rule to close your eyes and let the storm pass. Moreover this is not the first that a firm so old is close to bankruptcy. Under not-so-normal conditions anyone can be forced to shut.

As Blankfein of Goldman Sachs said in an interview,” We keep in mind that the worst-case scenario we are prepared for is still not the worst”. The worst has to be unexpected. But how can one be prepared for the unexpected? Maybe they were helpless. And when analysts predict that this whole subprime mess will wipe out 400-600 billions from the market, we might still have to see some many-year-olds to go. This is the might of not-so-normal conditions.