Second of two parts. Read part one here.
Alan "Ace" Greenberg got tired of reading about how and why Bear Stearns failed so he put together his own memoirs of the firm.
Last week, in the first of a two-part interview, he said he wanted to set the record straight about the investment bank's fall and spoke of why bankruptcy was never an option for Bear. Also, he talked about how Wall Street has been permanently changed by the credit crisis.
This week, Greenberg offers his thoughts on Bear's former CEO James Cayne, the stock market and the euro.
When IDD met with Greenberg last month at his midtown offices, he looked back on his long career at Bear Stearns. "I started to work at 21 and worked for the same place basically for 60-some years. So I don't know anything about other places. I know when people came to work for us, they were amazed at our culture. And I know when people left us, they were amazed how different it was working someplace else. We really tried to make it a total, total meritocracy. If you are smart and able you get promoted and you make money. And that worked."
Greenberg these days is a vice chairman emeritus at JPMorgan Chase. He still manages accounts for customers, and an assistant called out prices every 15 minutes while Greenberg reminisced about his career on Wall Street.
The following is the second half of a two-part interview conducted with Greenberg, whose memoir "The Rise and Fall of Bear Stearns" was published by Simon & Schuster.
In his remembrances Greenberg writes that a decision not to help shore up Long Term Capital Management in 1998 was the right one for Bear and did not lead to its own downfall a decade later.
Bear Stearns was clearing trades with the hedge fund. For Bear, the risk "consisted of the overnight credit, hundreds of millions at a given moment, that we extended between the date of a trade and its settlement," its former chief executive writes.
Managers at Bear Stearns said the $500 million balance of Long Term Capital Management's unsettled trades was the sum of the firm's risk tolerance. Greenberg adds in his book that he and other top executives at Bear Stearns disagreed with the notion that the hedge fund's failure would roil the banking system — "this was a hypothesis that the Bear Stearns executive committee never bought into."
In his memoir, he also disagrees with media reports that Bear Stearns somehow brought about its own demise by not backing its trading partner. As Greenberg sees it, "the suggestion that 10 years later these same [Wall Street] firms had satisfied a grudge that had been festering through multiple management turnovers was utter nonsense."
IDD: You write about the importance in your business of being able to admit you are wrong. And in your collection of memos, you come out against arrogance. Do you think that in the past 15 years people forgot that?
Greenberg: At Bear Stearns?
IDD: Not just Bear Stearns, but Street-wide.
Greenberg: Street-wide, I don't know. I only worked at Bear Stearns. The answer at Bear Stearns — some people became very arrogant. They thought they were much smarter than they were and didn't conduct themselves like I would think they should.
IDD: Do you have any regrets of even bringing on Jimmy Cayne?
Greenberg: No. Look, he was very capable. He was a great politician. I had no idea that he was plotting to the extent that he says he was in [William Cohan's book] "House of Cards." I didn't read the book. I just read parts of it.
He was caucusing and plotting and threatening and claiming he had control of the board. It was all horses---. There are more lies in that f------ book than anything I have ever read in my life. That's one reason why I said I am going to write a book. At least I want to clear up something. Some of that stuff was just absurd.
He said in the book, I understand, that when it came time for bonuses, I called the key men in and threw their bonuses on the floor and made them get on the floor and pick up their bonuses.
Does that sound like me, really? Is that how you build a firm? A guy doing magic tricks, would he do that? Just ridiculous. This stuff that Jimmy made up just to embarrass me. Just try to hurt me.
IDD: I'm assuming you haven't talked to him since the days at Bear.
IDD: If you ran into him, what would you say to him?
Greenberg: I would not like to step in horses---. So why would I stand around him? He's a lying f---. Some of those lies in "House of Cards." Lies about my wife — how could he bring my wife in that? How could he do that? He's just a miserable, unhappy person.
IDD: Coming back to the financial markets, have we become complacent again in the past six to nine months?
