Friday, May 22, 2009

CNBC plays the rumor mill game in helping bring down Bear Stearns

When it comes to this financial crisis, the mainstream media is often viewed as neutral - just here to report the news. The evil banks and hedge funds cause havoc and the media simply reports on it. Right. Here is an example of CNBC using a rumor to generate a sensation and exacerbate an already tense situation. It happened over a year ago as CNBC's David Faber set up Alan Schwartz on national TV.

Frontline captured it well (though they focused on the aftermath vs. the way it was handled).
Faber: "Mr. Schwartz thanks so much for being here this morning. ... So when I am told by a hedge fund that I know well that last night they tried to close a mortgage, a credit protection...". He then proceeds to insinuate that according to this hedge fund, Goldman is pulling Bear's credit lines.

What? He is talking about hearing something about a transaction from an unnamed hedge fund "he knows well". The hedge fund is probably short Bear and is feeding him the rumor to bring down the share price. Faber of course plays along.

He poses a question to which there is no good answer. If Schwartz says he knows the specific transaction, he's violating a bunch of confidentiality agreements/policies - both internal and external. Faber knows Schwartz will not discuss it. So Schwartz comes out looking like a bumbling idiot who is unaware of a large "problem transaction" and therefore is not fully in charge of Bear and unable to stem it spiraling out of control. Shares began to collapse shortly after.

OK, let's use a rumor from a conflicted unnamed fund to ask a leading question that can not be answered to create an impression of a CEO without a clue. Nicely done David!

Don't get us wrong here. Narrow Tranche has no particular love for Mr. Schwartz. He and his senior team are responsible for a number of key problems that brought down Bear and caused severe financial pain for thousands of hard working dedicated employees as well as the tax payer. But don't kid yourself, CNBC and other mass media made tons of money juicing up viewership through unethical tactics like this, hurting financial firms in the process. And in the process they also helped short sellers by playing their game of the rumor mill.

For those interested in the painful details of Bear's collapse and have tons of time on their hands here is a detailed story from Vanity Fair.

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