"Hi Fellas, What Y'all Talking About?!"

You ever have one of those awful social moments when you walk into a group of people you know and they go from busy conversation to uncomfortable silence?  Not that its happened to me (except that time in 6th grade..) mind you!  It seems as if a moment like that may have occurred between Bear Stearns and THE REST OF THE FINANCIAL WORLD on Tuesday March 11, 2008!

Bloomberg News broke a story late today that Federal Reserve Chairman Ben Bernanke, New York Fed President Tim Geithner had a lunch meeting in New York on March 11 with, Jamie Dimon (JPM Chase), Lloyd Blankfein (Goldman Sachs), Richard Fuld (Lehman Brothers), James Gorman (Morgan Stanley), John Thain (Merrill Lynch), Robert Rubin (Citigroup), Steve Schwarzman (Blackstone Group) and Ken Griffin (Citadel Investment Group).  Bloomberg obtained Chairman Bernanke's day book under the Freedom of Information Act. The day book was released and redacted (a fancy word for "cleaned up").  The details of the meeting were not released.

So the Fed, who maintained that they only became aware of Bear Stearns dire liquidity situation Thursday night, March 13, had a meeting with every major commercial and investment bank on March 11....EXCEPT BEAR STEARNS.  Hell, even Blackstone and Citadel were there!  Last I checked they aren't ANY KIND OF BANK!  Everybody but Alan Schwartz of Bear. The question that is now hanging heavily in the air is what exactly did the Fed know about Bear Stearns and when did they know it?  Also, what were all these guys talking about?  Bear Stearns was not insolvent.  Bear Stearns had a huge liquidity problem, as did Lehman and to some extent Morgan Stanley.  Why were they allowed to attend and weigh in and not Bear?  I am going to assume that Blackstone and Citadel were there for two reasons.

1. They were probably questioned as to whether each had the desire or the ability to buy Bear.

2. In the case of Citadel, who used Bear as one of their main prime brokers, just how much money was being yanked out of Bear by its prime brokerage clients?  I believe Citadel had taken out a considerable amount a week or two earlier.

Something just doesn't add up.  It doesn't seem credible that just about every major financial institution in the United States, except Bear Stearns, had a meeting about the most pressing issue of the day, bank liquidity, and the subject wasn't about Bear Stearns, who had rumors swirling about them since Monday.  Somebody is not telling the truth.  According to both Chairman Bernanke and President Geithner, they did not know of the gravity of Bear Stearns situation until Thursday night March 13.  By then the liquidity crisis was out of control and Bear had no choice but either take a horrendous deal or declare bankruptcy.

Bear took the deal Sunday night March 16 and that was that.  Immediately afterwards, the Fed opened the discount window to investment banks, saving Lehman and maybe Morgan Stanley too.  If the Fed knew on Tuesday afternoon, (and I think they knew earlier than that because this doesn't seem like some hastily prepared night meeting) why did they not open the discount window to investment banks that day March 11 and float Bear for a month or two so a suitable deal could have been achieved?  Was it because somebody had to get torched so as not to make it look like a bailout of "the fat cats"?  I don't know the answer but I think there's a lot more questions that need to be asked and a lot of conflicting stories that need to be straightened out.