Bear Stearns Remembered

New Book Captures the Culture of a Wall Street High-Flier
by Milt Moskowitz
My stepson worked for 17 years at Bear Stearns before it disappeared last year into the bowels of JPMorgan Chase in the shotgun marriage arranged by the U.S. government. He is doing very well today, taking time off to consider his options.
He misses the excitement of deal making. His major deals involved structured financial products collateralized by mortgage-backed securities, the root cause of the current upheaval in the economy.  AIG was his top client.
Bear Stearns was not a company that made it into the portfolios of social investment companies, despite having one of the most innovative philanthropic programs in the business world. Every senior manager at Bear was required to prove, every year, that she or he had donated at least 4% of their income to charities of their choosing. Charities such as the United Way and United Jewish Appeal are said to be devastated by Bear’s collapse.
The culture of Bear always fascinated me, and it is artfully delineated in William Cohan’s book, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street. Cohan traces the last days of the firm in rich detail, distilled from interviews he conducted with 16 former employees, and many who chose anonymity. He tells it so well that even though you know how it turns out, you are swept along with the suspense as all-night deliberations rattle on.
It’s not clear that Bear Stearns had to die. The firm fought to the end to maintain its franchise. But when you are leveraged 30 to 1 and rumors start to circulate that other banks do not want to lend to you, it doesn’t take long for the curtain to fall. In fact, it took only two days in the second week of March 2008 for Bear Stearns to see that, after 85 years, it had no future.
Some of the adjectives often used to describe Bear Stearns were: scrappy, aggressive, quirky, independent, cut-throat, street brawler. Went their own way. Didn’t pay a lot of attention to the niceties. The top echelon was studded with champion bridge players.
One insider interviewed by Cohan contrasted Bear Stearns with Goldman Sachs. At Bear, if they just did a deal with a customer, a trader might say: “I just ripped that f—er’s head off.” At Goldman, they would say about the same deal: “That was a very attractive and commercial price [we] purchased those securities at and I think we will have a very interesting economic opportunity in the near future.”
Cohan’s book is full of interesting tidbits like that. Jimmy Cayne stepped down as CEO in January 2008 but stayed on as chairman. In March, Cayne decided not to wait for the formal sale to JPMorgan and opted to sell his 5.6 million shares for $61 million. Although he had worked at Bear for 39 years, Cayne, at that point, was no longer technically an employee. Ace Greenberg, who had hired him and was Bear’s CEO for 15 years before Cayne deposed him in 1993, was still working for the firm – and he charged Cayne the non-employee commission of $77,000 for that sale; an employee would have to pay only $2,500. And so it goes.
Was Bear’s free-wheeling culture the reason for the firm’s demise? That’s hard to say. Every other investment banking firm was behaving in the same manner. The final verdict in Cohan’s book goes to Alan Schwartz, the last CEO of Bear. He said:
“I’m sure we will figure out how to prevent something like this from happening in the future. Wall Street is always good at fighting the last war. But these things happen and they’re big, and when they happen everybody tries to look at what happened in the previous six months to find someone or something to blame it on. But, in truth, it was a team effort. We all f—ed up. Government. Rating agencies, Wall Street. Commercial banks. Regulators. Investors. Everybody.” (Of course it’s somewhat self-serving to blame others when the finger is pointing at you.)
My stepson puts it more succinctly: “Wall Street is all about greed. It was that way in the past. It still is.  And it probably will be in the future.”