Updated 9/14/09
THE INTERVIEW THAT FOLLOWS IS SCRIPTED (part of our forthcoming screenplay, or not). NEVERTHELESS, THE UNDERLYING FACTS AND CONCLUSIONS ARE 100% GENUINE.
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"[H]ousing activity is only just beginning to cool, and... there is no end in sight for a year or two."
-Francois Trahan (Former) Chief Investment Strategist, Bear Stearns
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Q: OK, I can't stand the suspense. So who sounded alarm bells about the end of the housing bubble, credit bubble, the world economy and so on?
A: What if I told you it was Francois Trahan, Kurt D. Walters, Caroline S. Portney.
Q: I'd ask you who those people are. [Pauses, gets no response, continues...] OK, Who are Trahan, Walters, and Portney?
A: Senior Wall Street Research Analysts. In fact, Trahan, at the time, was a highly regarded Chief Investment Strategist for a major investment bank.
Q: [Yawn]. You've told us about your "smoking gun" research reports before. Deutche Bank. HSBC. Even Merill Lynch.
A: Ah, but this time is different. This time I've seen the evidence.
Q: OK, ok - enlighten us.
A: BEAR STEARNS.
A: Bear Stearns. In a September 13, 2006 issue of the Bear Stearns "Investment Strategy" research report called -
"RAMIFICATIONS OF A U.S. HOUSING SLOWDOWN FOR EQUITIES,"
Chief Strategist Trahan and his colleagues emphasized that they had identified a housing bubble in 2005. That report was called "REIT ALL ABOUT IT."
Trahan described the growth of the housing bubble in detail, and concluded with conviction that the bubble was deflating. Finally, Trahan and company predicted possible dire consequences for the global economy.
Q: And this is important, why?
A: Because these are BEAR STEARNS RESEARCH REPORTS. Because they are from 2005 and 2006, when Bear continued to report record profits from selling junk mortgage-backed securities while its own senior people were (no pun intended) very bearish on the housing and mortgage markets. The 2006 report says, among many other things-
"[H]ousing activity is only just beginning to cool, and... there is no end in sight for a year or two."
That's on page 6, by the way. The report also warns that
(a) rising interest rates have long been an indicator of a coming down-cycle for housing, and
(b) the expected deflation of the housing bubble would drag down the mortgage market, restrict liquidity, and have serious negative impact on the U.S. economy and the global economy.
THE BEAR RESEARCH REPORTS ARE FLASHING NEON LIGHTS. THEY SIGNAL THAT BEAR KNEW IT WAS APPROACHING THE END OF THE LINE FOR ITS MORTGAGE-DRIVEN BUSINESSES. I REPEAT, THE REPORTS PROVE THAT FAILURE OF BEAR'S BUSINESS MODEL WAS FORESEEN BY BEAR STEARNS.
Q: OK, I get it. But aren't the opinions of a few Bear employees just that? You don't expect the CEO to read every research report, do you?
A: Not sure. Maybe. Maybe not. But I certainly believe that the senior officers and the Board of Bear Stearns had the obligation to, at the very least, be familiar with the opinions of Bear's Chief Equities Investment Strategist regarding current state of the world economy, and the Chief Strategist's views about the immediate future.
Q: That sounds good. You have me 95% convinced. But you're missing the one thing that would lock it up for me.
A: Really? What's that?
Q: If you could only show me on the report some sort of adoption and approval by Bear Stearns itself, that would do it. I mean, that would tell me that the report is the opinion of Bear Stearns and not just Francois Trahan and his team. You know what I mean?
A: Sure. I understand.
The best I can do is here, on page 14, where the report states that it "has been adopted and approved for distribution within the United States by Bear, Stearns & Co. Inc. for its and its affiliates customers."
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FOR A COPY OF "RAMIFICATIONS OF A US HOUSING SLOWDOWN...", CLICK HERE AND LEAVE YOUR NAME AND A FAX Number OR EMAIL Address, or call The Sherman Law Firm.
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