By William D. Cohan
On March five, 2008, at 10:15 A.M., a hedge fund supervisor in Florida wrote a submit on his making an investment suggestion site that incorporated a startling assertion approximately undergo Stearns & Co., the nation’s fifth-largest funding financial institution: “In my ebook, they're insolvent.”
This appeared a daring and dicy assertion. endure Stearns used to be approximately to announce earnings of $115 million for the 1st zone of 2008, had $17.3 billion in funds available, and, because the corporation continuously boasted, have been a colossally ecocnomic firm within the eighty-five years on the grounds that its founding.
Ten days later, undergo Stearns now not existed, and the calamitous monetary meltdown of 2008 had begun.
How this occurred – and why – is the topic of William D. Cohan’s really good and stunning narrative that chronicles the autumn of endure Stearns and the top of the second one Gilded Age on Wall highway. undergo Stearns serves because the Rosetta Stone to give an explanation for how a mixture of dicy bets, company political infighting, lax executive laws and actually undesirable decision-making wrought havoc at the global monetary system.
Cohan’s minute-by-minute account of these ten days in March makes for breathless analyzing, because the bankers at undergo Stearns struggled to include the cascading sequence of occasions that will doom the enterprise, and as Treasury Secretary Henry Paulson, big apple Federal Reserve financial institution President Tim Geithner, and Fed Chairman Ben Bernanke started to observe the dire results for the area economic system may still the corporate cross bankrupt.
But apartment OF playing cards does greater than recount the tremendous panic of the 1st phases of the monetary meltdown. William D. Cohan fantastically demonstrates why the possible invincible Wall road funds laptop got here crashing down. He chronicles the swashbuckling company tradition of endure Stearns, the unusually an important function aggressive bridge performed within the company’s fortunes, the brutal internecine battles for strength, and the lethal blend of greed and inattention that is helping to give an explanation for why the company’s leaders neglected the chance lurking in Bear’s large positions in mortgage-backed securities.
The writer deftly portrays larger-than-life personalities like Ace Greenberg, endure Stearns’ miserly, take-no-prisoners chairman whose memos approximately re-using paper clips have been mythical all through Wall road; his profane, colourful rival and eventual inheritor Jimmy Cayne, whose world-champion-level bridge talents have been a lever in his company upward push and have become an emblem of the explanations for the firm’s dying; and Jamie Dimon, the blunt-talking CEO of JPMorgan Chase, who received the spectacular endgame of the saga (the undergo Stearns headquarters by myself have been worthy greater than JP Morgan paid for the complete company).
Cohan’s clarification of likely arcane matters like credits default swaps and stuck- source of revenue securities is masterful and crystal transparent, however it is the high-end dish and robust narrative force that makes apartment OF playing cards an impossible to resist learn on a par with classics equivalent to LIAR’S POKER and BARBARIANS on the GATE.
Written with the novelistic verve and insider wisdom that made THE final TYCOONS a bestseller and a prize-winner, apartment OF playing cards is a chilling cautionary story approximately greed, vanity, and stupidity within the monetary international, and the results for we all.
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Extra resources for House of Cards: A Tale of Hubris and Wretched Excess on Wall Street
Result? Margin call. The worst part is that the company went to sell some bonds to settle the margin calls but couldn't. ” That Thornburg, based in Sante Fe, New Mexico, appeared to be hitting the wall was somewhat surprising considering its customers' low default rate and high credit quality. The problem at Thornburg was not that its customers could no longer pay the interest and principal on their mortgages; the problem was that the company could no longer fund its business on a day-to-day basis.
Theoretically, you weren't even supposed to talk about balance sheet or liquidity or risk or anything else until the earnings call. You'd have lenders and customers wanting to know what's going on and you'd go, ‘It's okay. ' I got in the mode [where] I would say to them, ‘Listen, we're in a blackout period. I can't talk about earnings, but let me preface this by saying we're trying to move up the date at which we announce earnings. ' That was the best I could do. So we danced. We all did it differently, but there were a bunch of us doing it.
Even Fed action this morning could [not] stop this pig from dying,” he wrote. A few minutes later, another observer agreed. “Bear is ready to rip,” he wrote, “just watch. Yeah, just wait till March 20 earnings announcement day. Only it should be called losses announcement day. It will rip all right. —rest in peace. Bear has no business happening these days. ” That same Friday night, a “major bank” denied the firm's request to provide $2 billion in short-term financing. “Being denied such a loan is the Wall Street equivalent of having your buddy refuse to front you $5 the day before payday,” Fortune's Boyd wrote later.