Greenberg: I don't think there is wild-ass speculation. I think stocks are cheap. I think America is going in the right direction.
IDD: In terms of the economy?
Greenberg: Very much so. I think the Obama administration has been terrific. Just terrific.
IDD: Even though they have been pretty critical about Wall Street.
Greenberg: Well, they are trying to get elected. You know you can't do great things in this country if you are not elected. You can have the greatest ideas in the world. If you are not elected, you are not going to get much accomplished. So I understand politicians have to get elected.
IDD: Is there any segment of the financial markets that you think is undervalued or overvalued?
Greenberg: No. I just think a lot of stocks are cheap now.
IDD: Bank stocks?
Greenberg: Yup. I think the banks … they still have to flush out a lot of the crap that they own.
IDD: Commercial real estate?
Greenberg: Well, I'm not so sure that's going to be as bad as everybody thinks. Basically homes are still a drag on them. And credit cards. The banks are having a terrible time with credit cards.
IDD: What about the problems with the euro and what they mean for our markets, the equity markets?
Greenberg: Greatly overrated, in my opinion.
IDD: Greatly overrated in terms of its importance?
Greenberg: As a danger. They can have their problems over there. Greece is a tiny little country. Portugal is a tiny country. Portugal has got two things: sardines and cork. That's what they have got. Cork is being replaced by a synthetic now. So I feel sorry for them, but what can I do? Spain is a bigger problem, but there are always problems.
IDD: So you think it has been blown out of proportion?
Greenberg: Yes. I think once again the media and people on TV make a big thing out of this. People on TV, in the midst of the rally, said the trouble with this rally is there's not much volume. Is that a terrible thing? If they'd asked me, I would have said "Yes, it's a terrible thing if you are a discount broker." If you're not a discount broker, who the hell cares? Stocks are going up. If you want to sell, there's no problem. If you want to buy them … what's this no-volume business? Like that's important. Like you can't have a good rally without big volume. We had a pretty good rally without volume.
IDD: One could argue that with a lack of volume, prices are being pushed around more, because it's a thin market.
Greenberg: That's bulls---, OK? It wasn't that thin a market. Some stocks were trading a billion shares a day, like Citicorp. So there's plenty of activity. I don't know what they are talking about. I have no idea. But they have to talk about something, so they talk about it.
IDD: On that topic, do you blame the media for the run on Bear? A lot of that was driven by fear.
Greenberg: I don't want to accuse them of anything. They have to say something every day, and they have to make up stuff — you know, sound interesting. They have people on their program with different opinions, some of which don't know anything. But look, that's their business. They have to do what gets people's attention, so they watch the program.
IDD: Early in your book, you say you don't touch triple-A-rated paper, because that's the paper that's most likely to be downgraded or marked down.
Greenberg: No. That wasn't really clear. It was very difficult to make money with triple-A paper, because the spreads were so thin that it was like dealing in Treasuries. It's very hard to make money in Treasuries. Very easy to lose money, not to make. Any time there is a very tight market, it's hard to make money. And also, the markets didn't change that much, so it was too difficult to make money.
IDD: For a minute, I thought you were suspicious of the rating itself.
Greenberg: No. No, it wasn't the case at all.
IDD: What I found interesting in your book were some of the early instances of your work with bankrupt businesses. When you look at some of the bankruptcies over the past year, some of them have been actually pretty good bets for the creditors. Have you looked into any of those? Greenberg: No. The reason being I've learned to appreciate the value of owning marketable securities.
And these things aren't marketable. And if you put a client into them and he wants out and you say, "I can't sell them," you've got a terrible problem. So I deal only with securities that have very good markets, so if people want out, they can get out.
Now, people have made money in bankruptcy. Bear Stearns had a very active bankruptcy group that made money, but they could sit on things. They didn't have to worry about selling them. We didn't come in one day and say, "We need the money." They couldn't have sold them. But at some point, when the bonds become common stock, you can sell them.