Wednesday, May 13, 2009

Tuesday Night on the Lower East Side: William D. Cohan & "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street" at Bluestockings

We've had two days off - well, except for grading and answering students' questions by email - as this semester's final final exams are coming up. The last two mornings we were sightseeing by bus around Brooklyn, taking the B61, B71, B49 and B41 through the borough after lingering over iced tea outside in front of the Starbucks on Montague Street and in the garden behind the Starbucks in Park Slope. We also were taking care of our eyes at Eyes on the Slope and our feet at Lorimer Foot Care so we can continue sightseeing during nice-weather days like the last two.

Tonight we took the L train two stops to First Avenue and then the M14A bus to Houston Street and walked two blocks to Allen and Stanton to one of our favorite Manhattan bookstores, the fabulous Bluestockings. We were lucky enough to hear a fascinating talk by William D. Cohan, author of House of Cards: A Tale of Hubris and Wretched Excess on Wall Street. The Q&A period afterward was great, too.

Michiko Kakutani wrote in her New York Times review of the book:
Mr. Cohan, a former investment banker and the author of "The Last Tycoons," a 2007 book about Lazard Frères & Company, gives us in these pages a chilling, almost minute-by-minute account of the 10, vertigo-inducing days that one year ago revealed Bear Stearns to be a flimsy house of cards in a perfect storm.

He shows how quickly rumors about liquidity led to a run on the bank, and how fears that a bankruptcy of Bear Stearns could wreak fiscal havoc around the world led the Federal Reserve to approve a $30 billion credit line to help JPMorgan Chase acquire the ailing firm for a bargain-basement price. He does a deft job of explicating the underlying reasons that put Bear Stearns in peril in the first place: most notably the failure of two of its hedge funds, which were stuffed full with subprime mortgages, and the shocking irresponsibility of many of its senior officers, who failed to exercise oversight over the firm’s investments or wisely diversify its revenue. And in a kind of epilogue he gives us a brief glimpse of the fall of Lehman Brothers several months later, an event regarded by many Wall Street observers as the trigger to the current financial crisis, and the Fed’s decision not to give it a bailout or to work out a Bear Sterns-like solution.

Like Michael Lewis’s “Liar’s Poker” and Bryan Burrough and John Helyar’s “Barbarians at the Gate,” this volume turns complex Wall Street maneuverings into high drama that is gripping — and almost immediately comprehensible — to the lay reader. While the broader outlines of the Bear Sterns story will be familiar to readers from articles in The Wall Street Journal, The New York Times and a lengthy piece by Mr. Burrough in “Vanity Fair,” Mr. Cohan writes with an insider’s knowledge of the workings of Wall Street, a reporter’s investigative instincts and a natural storyteller’s narrative command, and he fleshes out the timeline of the firm’s calamitous final week with myriad new details and recent interviews with some of the firm’s principals, including its flamboyant chairman and longtime chief executive, Jimmy Cayne, who often seemed more interested in playing golf and attending bridge tournaments than in tending to his company’s business.

There was a nice-sized crowd in the folding chairs tonight, although the very prosperous people with expensive hairstylings and lots of gold jewelry in the rows in front of us looked more Upper East Side than Lower. But it's exciting to see diversity among humans as well as among canines at Bluestockings, and we noted that they were generous when the can was passed around for the usual donations to keep great events like this one going. And they also bought books. Without rich people, Manhattan would be a poorer place.

Camilla, one of the Bluestockings collective members, began her introduction of William by saying he was so accomplished she had to write it down and then read from a paper that he was an award-winning investigative journalist in Raleigh who worked on Wall Street for seventeen years, including six years at Lazard Frères and more time as a managing director at JP Morgan Chase. We were most impressed that she called William "an adviser to Jon Stewart":
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Actually, William didn't write a word about Bernie Madoff in House of Cards, but as he told us, "who's gonna contradict Jon Stewart"?

Instead of giving his usual overview of the book's story about Bear Stearns and how we got into our current financial disaster, William tailored tonight's talk to Bluestockings' progressive, feminist audience. He spoke, with only occasional glances at one sheet of paper, about the role of women in the Wall Street debacle. He then said, "Women had no role in this," and then jokingly added, "All the men can leave now."

William said that during his 17-year tenure on Wall Street he marveled at the terrible way women were treated in a Darwinian, testosterone-driven culture where alpha males were overwhelmingly dominant. In his first book, The Last Tycoons, Chapter 14 is titled "It's a White Man's World." It reports on the imported French attitude of Lazard Frères partners from Andre Meyer to Michel David-Weill and Felix Rohatyn to extramarital liaisons and the constant propositioning and near-rape of the few women who worked there. An employee like Kate Bohner - ex-wife of Michael Lewis, current squeeze of married Google CEO Eric Schmidt - was "catnip" to them. William said Bohner admitted to having affairs with just about every male executive at Lazard except himself.

