Street Fighters: The Last 72 Hours of Bear Stearns, the Toughest Firm on Wall Street

Two previous reviewers suggested you read House of Cards instead, and got slammed by negative comments and "unhelpful" ratings. I'll take my chances seconding that recommendation. House of Cards covers the history of Bear Stearns, gets most of the technical details and chronology right and (despite the inflammatory subtitle) is fair and balanced.

I do admit Street Fighters is a faster read. It cuts out all the boring history, and gets right to the three-day collapse. Characters are simple and financial details swept under the rug. Excitement is provided by constant overstatement. No one rests after working hard, they "drop from exhaustion," or, if they take an Ambien first, "lapse into a drug-induced" stupor. No one gets a telephone call at night, they are "jolted awake." Someone is "slammed," "electrified," or "devastated," nearly every page and almost as often we find it is the worst day of someone's life.

Okay, that's just style and if you like your writing lively, that's fine. It also helps if you like to hear about people washing their hair, taking showers, buying iPhones or playing on-line games. You'll find out who's a snappy dresser, who eats greasy food and especially what kind of houses different characters own. I don't care for that stuff, but I suppose it gives some people a feel for the situation.

My biggest gripe about the book is the author's treatment of disputed information. Time and again we get stories from anonymous or indirect sources in full-size print in the text, with an asterisk at the end to a fine-print notice that a named direct witness denies the story. An author is entitled to choose whom to believe, but presentation should be determined by normal standards of credibility. If you do read this book, pay careful attention to the asterisks and fine print, they make a big difference.

Moreover, in every single instance, the author goes for the more sensational and scandalous version. Eventually I lost my faith that she was exercising judgment, and decided she was trying to make the story as juicy as possible, regardless of the facts. This is corroborated by lots of barely relevant side stories, all of which involve some type of scandal (for example, Deryck Maughan, who is not involved in the story, snubbed Debbie Black, who is not involved in the story, at a Citigroup party in 1998, unrelated to the story; but it gets a full description because Debbie is married to Steve Black, who is an important participant).

My second-biggest gripe is she gets the basic facts wrong. Her description of repo, a key ingredient to the story, is wrong in a way that makes it irrelevant (which explains why she drops it from the story, I guess). She believes Bear had the option of a Chapter 11 restructuring, when broker dealers are allowed only Chapter 7 liquidations, another essential factor. She completely misses the crucial terms of JPMorgan's deal documents signed on Sunday night, which means she misses all the excitement of the subsequent several days.

My third-biggest gripe is the hour-by-hour format is a disaster for this story. There were too many streams of events to keep track of this way. Instead of breaking the story down into meaningful parts and then showing how and when they interacted, we get more or less random updates. This causes her to miss major parts of the story, and in some of the parts she does describe the essential context is either missing, or dozens of pages away. To makes things worse, at unpredictable times she goes into historical accounts. These are not set off in any way. So you read the events of 9 AM Saturday under that subheading, then 11 AM Saturday under that subheading, then within the 11 AM subheading you're suddenly back in 1978 for nine pages, with nothing to warn you, after which we go back to 11 AM Saturday, again with no subheading change. With all the abrupt switches of place required by the ticking-clock format, including unlabeled time switches destroys the coherence of the story.

I can see why this book would be fun for someone interested in a fast, scandalous read. But if you want to learn about what happened to Bear Stearns, I suggest you look elsewhere.

Kate Kelly originally wrote this story for the Wall Street Journal last May, detailing the events that lead up to the complete collapse of Bear Stearns during last year's mortgage meltdown. Here in //Street Fighters//, she expands the story, covering the 72 hours from Thursday, March 13, to Sunday, March 16, 2008. There are plenty of flashbacks of the previous year, explaining how Bear became over-leveraged in toxic mortgage assets and how they ended up "suddenly" with too little operating cash for business the next day and ended up being sold to JP Morgan for a rock-bottom $2.00 a share.

Kelly interviewed players in and out of Bear, coordinating stories to create a compelling narrative of hubris, greed, and a culture of doing whatever it took to make the deal; including the last-minute fire sale.

There are plenty of personality vignettes, from Alan Schwartz, Bear's CEO and Jimmy Cayne Bear's Chairman to Tim Geithner, the president of Federal Reserve Bank of New York and Warren Buffett. Her accusation of Cayne's preference for bridge or smoking pot (or both) rather than going to work at Bear may be either be the titillation to sell the book or State's Exhibit One for why the environment at Bear Sterns lead to its ignominious end.

It is a highly readable account, both of the failure of Bear Stern and the trading in Mortgage Backed Securities that lead to the entire market meltdown. In some ways, it is a disturbing story, with then-Treasury Secretary Hank Paulson insisting on the $2.00 a share buyout price to punish Bear for their recklessness and how many of the Bear traders and executives not only landed on their feet, but are still active in the trading community.

Bear may be gone, but their spirit still lives on.

As I began to read this account of "the last 72 hours of Bear Stearns, the toughest firm on Wall Street," so powerful are Kate Kelly's narrative and descriptive skills that it soon seemed as if I were seeing a film rather than reading a book. Colorful characters, fast-moving plot, vivid images, lively dialog, riveting conflicts and confrontations, increasing tension, and then....

