So what do we say? How do we act? How should we deal with extraordinary events like a liquidity run on an investment bank? In Vanity Fair, Bryan Burrough's exhumation of the Bear Stearns Cos. collapse raises those questions, particularly when he criticizes the folks over at CNBC for pouring gasoline on Bear's little bonfire. Our own Yvette Kantrow's "Media Maneuvers" column this week takes a searching look at the VF piece and at the continuing chatter on CNBC about another threatened firm, Lehman Brothers Inc.; her column has just gone up over on The Deal's newsweekly site. The debate stirs up issues, which are both institutional, personal and markets related. Bear with me: There are no answers here, no little rules on Post-it notes. There's only a very shadowy line where news and speculation, responsibility and irresponsibility, part ways, and this frankly is an exercise in trying to find it.
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Let's get a few things out of the way. Much of Burrough's condemnation is based on his thesis that, as late as a few days before that fateful Friday in March, Bear was fine. The firm had sufficient capital and liquid assets. A corollary to that argument, then, was that Bear was felled by an orchestrated conspiracy of short sellers. I'm not personally convinced of either point. Bear was clearly sick; its mortgage portfolio was bleeding; it needed new capital; its management was new and bordering on the dysfunctional (Schwartz was a new CEO stuck with the Jimmy Cayne, Ace Greenberg wackiness). Was there short selling, rumors, wild speculation? Yes yes yes. But the short-selling cabal theory overstates Bear's health and understates the irrationality of the market at large. The ground was prepared; perhaps the die was already cast. By the time Schwartz went to Florida that week, there may have been a certain inevitability to events. The shorts, the blabbermouths, may have tipped it over -- or only accelerated its already terminal decline.
We really don't know. The fact is we'll never ever know. Like everything else about this incident, we -- including Burrough and Bear insiders -- can only speculate.
That said, what's also clear is that inevitability only appears in retrospect. No one really knew what would happen at the time. Whether it seemed to be inevitable or not does not take anyone off the hook. Because we don't know anything for certain, any mistake may (or may not: we'll never know) be the trigger for a market convulsion. We live life forward, not backward; and particularly in events like the Bear run declarations of omniscience or certitude suggest only the presence of bullshit. For the journalistic crowd, then, the issue has to be what should you say, or write, when market crises begin? Do we have some responsibility to bury bad news? Or should we simply ignore the consequences and conduct business as usual?
Again, I'm fully aware of the competitive or theatrical pressures of the news business these days, with its cable talkers, bloggers and armies of columnists. So this is mostly about how I would like to react; and, to some extent, this is about how I would wish reporters and writers at The Deal behave. In normal times, there's nothing wrong with speculation -- informed speculation. It's fun, provocative, and sometimes you're even right. The market is usually deep enough to absorb the most mindless maunderings. Particularly on cable and in the blogosphere, where endless speculation is the coin of the realm, inaccuracies, absurdities, misstatements disappear into the ether. But when markets are in the state where a firm is threatened, well, that no longer holds; the markets have lost their ability to separate reality from illusion, and we needn't fuel the mania. Does that mean we should shut up or not report potentially destructive news, like some financial version of The New York Times refusing to print that the CIA was about to invade the Bay of Pigs? Absolutely not. But such moments -- rare as they are -- do force on us a sharper distinction between sourced and verifiable information and rumor, gossip, innuendo and blind prediction, between reporting on what is actually happening now and what might happen in the future.
Again, I'm not saying this is easy, particularly for consumer media outlets that depend on a high-octane blend of entertainment and expertise to hold an audience. Besides, during the week that Bear went down, nearly everything flying around the markets was rumor and gossip; much of it was conclusionary. And sometimes it's hard to discern whether a market is about to rise up and smack a firm down. But we are not talking here of going silent, of not reporting what's going on, of not publishing. We are talking about offering up only what we know as facts (or correcting them when we get them wrong), and not predicting complex events we can't fully untangle and that no one ever really will.
This sounds both obvious and mildly naïve, like telling a child not to play with a loaded gun. Maybe it is. But these days it bears repeating. In a crisis like Bear or Lehman, we should operate by the same rules and practices we have always had -- only more so. Don't say what you don't know. Know who your sources are. Speak carefully. It shows how strange the media world and the markets have gotten that we even have to lay that out. - Robert Teitelman
