How to Think About How a Pot-Smoking, Card-Shark College Dropout Brought Down an 85-Year-Old Firm

Author:
Publish date:

At times like these, with Bear getting flushed down the 14th Floor Mens, you school girls need a voice of authority to give you a sense of history. Show you how we got here. That voice is me. So gather round, kids. Lesson time, courtesy of Bessie's History of Bear Stearns: A Timeline.
-- 1923: Bear Stearns is founded as an equity trading house by Joseph Bear, Robert Stearns and Harold Mayer with $500,000 in capital. While he felt “gipped" at the time, Mayer and his descendants are pretty psyched that they voted ix-nay on Bear Stearns Ayer-May. In a remarkable symmetry, Bear will probably end up with the same $500,000 it started with in 1923.
-- 1955: Bear Stearns opens its first international office in Amsterdam. Later that year in the same city, Purdue dropout-cum-future Bear Chairman/CEO-cum-Destroyer of All Worlds Jimmy Cayne, then 21, consumes his first pot brownie.
-- 1969: At a New York bridge tournament, future Bear Stearns CEO Alan “Ace” Greenberg meets a 35-year-old Jimmy Cayne, then gainfully employed as professional card player. Impressed by Cayne's stage presence and pluck, Greenberg offers him a job as a Bear stockbroker on the spot, without seeing a resume or checking references. As they sealed the deal, Greenberg famously said to Cayne, "What's the worst that can happen? You destroy $100bn in shareholder capital?" As far as we know, it is the only instance of an individual being hired for a Wall Street job at a bridge tourney.
-- 1985: Bear Stearns becomes a publicly traded company, because this is too good a deal to keep from the average investor.


-- 1998: Bear Stearns, now under the watchful eye of Jimmy Cayne, is the one investment bank holdout in the Wall Street-led rescue of collapsed hedge fund Long Term Capital Managment. This dick move, along with Cayne's comment that they ought to "Let them fail," as noted in Roger Lowenstein's "When Genius Failed," is somewhat ironic, considering that Cayne spent the better half of the decade in a great, giving mood, on account of being stoned. Cayne's steadfast refusal to pitch in came despite having tons of weed money in LTCM at the time. This is not a joke – we’re told the man literally had millions of his own dollars in the fund, and still said, "Suck on it." What we have here is the first inkling of J to the C s stewardship of assets.
-- March 2002: The New York Sunannounces that Bear Stearns CEO Jimmy Cayne will be writing a bridge column for the paper. The column is titled, "The First Horseman of the Apocalypse." (Kidding about the name, not about the gig.) Note to future investors: When your CEO starts up writing a bridge column in the local rag, this is an early sentinel that all is not well.
-- June 2007: Bear Stearns ponies up $3.2 billion to bail out two ridiculously-named hedge funds created to invest in that can't miss asset class, subprime mortgages: High Grade Structured Credit Strategies Fund and the even more clever High Grade Structured Credit Strategies Enhanced Leverage Fund. See, Bear wasn't smart enough to realize it ought to get this toxic sludge as far away as possible-- so they had to put up more money to pretend that, despite declining values and massive investor redemptions, this shit still floats. To Bear's credit, this subprime stuff is pretty tricky, but it might've helped if Rich Marin, the Bear guru dispatched with overseeing the hedge funds, hadn't spent the summer writing movie reviews for his personal blog.
-- July 2007: Bear Stearns writes to inform clients that the two hedge funds now contain "very little" or "effectively no value" for investors, adding, "You 'member that $3.2bn? Didn't do shit." By August, both funds file for bankruptcy.
-- October 2007: Cayne reassures investors: "Most of our businesses are beginning to rebound." Audible snickers are distinct in the background. Later that month, state-owned Chinese lender Citic pays $1bn for a 6% stake in Bear, giving the firm an approximately $20 billion valuation. You heard me. $20 billion. With a b.
-- December 2007: Bear Stearns posts fourth quarter loss of $854 million on massive mortgage-related writedowns, the first quarterly loss in its 85-year history, prompting Cayne to remark, "Mayhaps those Chinamen aren't so smart after all."
-- January 2008: Cayne is more or less forced to resign as CEO in the wake of a "Wall Street Journal" article detailing his recreational pot use, month-long vacations to play cards, and other hijinks at 383 Madison Avenue. Had Bear been doing a bang-up job like Goldman Sachs, or hell, even Merrill Lynch, at the time, these transgressions probably wouldn't have been such a Big D. But obviously Bear wasn't, and exasperated board members said, "Seriously, Jimmy, the bridge thing, the hedge funds, now the pot? You gotta go." Showing a steely resolve to right the ship, Bear keeps Cayne on as Chairman. The glorious reign of new CEO Alan Schwartz begins!
-- March 10-17, 2008: Shit hits the fan. ‘Member? Moving on.
-- March 19, 2008: A visibly drunk and obviously stoned Jimmy Cayne is spotted in some speakeasy by a WSJ reporter. He is celebrating 'St Patrick's Week', waxing philosophic to the barkeep while snarfing Funions. To wit: "Maybe Bear Stearns was just, like, a little molecule on the tip of my finger, just like a tiny little speck." Bless his heart, he probably believes it. Let's not ruin that for him.

Related