|  | Author: William D. Cohan
Publisher: Doubleday
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Rating:  78 reviews
Sales Rank: 2385
Languages: English (Original Language), English (Unknown), English (Published)
Media: Hardcover
Edition: First Edition
Pages: 480
Number Of Items: 1
Shipping Weight (lbs): 2
Dimensions (in): 9.4 x 6 x 1.3
ISBN: 0385528264
Dewey Decimal Number: 332.660973
EAN: 9780385528269
ASIN: 0385528264
Publication Date: March 10, 2009
Availability: Usually ships in 1-2 business days
Condition: Ex- library, All proceeds benefit our public library in Hillsboro, Oregon. Mylar cover removed, all exterior markings removed, dustjacket has minor edgewear, spine is tilted, bottom edge has stain, except for minnor library markings, edges lightly soiled, interior clean and tight, just good reading copy.
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Showing reviews 16-20 of 78
 And then one day, the bottom fell out, and I became withdrawn July 29, 2009
Eugene A Jewett (Alexandria, Va)
0 out of 1 found this review helpful
A story too long, a tale too complex, a miasma of detail, definitions that vex. In great need of editing, t'was rushed into print, it's not the whole story, so let's tighten and vent. The story of Bear Stearns' demise is told in three parts: part one is the last 10 days before Bear Stearns is bought by JP Morgan; part two - how it was built over its first 85 years in business; and part three - its collapse as it slowly rolls over like a big ocean liner prior to its last 10 days (or leading back into part one.)
There are some good reviews highlighting this story here so rather than write another I'm going to relate my synopsis of what happened (which means not necessarily the story line.)
Bear Stearns (BS) came into being almost a century ago when some savvy, hard working, and clever guys (like those at Lehman Bros, Salomon Bros, and Goldman Sachs) got into the nascent Wall Street game of selling stock as a way of financing small businesses. Over time these financial entrepreneurs developed niches in debt financing, and the selling of said debt instruments to not only wealthy individuals, but budding institutional accounts like insurance companies, banks, and retirement funds. These debt instruments provided working capital for larger, growing corporations, domiciled both domestically and internationally. They also got into financing municipalities and other government entities.
In a very basic sense Wall Street is about debt and equity - one represents permanent capital that doesn't need to be repaid while the other must be repaid along with interest. As we begin reading we're introduced into Part one where we find BS is running into difficulty refinancing its trading operations, a business that's 70% financed by overnight borrowings via debt instruments called Repo's (or "repurchase agreements.") The way this works is that BS puts up collateral (Treasury debt, CDO's i.e. mortgages) for its daily Repo and then pays the Repo back the following day only to immediately roll it over again for another 24 hours. If BS were a bank instead of an investment bank it would have had deposits to finance its operations, but it wasn't so it borrowed heavily to increase its leverage and subsequently its profit margins. This worked great as it meant BS didn't have to sell more stock for equity capital (which would have otherwise diluted ownership by cutting into the income streams out of which they earned their high pay and higher bonuses.)
Those income streams were provided from many areas of the firm, but often they were from the spreads on bond and stock trades, banking fees, and from the residual fees on thousands of portfolio held mortgage bonds whose holders paid their mortgage payments every month (or most of them which is where our story lies as not all of them did.) If BS can borrow in the Repo market at a low interest rate, aggregate pools of these mortgages, and then resell them (often called CDO's or collateralized debt obligations or CMO's) to financial institutions at a spread of a point give or take, then BS is going to make millions on these (highly leveraged) $30 to $50 of debt to $1 of equity, trades. High leverage, rapid trading, and sufficient volatility coupled with hundreds of millions or billions of mortgages in these loan packages, and you're talking about real money. The problems come when something major changes like the value of the underlying mortgages. And that change came as follows.
Starting in 1922 under Herbert Hoover, then Secty of Commerce under Harding/Coolidge, the govt decided to get more American's receptive to buying their own home. This marked the beginnings of the government's (govt) foray into the housing market. Roughly 46% of home occupiers were home owners at that time and the govt wanted that number higher (see "City Journal - Spring 2009 issue - "Obsessive Housing Disorder" for the story of 20th century govt attempts extant.) In this latest iteration, which ultimately causes BS to impale itself on its own sword, The Community Reinvestment Act, circa 1977 under Carter, is ramped up under the Clinton administration starting in 1993. The author explains in chapter 25, pages 294-302 and 318, how Roberta Achtenberg, acting under the Fair Housing Act at HUD, begins browbeating banks into making loans to less credit worthy borrowers. At this time home ownership is 64%, but thru an expanded political process which begins with her and her govt attys, via govt intervention as a defacto regulation change, the entire market begins a journey to a 69% and higher level of home ownership.
