Reply #17: Weird sort of autopsy on Bear Stearns

[UpInArms]

http://news.yahoo.com/s/nm/20080804/bs_nm/bearstearns_fortune_dc

<snipping to the interesting part (for me anyway)>

Cayne, whose hands-off management style gave subordinates such as co-President Warren Spector free rein to run the business, in August forced out his potential successor and began hunting for capital.

Cayne secretly made several trips to China to strike a cross-investment deal with China's state-controlled CITIC Securities. He convinced investor Joe Lewis in September to buy a stake, a $1 billion bet that would be wiped out within months.

When Cayne returned from his hospital stay, Bear was vulnerable. Talks to sell equity to KKR, Fortress Investment Group, JC Flowers & Co and other firms fell through.

Finally the bank's woes, combined with stories that Cayne was frequently out on golf and bridge outings, caught up with him. Cayne was forced to relinquish his CEO role in January, but remained chairman.

"I didn't stop it," Cayne acknowledged, speaking of his role in the firm's demise. "I didn't rein in the leverage."

Fortune observed the firm left itself vulnerable because it relied too heavily on overnight "repo" financing from banks and funds.

In the firm's final days, Cayne said he was in the dark about Bear's weakened state. He was playing at a Detroit bridge tournament when trading clients began fleeing in March and did not know the depth of the firm's cash crisis until March 13.

It wasn't until he returned to Bear's New York offices on March 15 that he learned the Federal Reserve had arranged a bailout and that JPMorgan was its only savior. Cayne resigned himself to JPMorgan's offer of $2 a share.

...more...

question:

Is the fed making the banks more vulnerable by using that TSAF window?