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Angry Bear

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This wasn’t just rich traders losing their shirts. One Bear banker who left two years ago told me his former assistant, a 22-year Bear veteran, called him sobbing about the news. “She said, ‘I thought I was going to work here until I died. I love this place.’ It’s not about the stock for her. The human tragedy here is enormous.”

If death is followed by the five stages of grief, Bear staffers are deep into the anger phase. The Fed and Jamie Dimon are the prime targets of Bear’s ire. “He took advantage of the situation in ways that were not honorable, by allowing this deal to happen at two bucks and wiping out Bear’s shareholders,” one staffer said of Dimon. Others used the word cutthroat in describing his tactics. Many Bear staffers feel the Fed forced the fire sale to JPMorgan to prove a point. With millions of Americans facing foreclosure on dodgy subprime loans, the government needed to pin the housing meltdown on someone. After all, the Bush administration didn’t want to be seen as bailing out a bunch of wealthy Wall Street bankers at taxpayer expense. “They needed to show there was a victim,” a Bear staffer said. Fumed another, “The whole idea of a couple of people deciding we should go bankrupt to teach somebody—I don’t know who—a lesson? I don’t know how that serves anyone. They just transferred our wealth to JPMorgan.”

In Bear’s case, the bank’s outsider status worked against it. Smaller, scrappier, perhaps meaner than other banks, Bear Stearns prided itself on its grit and mettle compared to the coddled and polished competitors at Goldman Sachs or Morgan Stanley. Longtime CEO Jimmy Cayne relished his cigar-chomping image and the fact that he never finished college. In November, The Wall Street Journal reported that Cayne, an avid card player, even indulged in smoking pot during marathon bridge tournaments. Cayne denied the incident, telling the Journal, “There is no chance that it happened.”

If death is followed by the five stages of grief, Bear staffers are deep into the anger phase. Jamie Dimon and the Fed are the prime targets of Bear’s ire. Many feel Bernanke forced the fire sale to JPMorgan to prove a point. Some are wondering if the Fed and Treasury secretary Hank Paulson were only too happy to see Jimmy Cayne go down.

A decade ago, Cayne cemented Bear’s iconoclast status when he famously snubbed the Fed as it rallied other Wall Street banks to bail out the failing hedge fund Long-Term Capital Management. His peers felt betrayed, and the wounds never healed. “Other members of the consortium were upset,” said Robert Merton, the Nobel Laureate who ran Long-Term Capital. When Bear found itself backed into the corner last week, its pleas to the Fed fell on deaf ears. “They don’t have to push you, they just don’t have to help you,” Merton said.

Now some are wondering if the Fed and Treasury Secretary Hank Paulson, who was then Goldman’s COO, were only too happy to see Cayne go down when his firm was the one in need of a bailout. “Did the Fed decide Bear Stearns had to fail to get access to the discount window?” one Bear staffer speculated. As evidence, Bear staffers point to the fact that shortly after the Bear-JPMorgan deal closed, the Fed began lending directly to other beleaguered Wall Street banks, a move that would have surely saved Bear had it gotten access to the cash.

Staffers also feel let down by Cayne and Schwartz. They wonder why the two didn’t seek help from foreign funds that bolstered flagging banks like Citigroup last fall. Or, when the run on Bear started last week, why didn’t they demand the NYSE halt trading? “This to me is the arrogance of Cayne,” another former Bear staffer said. “It’s him saying, ‘I don’t need help from others.’ This is just tragic hubris.”

“Jimmy is a real bridge player and poker player,” one former Bear executive said. “The fact of the matter is, Jimmy played his most important hand, and lost.”

Historically, Bear Stearns was a cautious bank. But, because it was smaller and less diversified than other Wall Street banks, Bear was vulnerable to a firmwide crisis if business turned south, and was especially weighted toward risky mortgage investments. And recently, when the firm began ramping up its risk in search of higher profits, Cayne’s outsider legacy was transformed into a liability. Just last summer, two Bear hedge funds melted down, forcing the firm to bail them out with $1.6 billion and leading to the dismissal of co-president Warren Spector, who oversaw the complex mortgage-backed-securities operations. Alan Schwartz, a well-groomed Duke alumnus who rose through the investment-banking division, was named CEO several months ago, when Cayne stepped down. But some wonder whether Spector could have averted the calamity. “If we had someone with his talent and caliber there, you don’t know how this would have gone,” one Bear vice-president said. “He had a very good handle on where all our exposures were.”


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