* Former CEO Cayne says loss of confidence irrational
* Former exec Schwartz says storm was breaking on firm
* Two among witnesses for Wed. crisis commission hearing
WASHINGTON, May 4 Former Bear Stearns
executives said the firm became the first major victim of the
financial crisis due to unfounded rumors, not because of risky
exposures to mortgage-related products with free-falling
Former Chief Executive James Cayne, who left that post in
January 2008, just months before Bear was sold to JPMorgan for
a fire-sale price, said the market's lack of confidence in the
firm was "unjustified and irrational."
"Subsequent events show that Bear Stearns' collapse was not
the result of any actions or decisions unique to Bear Stearns.
Instead, it was due to overwhelming market forces that Bear
Stearns, as the smallest of the independent investment banks,
could not resist," Cayne said in testimony prepared for a
hearing Wednesday of the Financial Crisis Inquiry Commission.
The commission is charged with chronicling the causes of
the worst financial crisis since the 1930s and is holding a
series of hearings with the major figures from the meltdown.
Bear Stearns in March 2008 experienced essentially a run on
the bank as creditors and the markets lost confidence in the
institution. Regulators scrambled to find a buyer for the
collapsing firm, resulting in a sale to JPMorgan Chase & Co
(JPM.N) for $10 a share.
Alan Schwartz, who succeeded Cayne as CEO, acknowledged the
firm did not foresee that housing prices had spiked to
unsustainable levels, but characterized the firm as a victim of
events beyond its control.
"I have given much thought to the events that led up to
that fateful week in March 2008, and believe that we took all
the appropriate steps that we could to try to survive the storm
that was breaking upon us," Schwartz said in his prepared
The chairman of the crisis commission, Phil Angelides, has
taken Wall Street titans to task for the roles they played in
the financial crisis, but has received limited admissions of
blame at his hearings.
Angelides in January accused Goldman Sachs CEO Lloyd
Blankfein of treating clients unfairly for creating -- and then
betting against -- subprime mortgage-backed securities.
The Securities and Exchange Commission last month filed
civil fraud charges against Goldman Sachs Group Inc (GS.N),
accusing it of misleading investors over certain subprime
Angelides told Reuters last week that he has generally been
disappointed by the lack of self-examination and sense of
responsibility as Wall Street looks back at crisis.
Other witness due to testify on Wednesday include former
SEC chairmen Christopher Cox and William Donaldson, and the
SEC's inspector general, who has criticized the agency's
oversight of investment banks in the run-up to 2008.
On Thursday, the commission is due to hear from former
Treasury Secretary Henry Paulson and current Treasury Secretary
(Reporting by Rachelle Younglai and Karey Wutkowski; Editing
by Tim Dobbyn)