At Bear Stearns, the treatment of women was no better. Misogynistic CEO Jimmy Cayne apparently liked mid-afternoon assignations in his office with light-blocking shades and windows as much as he preferred playing bridge and golf to minding the company's disastrous hedge funds and other misadventures. Cayne apparently hated his mother and oldest daughter and stopped speaking to both. With over 14,000 employees, Bear Stearns had exactly zero women on its executive committee and only a handful of females had any real power at the firm.

Again and again, according to William, smart and capable women were forced out or demoted at the whims of the masters of their universe who didn't like any employee making Forbes' list of influential Wall Street women: Zoe Cruz at Morgan Stanley, Sallie Krawcheck at Citigroup, Erin Callan at Lehman Brothers. William said that women typically are saddled with the blame despite having little or no responsibility.

William brought up the case of the courageous and prescient Brooksley Born, who as head of the Commodity Futures Trading Commission (CFTC) in the late 1990s called for government regulation of derivatives, what Warren Buffett called "financial weapons of mass destruction." Born was ignored, scorned and ridiculed by Bob Rubin, Larry Summers and Alan Greenspan but if she had carried the day, the calamities of 2008 might have been avoided. As William pointed out, Born's final vindication came today when the federal government announced a years-overdue plan to regulate credit-default swaps and other derivatives that have caused such havoc.

If more women had been in charge in the financial world's corridors of power, is it possible the meltdown wouldn't have happened? William merely was raising the question, but he noted that JP Morgan Chase, one of the firms left fairly unscathed by the crisis, has the best record on hiring women, with 12 out of 56 senior management positions held by women like Ina Drew and Heidi Miller. (On the other hand, he said Goldman Sachs has also prospered in adversity, and it doesn't have a single female executive.)

William said it was great that we have three powerful, competent and smart women regulators right now:

Mary Schapiro, chair of the Securities and Exchange Commission, who as an SEC member under the hapless do-nothing Chris Cox, tried to get more effective enforcement of Wall Street;

Elizabeth Warren, Harvard law professor and expert on what bankruptcy does to American families, who's heading Troubled Assets Relief Program (TARP) oversight;

and Sheila Bair, chair of the Federal Deposit Insurance Committee (FDIC), one of the first government officials to recognize the problem of subprime loans and one of the few regulators from the Bush administration to come out of last fall's market crisis with an enhanced reputation.

The question-and-answer period lasted even longer than William's talk but was just as interesting. He talked more about the subject of House of Cards and the weird personalities at the top of Bear Stearns, the vain and foolish Ace Greenberg and the self-promoting, clueless, lazy Jimmy Cayne, who vigorously objected to William's saying Cayne "maneuevered" his way to the top.

Imitating Cayne's dese-and-dose outer-borough-gangster accent, William reported that Jimmy kept yelling, "What is dis maneuevered? I didn't maneuever!"

Finally William asked Cayne what word he should have used. The man CNBC named one of the "Worst American CEOs of All Time" immediately said:

"I would have preferred ascended."

Other questions involved William's own transformation from journalist to his years working on Wall Street (he immediately was making ten times the money he did as a reporter in Raleigh); his view of the culture he experienced at Lazard Frères and JP Morgan Chase (pretty acerbic: "The only good day of the year is the day you get your bonus"); and others that elicited articulate and interesting responses that shed light on how Wall Street, and the U.S., got into the current mess.

We asked William if, given all we know know, the Wall Street culture has really changed or whether the masters of the universe view the present time as a blip. He said most people in power in investment banking and finance want things to go back to the way they were, for the simple reason that they made tons of money then. That's why they're trying to get so hard to get out of TARP funding and the regulation that goes with them. As long as the corrupt compensation system continues, and the powers-that-be fund the campaigns of Congressional leaders and there's a revolving door between the highest levels of Wall Street and government, little may change once the crisis eases.

That was a depressing note, but we're looking forward to reading House of Cards and what the Los Angeles Times called its "day-by-day, conversation-by-conversation account of a financial debacle equivalent to the failure of Credit Anstalt, the Vienna bank whose default signaled the globalization of the Great Depression."

Our dad in Arizona said that when he first got the book from the library, he thought, "How am I going to read these many pages about Bear Stearns?" But he said, "I couldn't put it down. It may be the best book I've read this year." And he reads a lot of books.

We're grateful that a journalist and storyteller like William D. Cohan is both insider and outsider enough to give us an account of our current tragicomedy and we're grateful, as always, to Bluestockings for lots of food for thought. (Their free trade cafe has tasty stuff, too.)

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