"House of Cards" - Bear Stearns's "Dirty Secret" Bursts in Cohan's Reconstruction

Saw this on Bloomberg today.

Review by James Pressley
March 6 (Bloomberg) -- The end for Bear Stearns Cos. proved swift and brutal.

As the scrappy U.S. securities house slipped into a sudden death spiral a year ago this month, Chief Executive Officer Alan Schwartz was hosting a media conference in Palm Beach.
Chairman Jimmy Cayne was playing tournament bridge in Detroit and didn’t fly back to New York right away.
The man who would pick up the pieces, Jamie Dimon of JPMorgan Chase & Co., was preparing to celebrate his 52nd birthday at Avra, a Greek restaurant in Manhattan.
These are just three snapshots from the opening chapters of William D. Cohan’s “House of Cards,” a masterly reconstruction of Bear Stearns’s implosion -- a tumultuous episode in Wall Street history that still reverberates through our economy today.
Cohan is a former reporter and Lazard Freres & Co. banker best known for his bestseller about that storied firm, “The Last Tycoons.” He now has turned his hand to chronicling the cocky rise and meteoric fall of Bear Stearns, whose swoon into the arms of JPMorgan in March 2008 underlined the greed, hubris and madness that have plunged the world into its deepest financial crisis since the Great Depression.
The inherent precariousness of Wall Street is now clear. Investment banks like Bear were borrowing tens of billions of dollars a day on the strength of their reputations and assets, many of them illiquid, mortgage-related securities, Cohan says.
“The dirty little secret of what used to be known as Wall Street securities firms,” he says, “was that every one of them funded their business in this way to varying degrees, and every one of them was always just 24 hours away from a funding crisis.”

Meticulous Reporting

That assertion is as close as Cohan gets to editorializing in this meticulous piece of reporting. Drawing on interviews with bank executives, central bankers, government officials, investors and analysts, he weaves a narrative from published accounts, e-mail exchanges, court documents and direct quotations from the likes of Cayne, Dimon and Timothy Geithner, then head of the Federal Reserve Bank of New York and now U.S. Treasury secretary.
Cohan, to his credit, persuaded a number of bankers to go on the record about topics ranging from tantrums -- picture a Bear Stearns executive flinging his jacket on the floor in a huff -- to the company’s refusal to join a bailout of Long-Term Capital Management LP. Cayne, with his cigars and mini- blowtorch lighter, unleashes a stream of profanities when asked about Geithner’s decision not to open the Fed’s discount window to Bear Stearns.

Lingering in Detroit

We also learn why Cayne didn’t fly back to New York as soon as he heard about the meltdown. The man who grew rich at Bear Stearns -- with a net worth of more than $1 billion in 2007 -- lingered in Detroit to play in minor events with Alfredo Versace.
Some outsiders, according to Cohan, viewed the board’s lack of involvement to this point as an abdication of its fiduciary duty. I’ll say. Insiders shrugged it off as a classic example of the insular culture at Bear Stearns, which “continued to operate as a small partnership despite having been a public company since November 1985,” Cohan writes.
Throughout, Cohan is scrupulously fair. He gives Dimon, for example, ample space to explain the hard bargain that JPMorgan drove on Bear Stearns: “I tell people, buying a house and buying a house on fire are two different things,” Dimon says.
“House of Cards” is three books in one. The first presents an hour-by-hour account of the 10 days in March 2008 when Bear Stearns was overwhelmed by rumors, short sellers, cash withdrawals and margin calls.

‘Armies of the Night’

By the time Schwartz asked Dimon for help on Thursday night, March 13, Bear Stearns’s cash balance had plunged to $2 billion from $18 billion that morning, according to the Securities and Exchange Commission. Soon, teams of bankers and lawyers -- “the armies of the night” -- converged on Bear Stearns’s octagonal granite-and-glass tower at 383 Madison Avenue.
Part two of the book is a brisk history of the company, from its founding in 1923 to its golden age as a swaggering outlier throwing off money from trading and clearing. Part three returns to tick-tock mode, describing the devastating consequences of Bear Stearns’s decision to set up two hedge funds that invested heavily in mortgage-backed securities, much of it subprime.
Along the way, we meet Bear Stearns legends such as Alan “Ace” Greenberg, described here as “a tough-minded Midwestern Jew with a gambler’s instinct and a serious itch to get rich.” As the company struggled to stay afloat in March 2008, Greenberg tried to keep people amused by performing magic tricks.

Mooning Traders

We also get to know some impressively frank executives from lower down the chain, including Paul Friedman, a senior managing director and chief operating officer of the fixed-income division. His recollections give this narrative much of its fly- on-the-wall appeal, as when he relates how he and his colleagues commiserated over Glenlivet and wine after Bear Stearns’s board approved a JPMorgan takeover, originally for $2 a share.
“We’re now holding our wake,” he says. “We’re crying and drinking and working on getting pretty drunk.” They were also, Cohan adds, “mooning the JPMorgan traders who were just opposite them on the north side of 47th Street.”
Bear Stearns survived the Great Depression, World War II and the 9/11 terrorist attacks. Until December 2007, the company had never posted a quarterly loss in its 85 years. Then, poof, it was gone.
Cohan’s skittishness about editorializing makes for a frustrating and inconclusive epilogue: Everyone, by this account, was to blame for Bear Stearns’s demise -- the company itself, the government, the Fed, hedge-fund managers, ratings companies, you name it.
Yet first drafts of history don’t get much better than this.

“House of Cards” is from Doubleday in the U.S. and Allen Lane in the U.K. (468 pages, $27.95, 25 pounds). The book will be available in stores starting March 10.

(James Pressley writes for Bloomberg News. The opinions expressed are his own.)