James “Jimmy” Cayne
Jimmy Cayne’s route to the pinnacle of Wall Street power is in stark contrast to the one taken by so many today along the cookie-cutter pipeline of Ivy League graduates. Cayne never graduated college and got his start on Wall Street because he was such an outstanding bridge player. Regardless of how it started, Cayne found great success on Wall Street. He was named CEO of Bear Stearns in 1993 and Chairman of the Board in 2001. Prior to the financial crisis, Cayne was most known for his obstinate refusal to take part in the September 1998 bailout of the LTCM hedge fund. Just prior to a meeting of all the assembled power brokers of Wall Street, Cayne cautioned a member of the NY Fed, “Don’t go alphabetically if you want this thing to work.”
Not unlike Martin Sullivan (#44) at AIG, Cayne appeared to become increasingly disengaged with Bear Stearns throughout the early 2000s. Sullivan’s disengagement at AIG appeared to be a result of his personality as well as his inexperience with the increasingly complex trades AIG was taking part in. According to Ben Bernanke, Cayne’s absence from the office is more in line with what most people have come to expect from Wall Street financiers; Cayne was often away from the office playing golf or bridge. Cayne’s truancy notwithstanding, at the time of the financial crisis, Cayne’s stake in Bear Stearns was worth close to $1-billion.
The same iconoclastic spirt that Bear had exhibited when refusing to participate in the Wall Street bailout of LTCM fueled its trade in mortgages. Bear was among the biggest and most aggressive investors in mortgages and mortgage bond insurance. Bear was convinced there was little chance of the housing market suffering any sort of decline. As a result, Bear was equally convinced that any premium payment they received from a mortgage bond “insurance” policy was essentially “free money.” Some evidence of Bear’s zeal for mortgages is provided by the fact that as late as April 2007 – when the mortgage market was showing clear signs of distress - Bear Stearns attempted to purchase mortgage bond insurance positions of Morgan Stanley. A Morgan Stanley executive, Zoe Cruz (#15) refused to sell and this decision cost Morgan several billion dollars. Bear’s saving grace on this trade notwithstanding, Bear’s mortgage trades doomed the firm. In May 2008 Bear was absorbed into JP Morgan for a mere pittance.
See Jon Corzine (#13) for more information on the LTCM crisis and bailout. See Zoe Cruz (#15) for more information on the proposed April 2007 trade between Bear Stearns and Morgan Stanley. See Gary Gorton (#27) for more information on the trade in mortgage bond “insurance.” See Alan Greenspan (#29) for information on the disastrous actions of the Federal Reserve in the aftermath of LTCM’s collapse.