House of Cards

I have just finished reading the House of Cards by William Cohen. This book is mostly the story of Bear Stearns. The subtitle title is apt: A Tale of Hubris and Wretched Excess on Wall Street

Bear Stearns collapse during the financial crisis and was sold to JP Morgan by a Leveraged Buyout King called Timothy Geithner and a Junk Bond Dealer called Ben Benanke. The story of this collapse is really revealing.

Throughout its history, Bear Stearns was controlled by very powerful CEOs. In each case the CEO was extremely clever, very hard working and highly successful. The problem was that there success led to extreme arrogance.

The CEO of Bear Stearns could not be challenged by anyone close to him. The same applied to most department heads. Most were also clever, hard working, successful, and arrogant. They could not be challenged by those outside their fiefdoms.

Jimmy Cayne, the last dominant CEO, often did not understand what some of his department heads were doing. The result was that the people creating, selling and buying financial instruments based on subprime mortgages were unsupervised. This was a recipe for disaster.

I am currently reading a history of Goldman Sachs. I am only part way through, but during the seventies and eighties, when the firm grew very rapidly, there was a totally different culture, with much greater emphasis on team work. For much of this period, the firm was lead by two co-presidents working as a team called the "Two Johns".

John Weinberg (the son of Sidney Weinberg), and John C. Whitehead held the roles of co-senior partners from 1976 until 1984. Robert Rubin and Stephen Friedman were the Co-Senior Partners for most of the 1990s. I will have to read further to see if this team culture continued up to the present.