Back in their early days of Bear Stearns, Jimmy Cayne and Ace Greenberg were the best of friends. But their relationship was strained after Cayne ousted Greenberg as CEO and relegated him to a chairman role, and by the time the firm folded under the weight of its exposure to subprime mortgages in the spring of 2008, they were at each other's throats. In the aftermath of the collapse, Greenberg was open about his resentment of Cayne, and even suggested that he himself had tried to warn Cayne about the firm's massive overleveraging, though he declined to reveal details. "You can read about it in my book," he told the Times. We got a copy of said book,The Rise and Fall of Bear Stearns, which is due out next month, and while Ace doesn't actually come across as too on-the-ball himself with regard to the firm's books (he admits that "given [his] reputation as a highly adept risk manager" he was late to raise the alarm), he does make good on his promise to reveal a couple of times he expressed concern to Cayne and others about the firm's liquidity, or lack thereof.
In particular, he claims he took issue with a 2007 decision made by Cayne and his deputy, then-CFO Sam Molinaro, to have the firm buy up $1.5 billion of their own stock in order to build the confidence of shareholders. "Their rationale," Ace wrote, "ignored the gratuitous burden this would place upon our liquidity. No, no, there was nothing to worry about, Sam maintained, because we were 'swimming in money.'"
I minced no words: "This is nuts. There is no such thing as having too much capital in this business.
But Greenberg saves his harshest critiques for his former friend, at times offering lengthy, point-by-point rebuttals to parts of the account of the collapse Cayne gave author William Cohan for his House of Cards (other parts he deems "beyond preposterous and unworthy of rebuttal"). He describes Cayne as "crude," "full of himself," and "warped," says he "knew he was smoking pot for years" (a charge Cayne denies), and leaves little doubt as to whose hands he believes are stained with the blood of the dead firm. Of Bear's 2007 pledge to lend Blackstone $10.7 billion to finance what would turn out to be a rather bad investment in Hilton hotels, he writes he was concerned about the size of the deal: "As with the stock buyback, my apprehension focused upon liquidity," he writes. "What potential stress would this place on our ability to fund our routine trading operations?" Cayne wasn't so bothered, he writes. In fact, he didn't even show up to the meeting.
"The hour of the Hilton financing discussion, it seemed, didn't work for him. And that was why? Because it conflicted with his golf date. I'm sorry to say that, in spite of my lifelong resolve to move forward continually, this particular example of Jimmy'e egoism, tone-deafness, and clueless contempt for the rest of us still provokes my outrage: For a $10.7 billion deal, he wouldn't even rearrange his tee-off time.
Cayne has been forced to rearrange his tee-off time today, however, in order to be grilled by the Financial Crisis Inquiry Commission, who are no doubt aware of his enjoyment of golf. We bet Greenberg will be watching, with a smile on his face, and a big ol' bucket of popcorn.