At one point Greenspan frets that these extra 5% of participants have 90% loan-to-value ratios on their homes (homes which see a doubling plus of housing prices between 1997 and 2005.) When Fannie Mae and Freddie Mac (F&F,) two govt sponsored entities (GSE's who buy these mortgages from mortgage originators in the broad housing market) are holding one trillion dollars in sub-prime mortgages out of a collective $5 trillion in their portfolios, it becomes clear that this whole government disrupted mortgage market has gone beyond its CRA inspired beginnings (maybe 25% of the bad loans at the end) to the point where 40% of sub-prime mortgage loans originated to (historically) unqualified buyers in 2006 had no pay stubs or a listing of borrower assets in their loan documents. Ipso, thousands of borrowers couldn't make their mortgage payments.
Throw into that mix that F&F are being coerced into buying (and guaranteeing) these loans from originators like Country Wide Mortgage, Anthony Mozillo's politically connected outfit along with countless other mortgage origination operations, and its clear that all have been roped by this govt initiative into yet another overdone govt home ownership crusade. This sets the stage for BS's collapse - in addition to the collapse of Merrill Lynch, AIG, Lehman Bros, Wachovia bank, and many others. And I should mention that the debt instrument rating agencies such as S&P and Moodys labeled many of these portfolios triple A (AAA.) The problem is that they weren't triple A, they were figuratively triple X as in X-rated meaning they had mortgages that were half and less of par, but almost nobody realized this until it was too late; and include Warren Buffet and other luminaries in this crowd. Believe me; none of them thought they'd lose billions and their life's work. Even AIG with their selling / writing of "put options to sell bonds" - or credit default swaps (CDS) - on bond portfolios, didn't see it all coming (see the Cato policy report - "did deregulation cause the financial crash?")
Part three of the book is about how BS goes thru its own version of that very warm place at the center of the earth (which can be defined as "seeing the truth too late") as their collateralized mortgage assets begin to erode in value. And it becomes clear that the insanity of too much borrowing on too small an asset base, while borrowing short term and lending long term, "makes Jack (BS) a dull boy" and a poor one as well. Part three of the book precedes part one as we watch BS's lenders fall away from the Repo window as BS's mortgage portfolios, the ones they've kept for investment, implode in value.
Just as lack of oxygen to the brain is the basic cause for all deaths, lack of capital in a proper ratio to its debt means a broker-dealer (BD) gets closed by its regulators. If the aggregate indebtedness (AI) of a BD exceeds a 30 to 1 ratio with its net equity (at the time the regulators measure it thru the BD's monthly reporting or otherwise) then capital must be raised immediately or the BD cannot continue in business. Therefore, if a BD's net equity becomes impaired by the falling prices of its capital inventory (in the instant case, mortgages and mortgage instruments held by BS which were suddenly marked-to-market at a lower value) then it won't be allowed to continue to operate. In this case JP Morgan was allowed to take BS over at a knock-down price. As one reviewer points out there's a comical legal drama that occurs here which allows BS to bump its price from $2 to $10 p/sh in the buyout by JP Morgan. It's remarkable!!
BS believed their own myth, and "ate their own dog food," the same mortgage pools they were selling their investors. It's an interesting story, but far too long with far too many extraneous conversations quoted, many of which take away from the narrative. There are lots of characters led by CEO's Ace Greenberg and Jimmy Cayne, and lots more to read about Cayne's enlightened Bridge playing skills along with stories of the many other talented, hard working guys who made BS the power house it became. But now? It's a part of JP Morgan who bought it for $10 a share, down from a high of $172 p/sh at its peak.
Pride, gluttony, ire, greed, hubris, it's all there. It's got the makings of a story better told than this, but even at that it's a good one, and certainly a page turner.
Interesting, but not perfect July 27, 2009
Spencer Uresk (Kaysville, UT)
2 out of 2 found this review helpful
This is one of those books that are interesting to read, but could have been a lot better.
I am a big fan of books that expose corporate greed, incompetence, and hubris. I bought this book thinking it would be along the lines of "Conspiracy of Fools" and "Barbarians at the Gate". In one sense, it was a little bit like those books - it was an interesting read and kept me engaged until the end. However, I wasn't completely excited about the book and it felt rushed to market.
1) As others have pointed out, the book contains multiple errors that seem really careless. This is the only book I've read in recent memory that contains an error in the very first sentence!
2) Many finance concepts are glossed-over and poorly described. I have some experience in Finance and understood most of what was going on, but if I gave this book to my Mom, would she understand it all? Probably not.
