The next time somebody asks you for $300 million...

The others thought it ludicrous..."They had a different view of the world, " one participant said acidly. "They are completely self-interested." Suddenly these paragons of individual enterprise seethed with communitarian fervour. Purcell of Morgan Stanley turned beet red. He fumed, "It's not acceptable that a major Wall Street firm isn't participating!" It was as if Bear were breaking a silent code; it would pay a price in the future...

- From When Genius Failed, by Roger Lowenstein

A couple of weeks ago, I was chatting to an elderly Japanese industrialist about a gizmo he helped launch some 38 years ago. He reminisced happily on its sparse merits, its quite stunning drawbacks and the daft advertisement with which the gadget was plugged on TV.

It was an utterly failed product, but its huge value, he said (turning all serious) was to teach future generations of the company how not to launch a new product.

Yes, Japan may be old, set in its ways and riddled with terrible flaws but you just don't get Corporate Memory like that anywhere else. In the global financial industry - where sackings, poachings, mergers and failures are all part of the scene - the collective amnesia is even more striking. Thus, as Wall Street, The City and the rest of the world confronts historic destruction of wealth, combined Corporate Memory is looking more and more like my shoddy Chinese DVD player - hopelessly faulty beyond six months but also liable to blow your face off.

I refer, rather specifically, to Bear Stearns and why Corporate Memory could turn rather strongly against it now...

So Bear Stearns is one of those names that means a great deal to some and rather less to others. Sure, it has global operations like the rest of the pack, but it is, at heart, as distressingly Wall Street as white collars on coloured shirts.

And of course, because of the credit crisis and all that, Bear is among a large gang of the damned about whom everyone is rightly concerned. All that said, however, the rumours in the market at the moment do focus rather tightly on this particular master of the universe. One of those whispers - and this comes directly from the currency dealing rooms of London and Tokyo - is that Bear Stearns is actually finding it difficult to trade in certain forward markets like forex and other derivatives - it seems nobody wants to deal with the Bear, just in case the doom-laden scuttlebutt about its financial health turns out to be accurate.

While we're talking about Corporate Memory, let's not forget Yamaichi Securities - the Japanese brokerage that collapsed a decade ago about a week after everyone on the street stopped trading with them or lending them money.

But let's take all this into the hypothetical for a second. Just suppose that the rumours are correct and  that Bear Stearns is on the brink of something very nasty. We are left imagining a scene played out perhaps this weekend in some wood-panelled room (possibly in the New York Fed) where a cabal of bankers are discussing what do do about Bear and whether the probable effects of its collapse make it Too Big To Fail.

The problem - and this is where Corporate Memory may play a role - is that if any representatives of any of the other major US and European banks are in the room, they will be cackling the sort of maniacal guffaws reserved for Bond Villains and avenging angels. If corporate memory serves - and I really hope it does - Merrill Lynch, Lehman, Goldman, Citi, Barclays, Credit Suisse and a half-dozen others will remember precisely the gathering 10 years ago when they were called upon to all contribute to a $4 billion package that would bail out Long Term Credit Management  and save them all from a meltdown of unknown toxicity.

Sound familiar? Well, the interesting thing is that, back in 1998, everyone saw that there was a hideous problem and that co-operative action was the only solution. All of them, that is, except for Bear Stearns which was the only one of 11 investment banks not to stump up the $300 million demanded by the bail-out consortium. It paid...nothing at all, leaving the rest of the financial industry to take the strain. The bosses may have changed, and so may their brand of cigar, but I'm prepared to bet that there are enough old-timers lurking in the boardrooms to remember an old grudge.

So will they let Bear-gones be Bear-gones?

Comments

[The baron]

Well, for the greater future good, I hope they WILL let "bear gones" really mean "bear is the weakest link, goodbye". Countless non-financial sector companies and individuals are suffering at the hands of this latest fiasco caused by yet another gee-whiz house of cards built by the spivs and barrow-boys collapsing, yet somehow the banking gravy train keeps rolling on Daddy Fed's credit card. It's time a few big financial institutions also DID feel the bite so that the sector as a whole learns that they must take the consequences of their actions rather than expect an (ultimately) tax-payer funded rescue and - of course! - no reduction in the bonuses-all-round at Christmas.

The poorly risk-managed hedge funds are a start... and no one is "too big to fail", just ask David or Jack.

[Malbork]

When is "free market capitalism" going to stop demanding government handouts to counter its failed thrusts of greed with such flawed reasoning as Too Big To Fail? Have these guys ever heard of entropy?Have they ever read history? Probably not, but they sure know how to keep the Fat in Fat Cat.