CNBCfix review: Ace Greenberg audits Jimmy Cayne’s income statements in The Rise and Fall of Bear Stearns
Posted: Saturday, June 5, 2010
There is an argument from the Bear Stearns people and the Lehman Brothers people that has never gotten a whole lot of traction from the press.
Presumably because the press doesn't believe it.
The argument is that Bear Stearns and Lehman Brothers were finished off not by poor management, but rumor-mongering: Short-sellers who seized upon a little smoke to yell "FIRE!" in a crowded theater.
It only takes until Page 3 in Alan C. "Ace" Greenberg's book, The Rise and Fall of Bear Stearns, to encounter a "groundless rumor." According to Greenberg, the legendary longtime CEO and Chairman of Bear, it was being said on the Street on March 10, 2008, that Bear was having liquidity problems.
By Page 4, Greenberg is complaining that this rumor was broadcast by CNBC, and that his denial (to a question from Michelle Caruso-Cabrera) was essentially ignored.
Hindsight — evidenced by what we now know to be the 2008 condition of others such as Lehman Brothers, Citigroup, AIG, Fannie Mae, Freddie Mac, Merrill Lynch, Washington Mutual, and even survivors such as Goldman Sachs and Morgan Stanley — suggests the rumors were accurate, and that Greenberg's real objection is probably the speed at which the firm capsized, not the notion that it needed serious capital or a buyer to survive.
Greenberg, in his concise and interesting 200-page chronicle of his own career, unfortunately seems most interested in correcting what he sees as rewritten history from and about his successor Jimmy Cayne, particularly as described in William D. Cohan's House of Cards. Cayne descriptions cover about 60% of the book. (Along the way, he balks at a Trader Monthly article by Charles Gasparino claiming Cayne "built Bear Stearns from the ground up, brick by brick," saying the claim is so ridiculous, he didn't even bother sending a correction to the editor.)
Greenberg's chief disagreements with Cayne are these:
* He says Cayne claimed Greenberg wooed him to start at Bear in 1969 at $70,000 a year, when the standard salary (not including bonus) was $700 a week, and that Cayne falsely claimed he was pulling in $900,000 in commissions a few years later.
* Cayne did hatch the plan to buy distressed New York City debt in 1975, but if not, "we would have figured it out on our own," and Cayne didn't actually buy or sell any of these notes himself. (Gasparino writes in The Sellout that when Cayne pitched the plan to both NYC and Bear Stearns, "the city agreed, but officials at Bear didn't," and that Greenberg rejected the plan as "too risky," but Cayne went over Greenberg's head to Cy Lewis, who approved it.)
* Cayne apparently claimed the Bear executive committee voted in 1985 to go public without telling Greenberg, and that he broke the news to him. Greenberg said none of this happened.
* That Greenberg, according to Cayne, threw a "tantrum" when Cayne pressed in 1988 to be sole president instead of co-president with Johnny Rosenwald.
* Cayne told him if he didn't get the title of CEO it would be "war," when in fact the request was properly made, and Greenberg assented with the assertion he was still in charge as chairman. (Gasparino, in The Sellout, says Cayne actually lined up executive committee members in advance, told Greenberg, and Greenberg vowed to fight until Cayne said his chances were "zero.")
* Greenberg says he told Alan Schwartz of intention to quit firm in November 2007, and that Cayne, despite account in House of Cards, asked him not to.
* Cayne claimed there "wasn't a dry eye" when he told Bear employees of his departure; Greenberg says it was actually a moment of relief for everyone.
Among the nuggets, Greenberg writes that Cayne refused to call Greenberg "Ace" and always referred to him as Alan; that Cayne called out Greenberg in front of other executive committee members for embarrassing the firm by appearing on Donald Trump's "The Apprentice," only to have others point out Bob Kraft was on the show also; that Cayne flatly refused Greenberg's suggestion to put Enron whistleblower Sherron Watkins on the board; that Cayne had to be talked out of keeping 1 elevator for himself, instead reducing it to 1 hour a day only for himself.
