Novation, Kyle Bass, and Bear Stearns

Bear Stearns, until March of 2008, was one of the top five big investment banks on Wall Street. They failed in a matter of days, and many point to Kyle Bass as the responsible party. Bass let leak some information about an e-mail in which Bear Stearns went to conduct a regular novation with Goldman-Sachs. The novation was denied, but then very quickly afterward was approved. In the space between the denial and approval, CSPAN did an interview with Alan Schwartz, one of the leading forces behind Bear Stearns. David Faber, the journalist conducting the interview, asked a question that implied Goldman Sachs had lost confidence in Bear Stearns, as per Kyle Bass’ earlier advisement. Even though at about the same time, Sachs was issuing a release indicating they did, in fact, still have a working relationship with Bear-Stearns, the damage was done.

What was the contested business item? A novation. Novations usually simplify transactions. Say you owe Nick fifty dollars, and Luke owes you fifty dollars. A novation would be having Luke pay Nick. In the banking world, substitute securities, bonds, or sub-prime loans for stock, holdings; what-have-you. The idea is transferring mutual value and decreasing the complications involved. Novations are common practice in law and finance, and there should have been no problem between Sachs and Stearns. The thing is, Kyle Bass had recently worked for Stearns, and no longer did. It seems as though the information he gave CSPAN was a parting salvo against his old job.

It’s not something that Bass would be unfamiliar with. He’s got a long history of using backhanded techniques to turn a profit. Bass became prominent in 2008 when he predicted the sub-prime lending crisis would lead to an implosion, and invested accordingly. But as concerns Bear-Stearns, it seems as though Bass acted in some small part as an economic assassin. Since he’s closely tied to socialist presidential despot of Argentina Cristina Fernandez de Kirchner, and socialism has a global aim, it would be entirely consistent with Bass’ history for him to function in capacity as an economic assassin. Currently he works as a hedge fund manager in Dallas, which seems like a location for a hedge fund designed to defray suspicion. Bass uses his assets to conduct operations which force stock fluctuations. For example he developed CAD, the Coalition for Affordable Drugs, and uses this organization to diminish the cost on big-ticket pharmaceuticals’ drugs, short-selling his holdings with them when the drop hits Wall Street. Bass’ successes seem to primarily come from undermining established financial institutions.  The WSJ blog did a great job of exposing what Kyle Bass has done.