The book's narrative begins at 5:30 P.M. on Thursday, March 13, 2008, and continues until 8:30 PM on Sunday, March 16, 2008, followed by an Epilogue in which Kelly reviews subsequent developments at other firms (e.g. Lehman, AIG, Merrill) and provides a follow-up on Bear Stearns' key leaders. From Thursday through Sunday, at a pace that astonished everyone involved, the once-proud firm of "street fighters...lean, scrappy, and hungry for profits," a firm that had "an underdog's spirit, and relished the chance to knock more well-heeled firms down a peg or two," saw its stock take a "breathtaking drop." It had sold for $172 in January of 2007, was selling for $57 on March 13, 2008, and continued to plunge so far and so fast ($30.00 on March 14) that when Bear received J.P. Morgan Chase's final offer, the stock was valued at $2.00.

How to explain Bear's decline and fall? Kelly offers several reasons. Here are four:

1. Dysfunctional leadership (e.g. its CFO, Sam Molinaro, was "hopelessly disorganized" amidst toxic infighting between and among the firm's leaders)

2. Decision-making that Jim Collins describes (in How the Mighty Fall) as "grasping for salvation" in Stage 4 of a five-stage process of organizational decline

3. Indifference to promising new diagnostics such as a risk-assessment matrix to pinpoint the firm's exposure to the markets that a Bear employee had taken years to develop

4. Senior managers' obsession with wealth accumulation, with a concern for the firm's welfare only to the extent that it enabled them to achieve that objective

Over time, it became obvious to Bear's leaders (including board members) that the firm would either have to accept the best offer (and whether or not there would be any remained in doubt throughout most of the frantic weekend) or file for bankruptcy. Meanwhile, negotiations continued with other firms (notably J.P. Morgan Chase, Goldman Sachs, and J.C. Flowers), with the Federal Reserve (Tim Geithner, Ben Bernanke, and Kevin Walsh), and the U.S. Treasury (Hank Paulson and Bob Steel). Advisors to Bear Stearns included Gary Parr (Lazard), Rodge Cohen (Sullivan & Cromwell LLP), and Dennis Block (Cadwalader, Wickersham & Taft LLP). Finally, the deal was made with J.P. Morgan Chase.

In her Epilogue, Kelly notes that "Bear failed because the credit crisis of 2008 killed every firm with a large mortgage business, too little diversification to offset the losses from bad loans, and the inability to be proactive. These factors ruined Lehman Brothers, and, directly or indirectly, almost sank Fannie, Freddie, AIG, and Merrill Lynch - until the government, private industry, or both stanched the bleeding." She goes on to suggest that, among the investment banks that once dominated the U.S. economy, Bear, the fifth largest, "was also uniquely vulnerable. The simple spirit that made Ace Greenberg the company's most celebrated figure - that of cutting losses early, saving money on paper clips and envelopes, and guarding religiously against outsized risk - had long since been replaced by a more cavalier outlook. Its chief proponent was Jimmy Cayne." It seems probable that the firm's subsequent decline can be traced back to Cayne's appointment as CEO but there were others who must share the blame, notably the firm's subsequent CEO, Alan Schwartz, who "was in denial about his company's travails and when capital-generating opportunities appeared in January and February, he "essentially dismissed them."

As Schwartz departed Bear's headquarters on Sunday evening, Parr caught up with him in the hallway and urged him to feel very good about what he had accomplished. "You've done a remarkable job in working this through." Schwartz shook his head, struggling to collect himself. "I feel terrible," he finally said.

The End

Ms. Kelly's book saw me most amusingly through an undisturbed day of jury duty (no, I was not impanelled). The chronicle of Bear Stearns' downfall is melodrama of the highest order and the author details almost to the hour the events of that fateful weekend in the spring of 2008. The cast of characters is colorful, and in the end, however bruised, they all seemed to have remained millionaires (alas, not the underlings). This text is absorbing in detailing the mechanics of how the company crumbled, particularly its final hours. I would have liked, even if as an appendix, deeper and more thorough business analysis of the road to failure, for example, how the two hedge fund bankruptcies in 2007 came about, how the toxic assets were packaged and sold. To make an analogy: we get the riveting story of the Titanic converging with an iceberg on a cold spring night in the north Atlantic and portraits of the colorful characters on board. I would like to know more about how the ship got there, why the ship sank. With this story about Bear Stearns one is left wanting to know more about the business issues and practices involved, not only at Bear Stearns, but elsewhere, e.g. Lehmann. In all fairness, Ms. Kelly has done a fabulous work of reportage in "Street Fighters" and one cannot fault her for not writing a different book from the one she had in mind. What she wrote is splendid. Given all that happened subsequently in the world at large, one cannot help but be "curioser." That book, a sort of Lords of Finance Lords of Finance: The Bankers Who Broke the World of the current crisis still needs to be written though now it is a bit premature. Then the true relevance of the Bear Stearns debacle and the way it was dealt with by all, including the government, can be adequately assessed. Such work is still a way off, I'm afraid.

This book is written like a long newspaper article.
It's like reading someone's journal or diary, .. or notes of a court reporter.
Basically, the book has 4 chapters; "Thursday, Friday, Saturday, Sunday, a.m., p.m., etc., " ... thus the title, "The last 72 hours of Bear Stearns".
The author is clearly a "journalist", NOT a novelist.
Sorry about this crappy review.
But this is kind of a crappy "book".
Nothing interesting to "learn" here.
The story is interpersed with little ditties like "1,110 calorie diet", "greasy chinese food", "playing bridge", "smoking weed", "eating dinner with wife and kids" ... just stupid insignificant stuff ...
An 1,100 calorie diet? I mean really!! Who cares!!
Perhaps, because 2 years have passed since the Bear Stearns collapse, the book just seemed boring to me.
At this point, I'm feeling maybe the 72 WEEKS prior to the collapse would've been more interesting reading than the last 72 hours.