The Bear Stearns man, the lifer, the one they would have put on the cover of their recruiting pamphlet if they had one—Bear Stearns wants you!—he’s a self-made man. Daddy didn’t put him through Harvard Business School, and if he did, you better keep that to yourself.
Ace Greenberg—the man who put Bear on the map and defined the archetype, Missouri-educated on a football scholarship, started as a clerk, kept his nose to the grindstone, became the CEO—Ace isn’t interested in your business degree. “I want them to have a PSD degree,” he said. “A poor, smart, and deep desire to be rich degree.”
So you went to Indiana, or Hamilton, or Emory, or Michigan, or Bucknell, or Brooklyn College—who gives a damn where you went? Just as long as you weren’t some Harvard B School bullshit artist with fancy shoes and cuff links. Put those alligator hogs daddy bought you in the closet.
“Bear looked for that, guys who were the top of their class at no name schools, like Indiana—there were like six guys from Indiana in my class,” a junior analyst on the investment side, who started there the summer of 2006, told me. And for these kids, a desk at 383 Madison was where life began. And, God willing, if you kept your head down and worked 110-hour weeks for a few years, at a measly $150,000, then your seat on the money train—we’re talking $400,000, $500,000 minimum—was pretty much a sure thing.
“For most of these guys, it’s like, ‘Now you’ve got a seat on the street,” said the 24-year-old, who has since moved on to another investment bank. “That’s a very rare thing. For a lot of guys it was like, ‘I got here and I’m not going to let it go.’”
So you’ve got the chair, probably a folding chair, a crummy chair for sure, a small desk, a computer and a decent wage. Bear gave you a shot, now you gotta take it. You want a pen, go buy one.
You’re a Bear man; you’re flying coach, riding in the cheapest car service money can buy. No paper clips! Ace Greenberg ain’t having that. Waste of money. We’re Bear Stearns, not one of those white-shoe investment banks. Daddy didn’t put you through HBS, and Bear isn’t going to pamper you with a leather chair. Daddy told you to pull yourself up by your boots straps, boy! Bear says the same. Look at Ace Greenberg. What a man! And, if you’re a real Bear man, you like those odds, you love them, you live for the fight. You’re not white shoe, you’re Florsheim. You’re Fight Club. No frills but plenty of thrills: Make a killing for Bear, and Bear will reward you, bonus time, watch your rosé-swillin’ pals at Goldman go limp.
On the floor, “It wasn’t a Bear, Bear, Bear mentality—it was all about the individual employees looking out for themselves,” said an analyst who worked on the trading side. “But it was all above board, no one was hiding it…It was a great deal for people who were doing well. The guys who were generating revenue got paid more than they would otherwise.”
Ace called it “the star system.” Look at Ace! Until recently, he was right there for everybody to see, had a desk in the middle of the trading floor. Every day at 3 p.m., he’d light up a big cigar right underneath the no-smoking sign. Some guys, the suck-ups, started lighting up, too.
The trading side was where the real stars were made, the ones pulling in 9 or 10 figures for the firm and 8 figures for themselves. But a Bear star was more likely to buy the biggest house in the neighborhood where he grew up in Jersey than some Park Avenue palace.
“The Bear mentality was defined by being not like the other banks,” said the analyst trader. “They prided themselves on being working-class men, the outsiders, the outlaws of the banking world.”
He said that Bear men didn’t hide their disdain for the other banks. Bear was the one investment bank on Wall Street to refuse to help rescue Long-Term Capital Management. Screw ’em!
“These weren’t fancy guys, they didn’t come from fancy places. They were sort of rough,” said an associate on the investment side. “There wasn’t a lot of pink around.”
In that crappy cafeteria on the second floor, you could spot the trading guys because they would eat in three minutes and storm out. You could also spot the ones that were just passing through.
“There was a block of us who were like, ‘I’m putting in my time and I’m moving on,’” said the junior associate, an Ivy Leaguer who’d hadn’t made the cut at Goldman. “The skills that you developed were second to none.”
He said his work on the investment side was grueling. The Bear credo was to work that much harder than the other banks, to wade that much deeper into the minutia of a merger or an acquisition, above all to beat the other bank, to beat the fucking swine white shoes.
In a lot of these big mergers, a company will bring in several banks to advise them.
“Anytime Bear was involved with another bank—we always had to go a level deeper, even though at the end of the day it does not matter, but the idea was to prove that we were better than the other bank,” said the junior investment analyst, who jumped ship just as the ship was sinking.
