Could Bear Stearns Have Reacted Faster to Internet Rumors?
March 22, 2008 – 5:28 pmCould Bear Stearns have minimized its utter collapse by listening to rumors on the internet and reacting? That’s the question Andy Beal discussed with TheStreet.com.
“The worst thing a company can do is stick its head in the sand and say they’ll release information when they’re ready,” he says. “The market makes that decision for you.”
One of Bears’ key mistakes may have been to ignore the rumors for too long. By the time the CEO appeared on TV, it was too little, too late.
“When companies don’t come clean, it’s guilt by omission,” Beal says. “In the absence of credible information, investors will fill that void with their own best guesses and follow the wisdom of crowds.”
Beal points out that the Web site Technorati, which tracks blog postings and discussions, saw a huge increase in the number of bloggers writing about Bear Stearns in the week before its fall.
“If Bear Stearns had taken the opportunity to measure the conversation and the sentiment behind that conversation, they could have taken measures to make the fallout less severe,” he says.
The Wall Street Journal also quoted Andy’s comments on its blog.
2 Responses to “Could Bear Stearns Have Reacted Faster to Internet Rumors?”
I’m not sure that any soft discussion could avert a situation of illiquidity and a necessary liquidation or fire sale. However, the possible charge of outright dishonesty might be a good case study for your future book. The CEO claimed that “all is well” on CNBC and other venues right up until the end. What are the legal ramifications of being “Radically Non-Transparent?”
By Allan on Mar 23, 2008
Allan, you’re right that the Titantic had already hit the iceberg, but the CEO could have kept the company’s (and his) credibility by not flat out lying.
There are enough examples like this to fill two books!
By Andy Beal on Mar 23, 2008