Living dangerously: Diary of an ABS professional, Week 16

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In which Mr ABS suggests Bear bankers start behaving like prisoners on Devil's Island.

I'd nearly recovered from the humiliation of being kicked out of the bank with only beer money and had almost come to terms with having being paid absolutely no bonus for all my work in 2007, when along comes a total market collapse making the outlook for 2008 even more challenging.

My remaining shares in my old employer are now so low that if I could, I'd make them over to the newly freed Jérôme Kerviel to finish them off for good. At least this would provide me with some satisfaction.

Reputation in banking is everything. There are a lot of bad rumours circulating around and, as banks are highly leveraged businesses, any bad rumours can easily spiral out of control and turn into self-fulfilling prophecies. It's reassuring to see that the FSA and BoE acted promptly with the rumours surrounding BoS.

It was sad to see Bear Stearns losing its independence, even if JPMorgan has made a more generous offer. An earlier extension to investment banks of the liquidity available to commercial ones might have prevented the débâcle we've seen. I wonder whether the Bear structured finance dudes who were shown the door are still locked into their share plan or were able to sell them on redundancy.

Given JPMorgan's initial offer for Bear's shares was so low and employees own so high a proportion of them, it was inevitable they'd put up a fight. In their place I'd have been tempted to tell Dimon to shove his dollars where Papillon used to store his. Could they do better by forcing a liquidation? If I've reached the stage where seeing my old shop being Kervielled would be more enjoyable than selling my depleted stock, I can imagine their state of mind.

Last week's resurgence in Bear's shares was interesting. One explanation circulating around is that Bear's bondholders are buying in to increase the likelihood of the JPMorgan bid succeeding and their bonds being converted into JPMorgan bonds.

Has the market reached rock bottom? Last week we saw the most extraordinary stock rally, on the back of three banks posting bad results. Doom mongering might just have gone too far. I presume investment banks have started lapping up AAA paper at 300bps to repo it with the Fed.

The Fed might just as well buy the paper itself to restore the liquidity.

And as for bank stocks? They may yet rise again, but it won't compensate for my lost bonus.

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