I have been contemplating about purchasing William Cohan’s “House of Cards” on different occasions. It is not until the interview with William Cohan by Jon Stewart in the Daily Show, I have decided to grab a copy and read about the chronology on how the collapse of Bear Stearns have triggered the eventual downfall of Lehmann Brothers and proceeded by the global meltdown in Sep 2008. Of course, the most memorable line between them during their exchange on the Daily Show where Jon Stewart asked, “What is the difference between a Ponzi scheme and an investment bank?” His tacit reply is that the investment banks are playing by the rules whereas the Madoff scandal is playing outside the system. Once I started the first hundred pages of “House of Cards”, I realized where Jon Stewart drew the chronology of the material when he fired at Jim Cramer and CNBC for their faulty reporting on the financial institutions earlier. Of course, Stewart highly recommended this book on his show. It will be interesting to review Cohan’s book in detail here.
In a short summary, Cohan’s book account the incredible panic that happened during the first phases of the financial meltdown in Wall Street. The whole book is basically broken into three parts. The first part of the book reveals the ten days before the investment bank JP Morgan Chase offered to acquire Bear Stearns at a price of $236 million, or $2 per share on March 17, 2008 with pressure coming from US government (US Treasury) and Federal bank who have to step in to bail out the bank from the subprime mortgage crisis that eventually led to the global financial crisis beginning from the eventual collapse of Lehman Brothers.
After a detailed account of the ten days in March that led to the beginning of the end for Bear Stearns, the book shifted gear to a historical mode and talked about the history of the firm back from the beginning when the firm was founded as an equity trading house in 1923 by Joseph Bear, Robert Stearns, and Harold Mayer with US$500K in capital. Tracing the chronology of Bear Stearns, we are offered details on the three key players who dominated the company over the past 85 years: Cy Lewis, Alan “Ace” Greenberg and Jimmy Cayne. In each of the three personalities, the rise of power for subsequent leader of the firm is characterized by strong tension and conflict within the firm. Thru a historical review of the firm, the author attributed corporate infighting and the reckless of the bankers within Bear Stearns as possible causes of its downfall. For example, he elaborated the crucial role of competitive bridge that matters in how each of the key players have recruited talent into the organization. The last part of the book reveals the eventual downfall of the firm and how the cascading series of events led to the eventual bankruptcy of Lehman Brothers and the global financial crisis in 2008.
Of course, in the end, the investors in Bear Stearns re-negotiated and got back US$10 per share as compared to the US$2 per share imposed by the US Treasury (because of the moral hazard argument). It is a book which reflects the greed of Wall Street on the whole. Of course, it’s an interesting book to understand why we can have the “smartest talents” in Wall Street and they can still fumble due to greed, recklessness and ego. I highly recommend this book to anyone for a good understanding of the mortgage crisis that led to the financial meltdown last Sep 2008.
P/S: Check out the interview of William Cohan with Jon Stewart in the Daily Show.
|The Daily Show With Jon Stewart||M – Th 11p / 10c|