Greenberg says he found out that Bear traders had stockpiled a lot of losing airline stocks, which he hated, and demanded Cayne order them be sold, but Cayne protested that the traders would quit if management forced them to unload.
Greenberg also writes of what he considered a profoundly ridiculous idea, apparenly correct, for Bear to launch a stock buyback in June 2007 when the price was in the $130 range.
It's not until late in the book that Greenberg singles out Cayne's apparent pot-smoking. He introduces the subject merely by citing the article by the Wall Street Journal's Kate Kelly. However, unlike many Bear investors, he does not seem to view this as a deal-breaker. He admits knowing, firsthand, for years, that Cayne smoked marijuana outside the office. This passage rings hollow, Greenberg suggesting that Cayne was at fault for putting his and the firm's reputation at risk but exonerating himself from confronting Cayne and the executive committee about it. It's one of several instances of Greenberg removing himself from critical situations that required a CEO or chairman's attention under the theory that "politics" are beneath someone of that stature.
Greenberg does credit Cayne for making the move to 383 Madison Avenue, which he called Cayne's greatest success at the firm.
Greenberg makes no mention of an event detailed in The Sellout, that in 2007 a woman at Bear, about half of Greenberg's age (80), came to Cayne demanding $10 million or she would go public, insisting that Greenberg had touched her in a sexually provocative manner and kissed her. Cayne discussed with top execs and opted to quietly settle, though for $2 million. This move "saved the humiliation" of Greenberg and the firm turning up in the New York Post, Cayne believed.
The book's best passages are the early ones, where Greenberg describes what made himself a success. He was a savvy salesman with an appetite for risk but an equal appetite for caution. Mostly, he does not want losers. This approach is described as a turning point in his assuming control of the firm from Cy Lewis. Greenberg writes that in the early 1960s he would become "physically ill" when seeing stock losses linger on the books. He confronted Lewis, threatened to quit, and Lewis grudgingly allowed him to sell the dogs on the books.
He is adamant in almost every chapter about expressing his concern for the fairness of Bear's salary structure and its frugality. He writes with pride about the anti-nepotism policy he established, explaining he didn't want relatives hired because eventually you get too many of the bad ones. He mentions charitable giving often, perhaps too often, including his $1 million hospital donation for free Viagra.
Curiously, he says the type of person he always wanted to hire was a PSD — "Poor, smart, and a deep desire to become rich." Apparently in the days before Gordon Gekko, greed wasn't so much of a concern.
Something Greenberg does not address is whether a retiree (or semi-retiree) in his late 70s and 80s should still be controlling, or attempting to control, as much as he claimed to be controlling at Bear. The Bear hierarchy sounds akin to the San Francisco 49ers turning the team over to Steve Young and letting him make personnel decisions, but guaranteeing Joe Montana a few series a game and even audible power over Young's calls. That Cayne, a crafty guy and tremendous salesman, was undisciplined, detached and a lousy risk manager is evident. Greenberg was the one who hired and promoted him, excusing a lack of caution on his disdain for office politics.
Cayne probably didn't ruin Bear; given its size, it would've been bound to jump into mortgage securities like everyone else. For a while, Cayne and Greenberg were some of the top-paid if not the highest-paid Wall Street execs. Generally in life, when we're being rewarded, we feel like we're doing the right thing. It can probably be said that the mortgage crisis, like the tech bubble, was in part a result of just too much money sloshing around, too many ways to allocate it.
As for the rumors: Greenberg admits that in the summer of 2007, "Partners and retired partners who had stock they could sell were quietly doing so. Who could blame them?" The exit lights at Bear were flashing long before March 2008.
