James Moore: Red faces at Bear Stearns are just more proof of how rotten banks were

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The Independent Online

Outlook Bear Stearns has provided the latest example of why every business course on the planet should now start out with a lecture on why you should think very carefully before you click "send" after composing an email.

The New York Attorney General's office has published some highly embarrassing missives from people who left their brains at the front door of that bank's offices before starting work. Among the most colourful is the word "shit breather", which appears to be a new addition to the lexicon of profane English, although there are plenty more conventional terms of derision applied to the junk the bank was hawking to unsuspecting investors.

That junk was made up of packages of dodgy loans, and the people who bought them were under the impression that Bear Stearns had thoroughly checked them to ensure they were being paid back. The checks were perfunctory at best – and where problems were found, they were ignored.

All this has provided a nasty headache for Bear's owner JP Morgan, which must have been hoping for a bit of quiet time after the revelations that it allowed a London trader to run up billions of dollars in losses.

JP has responded by playing the victim: look, this all took place before we owned Bear. We only bought the blasted thing as a favour for the US government when it was trying to find a rescuer, and those rotten attorneys didn't even give us the chance to see the allegations before they published.

Legally, as JP will be well aware, the first point doesn't matter. It is a long-established principle that if you merge with a company, you take on its history, warts and all.

Nor should the bank win any favour with the court of public opinion. It is true that JP's rescue of Bear helped the government out of a tight spot. But let's be clear here. When the rescue was agreed, the government had to kick in $30bn to help cover Bear's liabilities.

The deal was widely seen at the time as a very good one for JP. It got control of a very big bank with a freebie insurance policy on some of the nasties from US taxpayers. JP took over Bear not out of the goodness of its heart but because it saw a commercial opportunity. Not that there's anything wrong with that. But for the bank to imply that it is the injured party here is just a little bit rich.

The company is quite within its rights to fight the allegations levelled against it (of civil fraud, which means financial penalties). But don't let's shed any tears for it.

As for the fact that allegations were published? Good. The emails the New York Attorney General have drawn attention to need for the widest possible public hearing. They are a graphic illustration of what the banking sector was all about in the run-up to the financial crisis.

As such, they serve to help counter the arguments of people such as JP Morgan's chief executive Jamie Dimon, who has sharply criticised regulations aimed at reforming the banking sector on the grounds that they will somehow damage economic growth.

The other thing the Bear Stearns emails demonstrate is that practices on Wall Street were no better than they were here in the City. It's not that the City, and the regulatory authorities in this country, don't deserve the criticism they've been getting. But a number of the biggest bricks hurled at London have come from New York.

What this shows is that the people who threw those bricks were residing in glass skyscrapers and wilfully ignoring the great piles of manure in their own backyards.