Posted March 20, 2008 12:07 am by with 10 comments

Tweet about this on TwitterShare on LinkedInShare on Google+Share on FacebookBuffer this page

By now, you’ve heard about the phenomenal crash of investment bank Bear Stearns–a multi-billion dollar valuation now worth just $236 million.

What’s interesting is how the rumors of the company’s demise quickly escalated the week before the eventual collapse. I spoke with’s Elizabeth Blackwell about the importance of companies monitoring the web for the increase in online chatter and rumors.

“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.

While monitoring the online conversations surrounding its brand might not have prevented Bear Stearn’s collapse, having an inside understanding of the rumors would have given the company a chance to formulate a strategy and manage the release of news.

  • I see the point your trying to make here Andy, but the fall of bear Sterns was fast, fast as the Technorati chart shows. Many blogs posted quickly on the core news of the collapse. Doubt their was much lead-up in the blogsphere before that. Sure they could have at least lead the conversation to help curb the collapse and control the news better, which is really the essence of reputation management.

  • It was fast, but they there was much they could have done to control the flow of news. I guess all news online moves faster than mainstream media.

  • Hey Andy, very thought provoking. What do you think they could have done in such a short time?

  • Bear Stearns hosted a conference in Florida last week, so I think that’s why you see an increase in conversations about the company leading up to the fall.

    BS’s problems had to do with their business actions (the risky way they were buying up loans), and I don’t think there’s much they could do to stop the trainwreck.

  • Agreeing with others, we think all they could have unfortunately done was watch the rumors flow and scramble quickly to try to do something. With such a big and quick fall, it is hard to strategically formulate some sort of plan. Perhaps easier said than done? Either way, it’s a shame.

  • Pingback: MarketBeat Blog - : Hints and Allegations, and Bear Stearns()

  • Pingback: Recession Watch » Blog Archive » Hints and Allegations, and Bear Stearns()

  • @Nathania – I don’t believe the conference is the reason for the increased blog chatter. A search for “bear stearns stock” shows a sharp increase:

    @Luke – well, Bear Stearns was headed for a fall, so it’s not like the rumors weren’t true. That said, they could have been more transparent in their communication. A couple of sound bites on CNBC is hardly a transparent way to address the concerns and rumors circulating in blogs and social media.

    The exact strategy I would have used? Can’t say, as I don’t have access to the inside information from the company, but better communication with stakeholders might have given them some breathing room to negotiate a better deal than $2 a share. 🙂

  • I’m willing to be convinced, but I’d rather see hard numbers. For me, going from 0% to 0.08% is not a real spike. It reminds me of charts that people like to use in showing how much foreclosures on subprimes have increased.

    Yes, you can make it look like a spike, but when you compare it to mortgages that are being paid, it’s a foothill, not Mount Everest.

    I think a lot of market moves are exaggerated. The Fed shouldn’t have bailed BS out. And BS shouldn’t have been downgraded as much as it was.

  • Pingback: » Information Cascade – Impact of Rumors on Wall Street » Cornell Info 204 - Networks()