Blogging the Bear Stearns Trial: Former Bush Advisor Testifies for Defense

Glenn Hubbard, dean at Columbia Business School and former economic advisor to President Bush, testified that defendants Ralph Cioffi and Matthew Tannin 'pursued a strategy that was well articulated and quite conventional,' in the first criminal trial of Wall Street executives related to the subprime mortgage crisis.

Hubbard was the defense's third and last witness. The government brought 21 people to the stand, including investors, lenders, and several former Bear Stearns employees.

DEFENSE'S GOAL DURING HUBBARD'S TESTIMONY

The defense used Hubbard as an expert witness to say that Cioffi and Tannin had every reasonable expectation their strategy would work and their funds would be profitable again, given what they knew at the time in early 2007. Hubbard also testified that it was 'reasonable' for the hedge fund managers to seek new investors. What caused the funds to collapse, Hubbard said, was the lenders pulling out. 'If the lenders don't want to lend to you anymore, you're done.' The managers were using as much as 27 to 1 leverage at one fund, which means for every dollar an investor put in, the fund would essentially borrow 27 dollars to buy securities.

PROSECUTION'S GOAL DURING HUBBARD'S TESTIMONY

The U.S. government tried to undermine Hubbard's testimony by calling attention to the fact that the defense was paying the Columbia dean $1,200 an hour for his time, and that he made nearly $100,000 for his analysis and testimony. Prosecutors also tried to make note of the fact that Cioffi and Tannin weren't on trial for their investment strategy, but that they were on trial for misleading investors.