House of Cards

by William D Cohan, Allen Lane, 300pp, £25, Week Bookshop £22.50 (incl. p&p). It is often said of this financial crisis that "the people running the banks had no idea of the risks they were taking", said David Smith in the Sunday Times. In the case of Bear Stearns, whose collapse last spring is recounted in this well told, "often gripping" narrative, the "incompetence was even more basic".

As the venerable Wall Street bank - massively over-leveraged and "awash with toxic assets" - began to founder, its chief executive, Alan Schwartz, was in Palm Beach attending a conference and playing golf, while its chairman, Jimmy Cayne, was in Detroit taking part in a bridge competition. When his decision was needed on whether to put Bear Stearns into bankruptcy, "it transpired that Cayne had left the conference call and had to be hauled back from the bridge table by his wife".

When the New York Federal Reserve stitched together a takeover by JP Morgan at a ruinous price of $10 per share (down from $170 a year before), Cayne was relaxed: "Because when you have a billion six and you lose a billion, you're not exactly like crippled, right?" At the time, the failure of the world’s fifth-largest investment bank was "earth-shaking", said John Gapper in the Financial Times. Now, over-shadowed by the fall of Lehman Brothers and the paralysis of the global banking system, it "feels like light comedy". But although the impact of the story may have been reduced, William D Cohan is a writer with "a gift for bringing to life eccentric Wall Street institutions", and he has produced "an amusing yet flabbergasting history". No one got the board of directors involved on the night it all unravelled, admits one senior executive - "because we didn’t have a board. We had this group of cronies and Jimmy."

"There are plenty of complex technical reasons for the crunch," said Ruth Sunderland in the Observer, "but if anyone is still in doubt that a prime cause was uninhibited, foul-mouthed, money-driven machismo, they should look no further than Cohan's portrayal of Cayne." Despite his absences at key moments of the crisis - taking $1,700 helicopter rides to play golf, for instance - Cayne dominates this devastating account.

He ran the bank like a private fiefdom, abusing and bullying everyone around him. When Timothy Geithner, then head of the New York Federal Reserve, announced he would offer a loan to support the JP Morgan fire-sale, Cayne’s reaction was to say: "This guy thinks he’s got a big dick. He’s got nothing, except maybe a boyfriend." Cohan has "laid bare the venality, greed, profanity and irresponsibility of the men who brought down Bear Stearns".

FIRST POSTED APRIL 3, 2009