3) The cause-effect relationship between the hedge funds and ultimate collapse of Bear could have been explained better. Part of the problem is the way the book flows - the first handful of chapters are the final days of the firm, and then it steps back to when BS was founded up until the hedge funds exploded. When I read the first few chapters, I thought "Ok, I understand they have a liquidity crisis that is killing them, but why?". I don't know that the rest of the book fully explained that. I think the flow of the book was detrimental.
Overall, an interesting book that is worth the read, but not on par with some of the great business "post-mortem" books of the past decade or so.
 The Fall and Rise of Bear Stearns July 26, 2009
David Bahnsen (Newport Beach, CA United States)
0 out of 1 found this review helpful
Because the proverbial you-know-what did not really hit the fan until September of 2008 (with the one week period that included the fall of Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, and AIG), many seem to forget that in March of 2008, six full months prior, Wall Street lost one of its true gem stones: the illustrious Bear Stearns. Cohan's House of Cards is not intended to walk us through every nook and cranny of the housing crisis, or even the systemic mess that took place across Wall Street. This is a 450-page play-by-play of the fall and rise of Bear Stearns in particular. I say "fall and rise", because in a twist of literary genius, Cohan starts the book with a 150-page minute-by-minute description of the final weeks of Bear. It reads like a murder mystery thriller, partly because the suspense and drama is riveting, and partly because it was, well, a "metaphorical murder", as the hubris of a few particular men, the incompetence of a slightly greater number of men, and the unfathomable selectivity of government decision-making brought down a Wall Street giant.
The book is hard to put down. I am quite certain that I have never read a 450-page book as quickly as I read this one. The behind the scenes look at JP Morgan's decision to buy Bear Stearns that fateful weekend in March of 2008 was accompanied by enough back-and-forth action it would make your head spin. Cohan uses Paul Friedman, the COO of the Fixed Income Division, to lay out the narrative. Readers are given a look under the hood of a weekend from hell, wherein Jamie Dimon, the CEO of JP Morgan Chase (and arguably the most powerful banker in the entire world) several times changed his mind and re-negotiated the purchase of Bear, a company whose two options became: (1) Take whatever deal JP Morgan offers, or (2) Close your doors and turn off the lights.
How does it happen that a company whose book value was $84 per share is forced to accept $2 per share in a desperate attempt to stay alive? How can a company with $18 billion of cash in the bank (their own cash) at the time be on the brink of liquidation bankruptcy? Has the leverage of a deal ever been more one-sided than it was in this case? The answers are far more important than just what they meant to Bear Stearns, for they give us a light on an entire system that became dependent on what is commonly called "overnight funding", and more technically "repurchase agreements". When the creditors of Bear Stearns became petrified that the company was ultimately insolvent, despite their decent cash reserves and phenomenal free cash flows, the rest became completely irrelevant. In a financial system that inexplicably requires every domino to believe the next domino will also work, all it takes is one domino removal to bring a company (or, the world), to its knees. Such was the fate of Bear Stearns.
After walking through the historical record of JP Morgan's purchase of Bear Stearns for $2 per share (moved up to $10 one week later as a result of one of the most comical attorney errors of all time, wherein JP Morgan signed an agreement guaranteeing all the bad debt of Bear Stearns, even if the shareholders rejected the deal!!!!!), Cohan leads us on a 250-page history of the firm, beginning with its infant stages prior to the Depression. The pathologies of the men who led this firm over the years (remarkably, in an entire century, you are only talking about three or four key people) are enough to write thousands of pages on, and you have to be as dysfunctional as I am to find this so entertaining (but I really do). For review purposes, I will skip the myriad of details in this company history, but will simply say that Cohan left me feeling like I have grown up with Jimmy Cayne, the bridge-playing non-college-graduating iconoclast who led this firm for decades. Cohan has a career as a biographer if he wants one, for this was meaty stuff indeed.
The questions that are germane as far as I am concerned are these:
(1) In March of 2008 the Federal Deserve announced a new and unprecedented facility for primary dealers to access the Federal Discount Window. Yet, to this day, no explanation has been provided whatsoever as to why the access to this window would not be available until March 27 (too little, too late, for Bear Stearns). Ideologues can debate until they are blue in the face whether or not this measure made sense at all, but readers are right to wonder why the timing was such that it was exactly on time for everyone else who lived off of repo agreements, and exactly too late for Bear Stearns.
