The Story of Bear Stearns' Final, Tragic Days

A Wall Street Journal reporter's fly-on-the-wall account of the investment bank's bitter fight for survival

By Chris Farrell

Editor's Rating:

The Good: Kelly vividly recreates Bear Stearns' panicked struggle to retain its independence

The Bad: At times, as the action unfolds, there's too little information to help readers connect the dots

The Bottom Line: The author did the legwork needed to give "Street Fighters" a sky-high you-are-there factor

Reader Reviews

Street Fighters:
The Last 72 Hours of Bear Stearns,
the Toughest Firm on Wall Street
By Kate Kelly
Portfolio; 247 pp.; $25.95

What did the investment bankers at Bear Stearns ever do to earn their millions of dollars in bonuses? Where were the regulators when traders at Bear and other Wall Street firms peddled trillions of dollars in mortgage-backed bonds and derivatives, only to realize, too late, that no one had a clue what they were worth? How can outside investors ever pin down the value of a financial institution such as Bear Stearns, let alone its new parent, the $2.1 trillion-in-assets behemoth JPMorgan Chase (JPM)?

These aren't new questions at this point in the crisis. But they're brought into vivid focus in Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street, by Kate Kelly, a reporter for The Wall Street Journal. The book builds on a three-part series she wrote for the paper on the demise of Wall Street's fifth-largest firm, and its conceit is to treat Bear's last three days as an independent investment bank much like a Shakespeare play, complete with three acts and characters dialoguing their way on and off stage. Kelly has done the legwork to recreate pivotal conversations.

Her storytelling instinct is spot on. Bear's collapse over a weekend in March 2008 was high drama, even if it was soon overshadowed by the federal takeovers of Fannie Mae (FNM) and Freddie Mac (FRE), the bankruptcy of Lehman Brothers, and the semi-nationalization of AIG (AIG). At its full strength, Kelly writes, the credit crisis "killed every firm with a large mortgage business, too little diversification to offset losses from bad loans, and the inability to be proactive."

A little more than a year before it imploded, Bear was flying high. Under the leadership of three colorful Wall Street legends—Cy Lewis, Alan "Ace" Greenberg, and Jimmy Cayne—it had forged a reputation for disciplined risk-taking, and its stock had reached an all-time high of 172. A cigar-smoking bridge champion, Cayne—who was CEO from 1993 until January 2008—had become the richest honcho on Wall Street, owning shares valued at well more than $1 billion. Bear's executive triumvirate—Cayne and his co-presidents, Warren Spector and Alan Schwartz—took home almost $100 million in total compensation in fiscal 2006. By early '08, the federal government had nearly let JPMorgan pocket the storied firm for $2 a share (the final price was $10).

Kelly keeps the you-are-there factor high. Here's JPMorgan CEO Jamie Dimon on the phone with then-New York Fed Chief Timothy Geithner on the same day Dimon bought Bear: "There's just no way. There's just a much bigger hole than we thought."

But problems crop up in the book's execution. In many places, seemingly significant events take place, but there isn't enough information to connect all the dots. In other instances, Kelly fills in the knowledge gaps, but the tension of Bear's final hours dissipates. And if readers wish to learn how Bear strayed from the bold but pragmatic methods ingrained by Ace Greenberg in the 1980s and early '90s, they should turn to William D. Cohan's House of Cards, a detailed and historically rich tale of Bear's fall (BW—Mar. 16).

Still, Kelly's technique brings to life the toll exacted on senior management and government officials as the firm's prospects dimmed. It's amazing how many critical decisions were made on the fly with sketchy information by sleep-starved, pizza-and-soda-fueled people. Kelly's account rings true and evokes that panicky state as Bear's leaders street-fight on—and eventually realize they have lost control of their fate.

There are a number of bittersweet "what if?" passages in the book. We learn of a mathematically gifted employee who spent years devising a risk-assessment matrix for pinpointing the firm's exposure to the markets. What if Cayne hadn't summarily dismissed the idea? When Geithner ran through options for then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, he briefly touched on letting Bear go under and protecting any firm that got into trouble in the aftermath. What if that option had won out?

The book's title refers to Bear's toughness. The firm had the chip-on-the-shoulder attitude of a trading culture, and an employee's pedigree didn't matter one whit. What mattered was the ability to make money. And that obsession appears to have been Bear's undoing.

Farrell is contributing economics editor for BusinessWeek. You can also hear him on American Public Media's nationally syndicated finance program, Marketplace Money, as well as on public radio's business program Marketplace. His Sound Money column appears on BusinessWeek.com.

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