STEVE INSKEEP, host:
So much has happened since the collapse of Bear Stearns that it's hard to believe it was only one year ago. The firm's near-bankruptcy and forced sale was the first of a series of disasters that seemed to bring the world financial system close to ruin. We know why this happened, in part because Bear Stearns was loaded with debts based on mortgages whose value was falling. We know why it mattered. Bear was connected to other financial firms around the world. But when you find out how it happened, how an 85-year-old firm grew and then collapsed, it's like hearing a brand new story.
The writer William Cohan tells that story in a new book called "House of Cards." He portrays key characters at Bear, including Jimmy Cayne, the firm's leader until shortly before its collapse.
Mr. WILLIAM COHAN (Writer, "House of Cards"): If you ever imagined a Wall Street character out of central casting, Jimmy Cayne is it. He's an affable, charming rogue. He grew up in Chicago. He told me he wanted to be a bookie. That was his ambition in life, and he has an extraordinary sense of odds and games of chance and he understands them incredibly well. He's one of the best bridge players in the world. And the idea, of course, is when you play bridge to know where the cards are on the table that can hurt you.
INSKEEP: So what role did bridge play in this young stock trader's career?
Mr. COHAN: Huge, huge role. I mean that's how he got to Bear Stearns, number one. That's how he was known among the Wall Street crowd, because it may be hard to imagine now, but in that day and age people would leave work and go play bridge on the Upper East Side of New York and…
INSKEEP: This was the 1960s, when he's a young man…
Mr. COHAN: Yeah, '60s, and '70s, and '80s. And Ace Greenberg hired him at Bear Stearns because Ace was a bridge aficionado, but not of the same level as Jimmy Cayne.
INSKEEP: So the top executive - or one of the top executives at Bear Stearns said I don't care about your stock trading skill, but you can sure play cards.
Mr. COHAN: Well, even more, Jimmy had no stock trading skill. He had never traded a share of stock in his life.
INSKEEP: You wrote that he became a great stockbroker, if you want to call him that, because he was able to reach out to rich men that he'd met across the bridge table.
Mr. COHAN: Yes, Larry Tisch among them, who was perhaps the biggest individual investor in the stock market at that time and the most prized client on Wall Street. And Jimmy Cayne got him because of bridge.
INSKEEP: Did Jimmy Cayne, this great bridge player and great stock trader, understand what was happening as the scale of business went from millions to billions, to tens of billions, to hundreds of billions of dollars?
Mr. COHAN: Well, he understood that he was getting paid 30, 40, 50 million dollars a year in his compensation. That he understood. He understood that he was the only CEO on Wall Street who was worth more than a billion dollars in the ownership of his own stock. So that he understood. But to your very important question of whether he understood the risks that his firm was taking, or how concentrated his business was in what became these risky securities, he tells me no. I mean I believe him, but I find it hard to believe that a board of directors would keep in a place a CEO, somebody who did not understand the risks that the firm was taking.
I think that Warren Spector, who was the co-president at the end before Jimmy fired him in August of 2007, who had built that business, I think understood those risks. But at the moment when things were falling apart, Jimmy fired him. Why? In part because they had grown to dislike each other immensely over the years, but also because they were both playing bridge at a tournament in Nashville, Tennessee as Bear Stearns' fortunes were taking a decline and Jimmy thought Warren should have been back in New York overseeing the problems.
INSKEEP: Jimmy didn't think that he himself should be back in New York.
Mr. COHAN: Oh, no, no, no, no, of course not, no. He played bridge three times a year at these tournaments and golf every Thursday, leaving the office by helicopter.
INSKEEP: Mr. Cohan, in addition to the risks of taking on these mortgage-backed securities and all the various permutations of that, I as a layman am stunned to learn a daily risk that a firm like Bear Stearns took. Every single morning. Explain the overnight lending and the scale of it that this firm had.
Mr. COHAN: Steve, this is the lynchpin to why these firms collapsed. What they did is they would use the very same securities that they had in their inventory, these mortgage-backed securities, as collateral for getting these overnight loans. And they didn't do this just in a little way, they did this in a huge way. Fifty, 60, $75 billion dollars a night…
INSKEEP: Wait, I have to repeat this. To make sure I understand it: People would come into Bear Stearns in the morning, call up whoever was lending money and say, can I borrow $75 billion today and I'll pay you back tomorrow…
Mr. COHAN: Correct.
INSKEEP: …and tomorrow I will need to borrow $75 billion more or I will go bankrupt?
Mr. COHAN: And by the way, they've been doing it for 20 years without any problems.
INSKEEP: But if any given morning you showed up and people didn't want to loan you $75 billion, the firm would be insolvent that same day?
Mr. COHAN: Kaput. And that's exactly what happened during the week a year ago. As questions began being raised about Bear Stearns' financial health, its efficacy as a company for the first time in 85 years, these overnight lenders said, you know, we're getting a little nervous about what you're using as our collateral, these mortgage-backed securities, you either need to put up more collateral or we're going to lend you less, and this sort of dialogue went on every day of that week until finally by the end of the week they were saying, not only we don't like your collateral, you know, we don't like the color of your hair, we don't like your eye color, we don't like anything about you. We're not even going to take your treasury securities and we're not going to lend you that money.
And then of course it was like a classic Jimmy Stewart-style run on the bank and everybody wanted their money at the same time. Well, when everybody wants their money at the same time, it's not a wonderful life.
INSKEEP: So when you sat down with Jimmy Cayne, and I suppose we should say that Cayne here symbolizes a management team that developed and shaped this company over decades, but when you sat down with Cayne, does he regret anything that he did?
Mr. COHAN: He's a man of few regrets and he's a man of strong opinions. So he was happy in part to blame others for what happened, but I also found from time to time in the many hours we spent together a rare bit of self-awareness about his own inadequacies and his own inability to understand how the firm was making money and to understand and appreciate the risks that the firm had taken on.
INSKEEP: Where's Jimmy Cayne now? What's he doing?
Mr. COHAN: He just got back from playing bridge for the last two or three weeks in Australia. He is retired. He is about to move into a large apartment at the old Plaza Hotel, which has become condominiums overlooking Central Park, that he paid $28 million for, as I think a sort of birthday present to himself in February of '08.
INSKEEP: William D. Cohan is author of "House of Cards." Thanks very much.
Mr. COHAN: Thanks for having me, Steve. It was a pleasure.
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