If You Start Pushing A Snowball Down A Hill…

On June 28, 1914, Gavrilo Princip assassinated the heir to the Austro-Hungarian throne, leading to the onset of the Great War. Indirectly, Princip’s actions led not only to WWI, but also to WWII and as the Cold War. In other words, Princip inadvertently became one of the most important figures of the 20th century.

Fast forward to today, June 19, 2008, when two former hedge fund managers for Bear Stearns were arrested in New York on charges of securities fraud and conspiracy. These men allegedly mislead investors regarding the outlook for their funds, claiming that the funds presented excellent opportunities for investors despite poor actual results. It is doubtful, however, that these former managers truly believed their optimistic talk; one manager added no new deposits of his own to the account, and the other actually withdrew $2 million from his fund. Beyond the details of the case, however, is the more important point: these men are being arrested for having played a part in the onset of the current credit crunch.

What’s not as important here (for this article) is their guilt or innocence, but what is significant is the theme. Unlike Princip, these managers’ actions are highly unlikely to lead to any war or a worldwide struggle between communism and capitalism. Similarly to Princip, however, the managers’ actions (allegedly) helped lead to a worldwide problem far beyond what they could have foreseen. As their actions show, they were concerned with two localized thoughts: guarding their personal assets and protecting their companies’ stability. The collapse of these large hedge funds helped facilitate the demise of Bear Stearns, which had been the fifth largest financial services company in the United States.

The fall of Bear Stearns is one story involved in the worldwide credit crunch, which has influenced economies all around the globe. As the trials for these men go forward, it is important to remember that we must think about all of the potential consequences of our actions. Their dishonesty and deceitfulness helped lead, in some small way, to worse economic conditions internationally. Now, the judicial system will decide if the roll they played was significant enough to merit punishment.

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