Faced with the same set of circumstances again, former Bear Stearns CEO Alan Schwartz said he probably wouldn't have done anything different as the firm cascaded toward bankruptcy.
In a CNBC interview, Schwartz, now executive chairman at Guggenheim Partners, reflected on the March 2008 Bear Stearns collapse that helped ignite the broader financial crisis that engulfed Wall Street.
JPMorgan Chase bought out Bear Stearns in a controversial $10-a-share deal that the government backstopped, an arrangement that also foreshadowed a wave of Wall Street bailouts.
"You can go back and say, should we have done some things differently leading up to the environment we got in?" Schwartz said. "You know, you can always say that. Hindsight is 20/20.
"Once the markets froze there was really very little we could do. The liquidity environment was what pushed us over the cliff. In retrospect, I didn't think there was a lot that any one player could have done about that."
Toxic mortgage debt on the balance sheets at Bear and numerous other major financial firms triggered the crisis. In the Bear case, and later at Lehman Brothers, an inability to find counterparties for overnight borrowing on which the firms relied led to panic and ultimately the demise of the some of the Street's biggest names.
The government stepped in with a variety of liquidity programs, but for Bear and Lehman it was too late.
Schwartz, in fact, insisted that there was a misperception of what got Bear in trouble. The firm held no subprime debt — though a hedge fund it owned that ultimately collapsed did — and instead held alt-A mortgages on borrowers thought to be better than subprime. Alt-A mortgages go to borrowers with credit that is less-than-pristine but better than subprime, which is the riskiest form of home loan.
"I still believe to this very day that our balance sheet from a solvency point of view was in better shape than lots of other financial institutions, and I think that proved out to be the case," he said. "But you could not tell from the outside even then."
Even some of the toxic debtthat the government took off bank balance sheets has sold at an above-par premium, he added.
The larger problem, which he said current regulatory reforms will not help, is that Wall Street found itself in a rush to accommodate foreign dollars, and hastily turned to debt instruments that ratings agencies labeled safe but which in fact were deadly.
"The huge wave of globalization which was unprecedented in financial history created enormous liquidity looking for a home, and there was no place to go," Schwartz said. "When you had this enormous demand for triple-A securities to park in, something was going to fill that gap.
"In the United States it was mortgage-related paper. In Europe it was peripheral sovereigns. It was like we had to create fake triple-As for the market. Nature abhors a vacuum. That' what happens in markets."