The young man said there were guys who were associates and managers who’d been there for years, who had no clients of their own; they were just expert number crunchers. At another bank, you could expect at the associate level to be given some opportunity to build a client base. But Bear, the smallest of the five banks on Wall Street, the outsiders, had to be better than everyone else. And they were! At least as a brokerage house. On the investment banking side, Bear men were rebels who delivered better than the rest, more thorough and cheaper.
Who put together the AOL Time Warner merger. They went with Bear, Alan Schwartz—you can bet he pulle
d in eight figures on that deal.
Being the best on the trading side was a little trickier. Bear didn’t have a lot of liquid, so to make the big bets that would feed the Bear, everything had to be leveraged to the gills. If your bet was right, your bonus would be lovely. In the climate of hedge funders making risky bets and priapic bonuses, the Bear culture—the cafeteria that got health-code violations—it was only natural that this man, the Bear man, would take things a step further. A smart hardworking rebel, but on shakier ground. Working harder wouldn’t cut it. This Bear man had to be scrappy in a different way. Trading is about risk. The new Bear beast had to risk more to be a star, to make big bets, bets his ass couldn’t cash. How do you do that? Get creative.
Enter Ralph Cioffi (pronounced Cho-fi). A Bear man through and through. Born in South Burlington, Vt. Running back at Rice Memorial High, St. Michael’s College in Colchester, studied business and bodybuilding, too. Flagged for star status under the aegis of his mentor, Warren Spector, he was put in charge of the structured credit sales and production unit.
Like everyone else, he was looking to take advantage of the housing boom, but do it better, riskier, more profitable—the new Bear man. So he creates a new type of collateralized debt obligation, CDOs, which are mortgage bonds that are sliced and diced into bundles with differing default risks. They’re called Klio Funding, and they were catnip to the $2 trillion mother lode of money-market accounts. And mortgage bonds have the highest ratings, so they could be leveraged up the wazoo. In some cases, banks like CitiGroup and Barclays were giving out loans of 20 bucks to 1. And why not, the housing market is booming, prices are going up. If a guy defaults on his loan, well, he or the bank can sell the house at a profit. The more mortgage bonds Bear buys, the more fees banks make, and the more likely they are to want to make more loans to make more fees.
A guy who worked with him said the thing about Mr. Cioffi, which is symptomatic of the Bear culture, is that he was promoted from a salesman position to a money manager position. “I have no idea why he was put in that position,” said the colleague. “He had no experience. He’d been very successful in sales. But those are two totally different jobs.
“So what does he do in this new position? He sells, sells, sells his fund on investors, and then leverages the investments, basically raising money very successfully.”
Other investment banks began to buy these bonds. Bear the scrappy pit bull had the white shoes tap-dancing to its tune. Man, that must have felt good.
Mr. Cioffi proposed that Bear create in-house hedge funds with a similr strategy. And so they did. He raised $1.6 billion for his two mortgage-bond-related hedge funds.
He bought that mansion in New Jersey and a place in Florida, too.
Then the ass fell out of the housing market. People couldn’t afford their mortgage payments, the ratings of the bonds went down. Investors tried to get out while they could, but the raging pit bull had a problem. The trick about mortgage bonds is that you have to be able to sell them, and when they’re leveraged 20 times over, the price can only fall so much before you lose money. So they lost everyone’s money. Everyone’s.
“He was probably a believer, drinking the Kool-Aid, and thought this was a minor blip,” said another former Bear associate who’d done his time and now works at a hedge fund.
No siree. Mr. Cioffi was no dummy. He had created the Kool-Aid. The Kool-Aid had made him a star. And once the mortgage market started to sour, he was stuck.
The new Bear man, embodied by Ralph Cioffi, has lost his way. He has all but forgotten the principles the firm was founded on; he’s has been infected and emasculated by the era of runaway greed and giant paydays that the growing bunch of brazen hedge funders and private-equity boys flash about. He is still steeped in that Bear culture: be the star, do it yourself, beat the other guys, make the big kill. But he has no right to be gambling, lest he lose his shareholders’ money and disparage the bank’s reputation.
In March 2007, Mr. Cioffi told a colleague, “I’m sick to my stomach over our performance in March.” And he wasn’t kidding. And because he was a Bear man, he felt more than a little sick. How sick? Bear sick.