http://www.bloomberg.com/apps/news?pid=20601087&sid=aYDTeHYnV3ms&refer=home Where are our "friends" ?
Rich Marin probably wishes he was still running some dot-com incubator now, heh. I was pretty shocked when Rich took that job in BSAM, but I guess he really just wanted to get back into the game. Both Cioffi and Marin had a history of using high leverage. Marin often tells the story of when he was running BT, they invented a product that lets HNW investors to buy hedge funds with 3x leverage financed by libor+75 bp, essentially a leveraged FoF. I remember I was thinking "whoa, what's the risk profile would look like there?" In a way, I am not surprised that Bear had to bail itself out. I believe the risk posed by the funds collapsing would be on the financing and repo side of the ibanks, it would be messy (and time consuming) to figure out the reversed repo agreements, and the risk margining collateral (which is why ML took the straight path of auctioning off the collaterals), but the trading desks would not be facing a liquidity flood (or crunch) should the funds liquidate their positions. It is substantially different from long-term, which held a significant (in some cases, dominant) position in sovereign treasuries, and the position unwinding would cause catastrophic shock through bond markets, especially some lower-grade countries, like Italy and Greece. If I were in my old job in the PB of one of the ibanks mentioned, I would have recommended against participating in a bailout as well, since the firm's exposure profile would not be improved measurably.