The Rise and Fall of Bear Stearns, by Alan C. Greenberg and Mark Singer (2010)
Featuring: Alan C. "Ace" Greenberg, Bear Stearns, Alan Schwartz, James E. "Jimmy" Cayne, Jay Gould, J.P. Morgan, Jim Fisk, Jacob Schiff, Bernard Baruch, Kitty Carlisle Hart, Ted Greenberg, Esther Zeligson, Maynard Greenberg, DiAnne Greenberg, Warren Buffett, Everett Marshall, Jimmy Owens, Jay Sarno, Nate Appleman, Wertheim, Carl M. Loeb, Rhoades & Co., Sartorius, Bache, H. Hentz, Leonard Dickson, Goldman Sachs, Josephthal & Co., Abraham & Co., Lehman Bros., Salim L. "Cy" Lewis, Robert Young, John Slade, Hans Schlesinger, Salomon Brothers, Ted Low, Joseph Bear, Robert B. Stearns, Harold C. Mayer, J.J. Danzig, Herman Sarno, David Finkle, Leo Farland, Leval & Co., Louis Dreyfus & Co., Marcel Aubry, Fernand Leval, Shin-Etsu, Gus Ring, Edward Brooke, L.F. Rothschild, Gus Levy, Ivan Boesky, John Rosenwald, Terry Brennan, Bernard J. "Bunny" Lasker, Moe Baker, Bill Mayer, Steve Ross, Marvin Davidson, Eddie Hirsch, Mark Stewart Sr., John Gutfreund, Jerry Goldstein, Morris Shapiro, Don Regan, Merrill Lynch, Homer Budge, Hayden Stone, Cogan Berlind Weill & Levitt, Jack Golsen, Richard Nixon, Sig Wahrsager, Jerome Kohlberg, Henry Kravis, George Roberts, Harmonie Club, Harry Blackstone Sr., Sally Rand, Reuben's Restaurant, Peter Kammsky, Haimchinkel Malintz Anaynikal, Memos from the Chairman, Kathryn Olson, Bobby Steinberg, Jardine Matheson Group, Simon Keswick, Henry Keswick, Arthur Liman, E.F. Hutton, Thomson MacKinnon, L.F. Rothschild, Drexel Burnham, First Boston, Kidder Peabody, Prudential, Credit Suisse, General Electric, Lebenthal & Company, UDC, Gerald Ford, Hugh Carey, Howard Finney, Gene Marx, Chase Manhattan, Citibank, Morgan Guaranty, Gene Klein, Charles Gasparino, Joe Flom, Skadden Arps, Henry Singleton, Teledyne, Fred Whittemore, Frank Petito, Todd Shipyards, John Gilbride, James Robinson, American Express, Bob Stoops, House of Cards, William D. Cohan, Alvin Einbender, Mickey Tarnopol, Federated Department Stores, Robert Campeau, Bob Strauss, Joseph Perella, Bruce Wasserstein, Sumner Redstone, Barry Diller, John Malone, Donald Trump, "The Apprentice," Warren Spector, Bob Kraft, Timothy Geithner, Joe Lewis, Teddy Kollek, Dr. Stephen Paget, Kay Smith, Dr. Victor McKusick, Long-Term Capital Management, Roger Lowenstein, John Meriwether, Morgan Stanley, David Komansky, Beverly Sills, Abe Ribicoff, Sherron Watkins, Kenneth Lay, Lawrence Kudlow, Charles Darwin, theGlobe.com, Ralph Cioffi, Matthew Tannin, Sam Molinaro, Kenny Savio, George W. Bush, John Kerry, Steven Begleiter, Simon Breedon, James Conopask, Joseph Geoghan, Lonny Henry, Jeffrey Mayer, Craig Overlander, Randy Reiff, Robert Steinberg, Lawrence Alletto, Keith Barnish, David Glaser, CITIC, Donald Tang, Kate Kelly, Ben Bernanke, Henry Paulson, Melissa Frey, Jamie Dimon, H. Rodgin Cohen, Gary Parr, James Stewart, Laura Schreiner, Deborah Colaizzo, Lisa D'Amore Mezzatesta, Mort Janklow, Bob Bender