ARTICLE: “Fear, Rumors Touched Off Fatal Run on Bear Stearns: Executives Swung From Hope to Despair in the Space of a Week,” by Kate Kelly, Wall Street Journal, 28 May 2008, p. A1. SPECIAL REPORT: “Paradise lost: A special report on international banking,” by Andrew Palmer, The Economist, 17 May 2008.

Sitting down recently with this world-class broker-dealer firm’s senior management, you naturally talk about Bear Stearns, sort of the LTCM of this go-around (Long Term Capital Management from the 97-98 scare/collapse). When there is over-reach, and too much risk incurred, somebody’s gonna get singled out for cannibalizing—as in, all their competitors pull out their knives and dig in. The price of our financial system’s willingness to experiment is that we regularly screw up by going too far. But here’s the chart from the Economist that spooks: over time the crises seem to require longer recovery times, as in, the number of quarters til earnings at pre-crisis levels are resumed. Black Monday in 1987 created a 4 quarter shadow. The Junk bond mess of 89-90 required seven quarters. The Mexico liquidity crisis in 94-95; five quarters. The LTCM/Russia/Asian flu of 97-99 was only 1 quarter (here, at least). The Dotcom plus Enron was four quarters, and the subprime/liquidity crisis of 07 and counting projects to 8 to 10 quarters—for now at least. This makes me think of Cox and the SEC wanting to push a global rule set for managing transaction flows across national markets. Eventually, a big enough crisis, meaning one that spreads across the globe and costs everybody a bunch of quarters, will force the issue.