House of Cards (48 page)

Then there were the firm's spies, to which Greenberg had occasionally referred in his internal memoranda (such as the one from February 1987) and which Siconolfi now made public. He called them “ferrets,” and they had nicknames: the “snoop” was Ken Cowin, and the “hawk” was Kenneth Edlow. The “chief ferret,” Michael Winchell, was once a mortgage trader. His own children called him “the weasel” because of his responsibilities at Bear Stearns. Winchell said his team had to be “savvy” and “rely on instinct” to catch wrongdoing at the firm, or what appeared to be wrongdoing. “You can see risk on people's faces, you can see problems on people's faces,” Winchell said. “If there's a problem, my guys will find it nine times out of ten.” When Bill Montgoris, the firm's CFO, deposited a check from another partner into his bank account, Cowin asked for an explanation. (The man owed Montgoris some money.) The ferrets helped to catch Michael Sidoti, a Bear trader and eight-year veteran who had allegedly mismarked an option position to the tune of $200,000 and then tried to cover up the incident. “The definition of a good trader is a guy who takes losses,” Greenberg said. “The definition of an ex-trader is one who tries to cover up a loss.” In Sidoti's case, there was “no appeal, no nothing,” he said. “You're out. O-U-T.”

The bottom-line message of the article was that the firm just wanted to make money for itself, its senior executives, and its shareholders. Siconolfi summed up: “The way to rise within the firm is simple: Make money.” One of the best ways to do that, Greenberg and Cayne discovered over the years, was to be vigilant about costs. Stephen Cunningham, then co-head of international investment banking, remembered once when he flew back into Kennedy Airport from Mexico with Greenberg, Cunningham arranged with his secretary to get cars to pick them up. “My secretary ordered you a car,” Cunningham told Greenberg. “Why?” Greenberg replied. “Are the yellow cabs on strike?”

“W
E'RE
A
LL
G
OING TO A
P
ICNIC AND THE
T
ICKETS
A
RE $250
M
ILLION
E
ACH
”

s the economy began to recover dramatically toward the end of the first Clinton administration—and the amount of money Wall Street bankers, traders, and executives were making started to explode—Cayne's imprimatur on Bear Stearns slowly began to emerge. Unlike Greenberg, whose public persona of the gregarious showman was the antithesis of his ruthless, curt, and condescending private behavior, Cayne tended to be sharp-elbowed in both public and private, masked by a veneer of frat-boy camaraderie. Whereas Greenberg waited for Cy Lewis to die before taking over the firm, Cayne figured out all the political angles and pounced on Greenberg when he knew the odds were in his favor. Whereas Greenberg eschewed legal confrontations—for instance, against Jardine for backing out of the 1987 tender offer—Cayne preferred to make sure that legal threats were always a serious option if a deal or situation soured. He was not afraid of a macho confrontation. He observed that Greenberg was a bully—and he may well have been—but Cayne was every bit the bully, too. To be sure, both men were able to wrap their worst behavior in a pretty package when it suited them, but both were ruthless when the situation called for it. And when it came to public relations, Greenberg proved to be a world-class magician—right until the end the press never veered from the story line of him as the avuncular everyman. By contrast, Cayne's cold calculation that he could manipulate and browbeat reporters into seeing the world his way fell short repeatedly, especially when he failed to censor himself or thought his charm would be a sufficient palliative.

But by far the biggest difference between the two men that would slowly but surely determine the firm's future path was that Cayne had been first—and relatively briefly—a retail broker and then, for the vast majority of his career at Bear Stearns, a manager of its people. He enjoyed having the power to figure out who got promoted when and who got paid what. And he was good at it. Unlike Greenberg, who kept his seat on the trading desk and the one as head of the risk committee and to some
degree his finger on the pulse of the markets, Cayne had no more than an intuitive feel for the markets or for their growing complexity. For sure, he could decide when to buy or sell a stock, but when it came to understanding the calculus of and risks inherent in, say, a CDO-squared (that is, a collateralized debt obligation backed not by a pool of bonds and loans but by CDO tranches), well, that was a bridge too far. (In this, he was most certainly
not
alone among top Wall Street executives.) And, not surprisingly for a man who learned by listening and not by reading, he was no writer of notes of exhortation. In the Cayne regime, the quaint Greenberg memos slowly petered out. Instead, like Joe Torre in his Yankees heyday, Cayne preferred to believe he was managing a team of hand-picked superstars, and he expected them to perform. He also phased out Greenberg's practice of encouraging the “ferrets” to report the goings-on at the firm. Cayne was happy to have the information the ferrets provided but, according to one of them, “Jimmy would go and bring it up with the person, but I don't think you would necessarily be as protected as the way you would have been if you did it with Ace.” The consequences for Bear Stearns—both good and bad—of their different personalities and management styles would soon become apparent.

