It’s hard to believe that a year ago this week, one of the largest investment banks in the world, Bear Stearns, imploded. Its finances were so stretched by investments in soured real estate that the federal government arranged an emergency loan to prop up the company before it forced Bear’s shotgun sale to megabank JP Morgan a couple of days later. The move to “save” Bear Stearns by forcing its management to first accept a paltry $2 a share offer (later raised to $10) was considered at the time the mother-of-all stories during the financial crisis.
As someone who lost close to $1 billion, Cayne, like so many others, went from being among the richest people in the world to just ordinarily rich (friends say he still has between $50 million and $100 million).
As we know today, Bear’s implosion was merely a blip on the radar screen, a prelude to a much larger, much scarier story that is still unfolding, and may take years to fully comprehend. And yet, Bear, and its top executives, like former CEO Jimmy Cayne, still provide a bit of comic relief when they take their breaks from spending time at the country club—or in Cayne’s case, between hands of his favorite obsession, playing bridge—to speak their minds.
Last week, I got a taste of what Cayne was thinking. He referred to me as a “snake” in a new book about the fall of Bear, and called one of my former colleagues at the Wall Street Journal something that rhymes with “ runt,” based on our coverage of the firm during its final, tumultuous months.
As someone who has known Cayne well for more than a decade, it was vintage Jimmy Cayne. While he was CEO at Bear, Cayne barely had a nice thing to say about anyone—including many of his own co-workers, like Bear President Warren Spector.
But Cayne could be particularly cruel when it came to his peers on Wall Street— everyone from former NYSE chairman Richard Grasso (“pigs always lose,” he once said of Grasso and his attempt to collect on a $140 million pay package, which he eventually held on to—oddly enough thanks to Cayne, who approved the package when he was an NYSE board member) to financier Ken Langone (whom he often referred to as a loudmouth) to former Goldman Sachs CEO and then-treasury secretary Hank Paulson, (in Cayne’s mind one of the most untrusting men on the planet) to one of the real gentlemen of Wall Street, Morgan Stanley CEO John Mack (who was simply “full of shit,” according to Jimmy).
So I reached out to Cayne again this week to hear from him personally if he actually made those remarks about me, because it certainly didn’t sound like the man I received an impromptu phone call from a few weeks earlier. Whether his call was early damage control—because he knew the book was coming out—or simply a chance to do what he liked to do when he was one of the most powerful men on Wall Street, I couldn’t say. Even more than managing Bear, understanding its trading positions and businesses, Cayne loved to schmooze. It should be noted that Cayne stopped talking to me in December 2007, when I broke a story that the board of Bear was beginning to look to have him replaced, signaling that the man who once controlled the firm with an iron fist was losing this control.
For Cayne it was the final straw. I had been hounding him for months—though I refused to report a Wall Street Journal story that he smoked pot (I never saw him high at work so it didn’t matter to me)—and I covered just about every problem the firm and Cayne was facing, from writedowns of losses and the federal inquiry into its imploded hedge funds to an “investigation” conducted by his country club into whether Cayne cheated on his golf scores. And while Cayne certainly complained to me over the years, he never cut me off, until then.
I have to admit I’ve always liked Jimmy Cayne. I’ve always found him informed, charming, and really funny—he reminded me recently of the time he and I were in the Four Seasons restaurant at a party for the GOP convention and he spotted Al Franken and told him that Bill O'Reilly crushed him when the two debated face-to-face. "Remember me saying to Franken, 'Hey you laid down. He made you look like an asshole.'”
But now, Jimmy Cayne just seems tragic. As someone who lost close to $1 billion (based on the decline in value in his Bear stock), Cayne, like so many others, went from being among the richest people in the world to just ordinarily rich (friends say he still has between $50 million and $100 million). Now he spends his days playing lots of bridge and, according to friends, getting nagged by his wife, or occasionally dining at San Pietro, the New York restaurant that’s one of Wall Street’s cafeterias.
“I’m in my country club in Florida, in the men’s locker room, there are five guys sitting around, and they’ve all been Madoffed. It’s insane.”
Cayne told me his health has improved—in 2007, I was the first to report on CNBC that Cayne had nearly died from a prostate infection. He admitted that he was shocked at first by the disaster at Bear, but he's now settled into being retired—and that he’s come to terms with what happened, I believe, because he now realizes that as bad as the fall of Bear was, there was still much worse to come.
So why did Cayne like me when he could be so brutal about everyone else? Some of it had to do with class; Cayne knew where I came from, the son of an iron worker, and himself being a college dropout who made it big, he resented the Ivy League-hierarchy of the press that pervaded much of Wall Street. He knew how the game was played: Bankers from Harvard or Yale leaking stories to reporters from Harvard or Yale. He saw me in the image of the typical Bear Stearns employee—hungry and aggressive. More than that, Cayne was pulling a page from one of his favorite movies, The Godfather Part Two, when Michael Corleone described his father’s management style: “Keep your friends close but your enemies closer.” In the end, Cayne knew I had a job to do, and that was to cover Wall Street, Bear included.
When he reached me, Cayne started off by saying calling me “Sir Charles,” the name he always referred to me when we spoke, and then remarked that it’s been “awhile.” (More than a year, in fact.) “Listen,” he said, “I was driving my car in Florida playing this channel called CNBC, and I hear you say something nice about me. No one ever says anything nice about me anymore.”
The “nice” thing I said was that Cayne had gone down with the ship, meaning that for all the scorn that was placed on him for failing to heed the warning signs impacting the securities business and selling Bear out at a higher price much earlier, Cayne didn’t sell his stock, he took his losses and the much-deserved blame. I thought that showed character.
He went on and talked about what happened since Bear went under—the implosion of Lehman, the rest of the street—and the economy falling into the abyss. “What do you do with money these days,” Cayne asked, “do you put it in gold?” He spoke about Bernard Madoff, who took white-collar criminality to a whole new level. “I’m in my country club in Florida, in the men’s locker room, there are five guys sitting around, and they’ve all been Madoffed. It’s insane.”
Then it hit me. What Cayne was saying was that taken in its full context, his transgressions weren’t all that bad—the gambling with shareholders' money by investing in high return high-risk mortgage assets wasn’t a Bear invention, it was convention throughout the Street. Every Wall Street CEO, to one degree or another, gambled and lost—that’s why there are no more firms. Major investment banks, including the mighty Goldman Sachs and Morgan Stanley, have been converted to more traditional banks, and humbled into accepting government bailout money.
And while Cayne may have been vilified by his colleagues, he was certainly no Madoff. In fact, Cayne looks a hell of a lot smarter than Vikram Pandit, the CEO of Citirgoup. When the credit crisis began, Citigroup turned Cayne down for a loan, but the company today has a stock price that last week briefly fell below $1, far lower than the $10 Cayne and company got for Bear.
“I never sold stock,” Cayne reminded me. “I believed in my own stuff.
I played it straight.”
I agreed, thanked him for the call, and said we should get together soon. He said we will in a few weeks. I’m sure we’ll have lots to discuss.
Charles Gasparino is CNBC's On-Air Editor and appears as a daily member of CNBC's ensemble. He is a columnist for the Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His forthcoming book about the financial crisis, The Sellout, is scheduled to be published later in 2009.