(2) This is not so much a question as a statement of fact. Through no fault of their own that I can detect, the story of this Bear Stearns mess for the bondholders has got to be one of the most miraculous tales of good fortune I have ever seen. Stockholders saw Bear Stearns trading at $170 per share less than a year prior to their collapse, and ended up taking $10. Bondholders, who likely would have received well less than 50 cents on the dollar in a bankruptcy ended up recovering 100% of the par value of their bonds, all interest owed (and still accruing), and in one of the most ironic parts of this story, a 100% gain on stock purchased as well. For the week that Bear Stearns approved the $2 sale to JP Morgan, knowing that shareholders would fight to the death to avoid this pillaging, bondholders began buying the stock above the agreed upon value en masse, purely as a way to guarantee that the deal would happen (as they would acquire enough shares to out-vote the stockholders, and protect their huge debt position). The intent was always to lose money on the stock trade, but simultaneously guarantee that their bond deal got done. In a classic case of winning one every side of the trade, one week later JP Morgan upped their offer to $10 per share, not only giving bondholders their deal, but doubling the value of the stock they had been buying. Sometimes God has a sense of humor.
(3) Tremendous moral questions remain about the propriety of a system that stopped compensating Wall Street titans for advising on client capital, and began risking their own capital. Bear Stearns died for the same reason many other firms died, or nearly died, just six months later: Excessive leverage of their own capital base, with a seeming complete and total ignorance from the men running the ship as to what was going on. I believe JP Morgan will make billions of dollars on this trade, as a $29 billion FDIC back-up to the toxic assets they bought has that effect on deals. Had Bear repo dealers decided to keep Bear afloat a little longer, perhaps they could have de-levered, and reinvented, and lived to fight another day. But when the leveraging of your balance sheet becomes a business model replacement for your operational profit and loss, something has gone astray. Have we learned? More importantly, as my next review will cover, how in the world did Lehman Brothers not learn.
Kudos to William Cohan for a brilliant book. It is non-partisan, historically factual, and leaves the reader scratching their heads at what became of a legend. Life is humbling sometimes. Will the events that led to the fall of Bear Stearns also lead to a new paradigm on Wall Street, a paradigm that prices risk appropriately, that seeks to be paid (extravagantly, as far as I am concerned) for wise advice and capital allocation, or will we suffer through all of this once again? Those who feel that regulation alone can solve this problem underestimate the complexity of the system, and the depths of moral depravity. They fail to see the evolution of a shadow banking system. And they truly underestimate the moral hazard of "too big to fail" and global inter-connectedness. For decades and decades, Wall Street was villainized, and indeed, a bunch of villains existed. But they were demonized because they were making a bunch of money giving advice and allocating capital, and that demonization was wrongly directed. The 2008 demonization of Wall Street was clearly deserved, but not because of a failure to regulate; Wall Street changed. Firms like Bear Stearns that spent decades innovating, and providing the financing during times of municipal stress (see New York in the 1970'), or railroad bonds (see America during the 1940's and 1950's). A new era is coming indeed. What Cohan has helped us do is wonder out loud if the new era will look like the old one or not. It will be good for the whole world to have a strong Wall Street, and not one built like a house of cards.
 Boring recitation of quotes July 25, 2009
Sherlock Holmes (Chicago, IL)
5 out of 6 found this review helpful
Unless you are in the 1% of the population that works in and understands sophisticated financial trading, you likely won't understand half of what is written. Even worse, half of what is written consists solely of quotes saying the same thing over and over again in slightly different ways.
 A better book than some of the critical reviews suggest July 19, 2009
Aaron C. Brown (New York, New York United States)
2 out of 4 found this review helpful
With 58 reviews already, I don't have much to add in terms of description. I'm writing this because I found the reviews I agree with most are too critical. Yes the level of technical detail is uneven, and there are some editing errors. The subtitle is deliberately misleading to fool readers and pander to stereotypes. Yes, House of Cards is only about half the story. No, it is not as polished or satisfying as When Genius Failed or as juicy as Den of Thieves.
But this book came out as events were still unfolding, unlike the others, and tells a much longer and more complicated story. Given the constraints, it does a fine job of covering the history of Bear Stearns, the personalities and motivations of the key actors in its final days and the financial forces at play. Unlike most accounts, it's reasonably fair and balanced. I think it's the first really good book-length description of some of the events that are shaping the future, but nobody understands.
If you can afford to wait four or five years, someone will probably come up with a better account of the end of Bear Stearns. But by that time it will likely be a minor financial footnote. So read this book now if you want to understand more about the Wall Street of 2006 and the transformations that have taken place since then.
Oh, and avoid Street Fighters if you're choosing between these two.
Showing reviews 16-20 of 78
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