Aeschylus wrote long ago, “In war, truth is the first casualty,” and in July 1995, at Bear Stearns, John Sites became the first major casualty of the new Cayne regime, along with the truth. Sites, widely credited with building the firm's mortgage-backed securities trading unit into “a powerhouse” with a 20 percent market share on Wall Street, abruptly resigned after fifteen years to “spend more time with his family,” that famous euphemism. Sites had been paid $14.6 million in 1994 and around $8.5 million in 1995, reflecting a drop in the firm's earnings. Cayne, Greenberg, and Spector all publicly expressed their disappointment with Sites's decision. In truth, Sites left because Cayne had picked Spector to be sole head of the firm's powerful fixed-income division. “Warren is a very brilliant guy but very nervous,” said one of his former partners. “Bites his nails down to the quick.” In an impressive display of corporate unity, all sides stayed on the message that all this was really no big deal, including Sites. That he was leaving because of friction with Spector was “the furthest thing from the truth,” he said. “I resigned because I wanted to be with my family. It's that simple.” Sites said both Cayne and Greenberg were “shocked” at his resignation and asked him to reconsider. But he had made up his mind. Greenberg said that the notion of a power struggle was “absolutely untrue” and “to try to blow this up and make this into some kind of power struggle between Warren and John is totally ridiculous.” There
were other departures, too: Both Matthew Mancuso, who headed fixed-income sales, and R. Blaine Roberts, who was co-head of the structured transactions group, left in 1995.

T
HEN, IN
S
EPTEMBER
1995, another member of the firm's executive committee, Vincent “Vinny” J. Mattone, resigned unexpectedly to “pursue his own interests.” He had been at Bear Stearns since 1979 and was in charge of the firm's sales and trading business. (He and Sites were the two largest individual Bear Stearns shareholders after Cayne and Green-berg.) “He was a very big fellow,” said one of his former partners. “Both important and large. Both squared.” A couple of years before he resigned, Mattone, who sported a tremendous girth, a gold chain, and a pinky ring, had wanted to join a new start-up hedge fund, Long-Term Capital Management—LTCM for short—which was the brainchild of his former buddies at Salomon Brothers. John Meriwether, LTCM's founder and a famed Salomon bond trader, wanted Mattone to be the sixth partner of the fund, which was headquartered in Greenwich, Connecticut. As Cayne explained, Mattone came to him and said he had an opportunity to join Meriwether. “I said, ‘Vinny, are you nuts?’” Cayne remembered. ‘“You're on the executive committee here. You're making ten million bucks.’” (Actually, Cayne paid Mattone $9 million in 1993.) ‘“Are you crazy? You were a fucking clerk at Salomon. Now you're a member of the executive committee, co-head of fixed income. You're talking about making a bet. Nobody can make that bet.' He said to me, ‘Okay, you're right.’”

Two years later, Cayne pushed Mattone right out the door. In 1995, he was the eighth fixed-income executive to leave the firm after the firm's earnings fell 38 percent in 1995, to $241 million, due to declines in bond prices. “Jimmy called Vinny towards the end of the year one time at his house,” Paul Friedman said, “and told him he was taking his share way down, and Vinny complained, and Jimmy said, ‘What are you going to do? Quit?' And Vinny said, ‘I should.' And Jimmy said, ‘What are you going to do, quit?' And Vinny said, ‘I should.' And Jimmy went, ‘So I hear you're quitting, right?' And basically goaded him into quitting. By the end of the conversation, Vinny had quit. Of all the people who left, he's the only one who ever told me how it went down. The others, you just never knew. But Vinny described it. He said he had actually come home. He was angry. He'd had a couple of drinks. He allowed Jimmy to goad him into quitting. This is my version of Vinny's version. He's dead. I don't know if it's true or not. But that was Vinny's version of the story.”

A
WEEK AFTER
Cayne convinced Mattone to stay at Bear Stearns instead of joining LTCM, Mattone went to Cayne's office and told him that Meriwether wanted to see Cayne about the possibility of LTCM hiring Bear Stearns to raise the billions of dollars it wanted from investors and to clear trades for the hedge fund when it opened its doors. Cayne told Mattone that he would be happy to see Meriwether, whom he had never met, and that the firm would be happy to clear trades for LTCM. “To clear for Long-Term Capital would be the most prestigious assignment that a clearance firm could have,” Cayne said he told Meriwether, “so clearly I will do everything in my power to make that happen. He says, ‘Well, that's just one consideration. The other consideration is we want to raise some money.' I said, ‘Okay, number one, you want to go with best in class. From the standpoint of this guy [Mattone] being your account executive at Bear Stearns, watching Long-Term Capital's account here, he's the head of fixed income or a co-head. He will treat you with kid gloves. He'll make your life pleasant, and also we'll have the best structure, best platforms, best rates, you name it, because we know you. He thinks you're family, good enough for me. The other part, the fund-raising, we don't do that. John, you're going to make the final decision. Why wouldn't you go with Merrill Lynch, who doesn't give a shit about clearing? They'd love the idea of raising money for you. And they're good at it. They've got seven billion clients, and they'll drop a few Long-Term Capital things into somebody's account and nobody'll ever know. They'll raise a couple billion dollars for you. And that wouldn't be a Herculean effort for us; that would be a nonstarter for us. So, get the best of both possible worlds.' He said, ‘You got it.' Just as simple as that.”