House of Cards

House of Cards

A Tale of Hubris and Wretched Excess on Wall Street

Book - 2009
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On March 5, 2008, at 10:15 A.M., a hedge fund manager in Florida wrote a post on his investing advice Web site that included a startling statement about Bear Stearns & Co., the nation's fifth-largest investment bank: "In my book, they are insolvent."

This seemed a bold and risky statement. Bear Stearns was about to announce profits of $115 million for the first quarter of 2008, had $17.3 billion in cash on hand, and, as the company incessantly boasted, had been a colossally profitable enterprise in the eighty-five years since its founding.

Ten days later, Bear Stearns no longer existed, and the calamitous financial meltdown of 2008 had begun.

How this happened -- and why -- is the subject of William D. Cohan's superb and shocking narrative that chronicles the fall of Bear Stearns and the end of the Second Gilded Age on Wall Street. Bear Stearns serves as the Rosetta Stone to explain how a combination of risky bets, corporate political infighting, lax government regulations and truly bad decision-making wrought havoc on the world financial system.

Cohan's minute-by-minute account of those ten days in March makes for breathless reading, as the bankers at Bear Stearns struggled to contain the cascading series of events that would doom the firm, and as Treasury Secretary Henry Paulson, New York Federal Reserve Bank President Tim Geithner, and Fed Chairman Ben Bernanke began to realize the dire consequences for the world economy should the company go bankrupt.

But HOUSE OF CARDS does more than recount the incredible panic of the first stages of the financial meltdown. William D. Cohan beautifully demonstrates why the seemingly invincible Wall Street money machine came crashing down. He chronicles the swashbuckling corporate culture of Bear Stearns, the strangely crucial role competitive bridge played in the company's fortunes, the brutal internecine battles for power, and the deadly combination of greed and inattention that helps to explain why the company's leaders ignored the danger lurking in Bear's huge positions in mortgage-backed securities.

The author deftly portrays larger-than-life personalities like Ace Greenberg, Bear Stearns' miserly, take-no-prisoners chairman whose memos about re-using paper clips were legendary throughout Wall Street; his profane, colorful rival and eventual heir Jimmy Cayne, whose world-champion-level bridge skills were a lever in his corporate rise and became a symbol of the reasons for the firm's demise; and Jamie Dimon, the blunt-talking CEO of JPMorgan Chase, who won the astonishing endgame of the saga (the Bear Stearns headquarters alone were worth more than JP Morgan paid for the whole company).

Cohan's explanation of seemingly arcane subjects like credit default swaps and fixed- income securities is masterful and crystal clear, but it is the high-end dish and powerful narrative drive that makes HOUSE OF CARDS an irresistible read on a par with classics such as LIAR'S POKER and BARBARIANS AT THE GATE.

Written with the novelistic verve and insider knowledge that made THE LAST TYCOONS a bestseller and a prize-winner, HOUSE OF CARDS is a chilling cautionary tale about greed, arrogance, and stupidity in the financial world, and the consequences for all of us.

Publisher: New York : Doubleday, c2009
Edition: 1st ed
ISBN: 9780385528269
Branch Call Number: 332.66 C66h
Characteristics: 468 p. ; 25 cm

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f
fdb045
Jul 29, 2015

First of all, the title does not indicate this book is mostly about Bear Stearns. I found it an interesting read because of the detail regarding the players, companies and environment during this time. It is a tough read due to all this detail. One has to wonder about the truthfulness of said detail but has to assume Cohan verified what he wrote.

s
StarGladiator
Aug 25, 2013

Rated AWFUL as a book of pure propaganda: ". . .how a combination of risky bets, corporate political infighting, lax government regulations and truly bad decision-making wrought havoc on the world financial system." Let's address these fictions of the author on an individual basis: risky bets? They were all rigged! Lax government regulations - - negative! It was by design, just see Greg Palast's release of the "Larry Summers' memo" at [http://www.vice.com/en_uk/larry-summers-memo] and research the lobbying by the top Wall Street investment houses (their Derivatives Research Group) and JPMorgan's and the Group of Thirty's lobbying to end "legal risk" for the credit derivatives' scam (resulting in the Private Securities Litigation Reform Act of 1995, the GLB Act and the Commodity Futures Modernization Act). "Bad decision making"? When John Paulson got together with Goldman Sachs to create the trash loans/CDO construct called the Abacus CDO, then purchased millions of dollars worth of credit default swaps against it ($1.4 million per naked swap, with a payout of $100 million per swap) resulting in billions for both parties, and similar situation for the principals of Magnetar Capital hedge fund, with 96% failed deals, yet they made billions? Plus all the others who did similarly.... [Congressional investigations into the standard practices of Washington Mutual uncovered that they kept a "black list" of honest real estate assessors who WaMu WOULD NOT hire nor contract any work out to, as said assessors would not falsify RE estimates, et cetera. This involved financial fraud to the max, no poor decisions or any other such claptrap nonsense! One lady at WaMu, a senior mortgage underwriter, refused to OK faulty loans and was summarily fired!] Furthermore, "A tale of hubris" ????? What hubris? They got away with the largest financial fraud in human history - - is John Paulson, Lloyd Blankfein, Alan Greenspan, Robert Rubin, Larry Summers, Geithner, any present and past CEOs of Chase and Morgan Stanley in jail? Negative!!!

JCS3F Jun 09, 2013

Personalities can't run companies. More than any other lesson, the story of Bear Stearns (or of Merrill Lynch, Countrywide, Lehman, Wachovia, Washington Mutual, AIG...) hinges on this point. The sheer speed and volume of information necessitates a level of expertise that hasn't been required of corporate leaders. This isn't to say that Jimmy Cayne needed to master collateralized debt obligations and their derivatives. But he should have implemented an audit structure that would have allowed senior executives at Bear to understand the full scale of their exposure. He also should have had the requisite focus and commitment to anticipate his company's vulnerabilities. In hindsight, even a layperson can see that excessive reliance on secured overnight funding is highly problematic. What is the value of your security? What happens to your funding if your counterparty disputes that valuation? What sources of redundancy do you have for your funding? Similarly simple questions can be asked about Bears assets and their hypothetical returns. The C-suite is 1) risk management and 2) leadership, in that order. It isn't $17,000 helicopter rides to golf courses in New Jersey or fawning puff pieces in the financial media. That paradigm is over. Though the crises will continue until the old guard adapts or takes up contract bridge full time.

jwt0427 Aug 08, 2011

A difficult read, rambles.

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