Archive for the ‘Ken Rogoff’ Category

The Fabulous 00s: Never Let Chess or Bridge Bums Near Vast Amounts of Cash

March 14, 2008

Watch Out for Games Playing Bums with Twinkly Gazes and Large Piles of Cash Sitting Nearby

As reported 3/14/08, the massive brokerage firm Bear Stearns is facing liquidity problems (i.e. death) in its unfortunate sub-prime mortgage forays and has been bailed out by the Federal Reserve in an arrangement with JP Morgan to provide short-term financing.

Author’s postscript 3/18/08: Bear Stearns indeed failed and sold itself to JP Morgan for a paltry $2 per share. (PPS: the sordid tale is not over, JPM increased the bargain to $10/share to mask the thievery a little bit). Bridge bum Jimmy Cayne made out like a bandit, shelling out $25.8M for a private apartment (no mortgage necessary!) shortly before the death throes.  Chess players should be allowed to crash on one of his sofas (note the plural – multiple chess bums on multiple sofas) – to demonstrate chess and bridge kinship. Many thousands of shareholders and employees with Bear 401K’s were ruined faster than you can say “3 No Trump.” It’s time for torches and pitchforks! What was Cayne doing during the collapse? “As investment bank Bear Stearns collapsed, and was sold to JPMorgan Chase for a scant $240 million, its chairman James Cayne played bridge at a tournament last week in Detroit over two critical days, like Nero fiddling away as Rome burned. ” This is as unpalatable as a chess match to help a kid win a chess record. To continue with the mirth, ” … ‘I think this is a bridge to a permanent solution,’ Bear Stearns chief executive Alan Schwartz said during a conference call with investors following the announcement of emergency financing from JP Morgan Chase and the Federal Reserve. But it was a different kind of bridge that was on the mind of Jimmy Cayne, the chairman of Bear Stearns. As Bear shares plunged and Wall Street began to speculate that the bank may not exist as an independent entity by the weekend’s end, Cayne was in Detroit, playing in the North American Bridge Championship.” Bridge, get it? Hahahaha. Schwartz is also a very good bridge player, by the way (better go get your silver bullets to defeat these ghoulish gambling vampires). Great stuff. Can’t make this stuff up.
All of this started when the imperious bridge player Warren Spector blew up two major Bear Hedge Funds. What was Jimmy Cayne doing when Spector was imploding? Playing bridge and …. you’ll have to read about it yourself. Here’s a tidbit from the NY Times: “The [Wall Street] Journal article leads with an account of 10 days in July that Mr. Cayne spent at a bridge tournament in Nashville, Tenn., even as two of Bear’s hedge funds were staggering (fellow bridge bum Spector’s funds!! – author’s note) toward what would eventually become twin bankruptcy filings. He was “without a cellphone or an email device” during the trip, the Journal said.” Nice! Hope he won a prize (they award trophies and ego points, there is no cash as far as I know). So we have a bridge player melting down 2 major funds, and his bridge playing supervisor unreachable at a bridge tournament! Looks like a bad run of cards there!Well, Bear Stearns was headed up by a bridge guy, Alan “Ace” Greenberg, for many years so maybe was leading Bear to the discard pile all along: “When the Federal Reserve helped plan a bailout in 1998 of Long Term Capital Management, the hedge fund, Bear Stearns proudly refused to join the effort. Until recent weeks, Alan “Ace” Greenberg, Bear Stearns’s chairman for more than 20 years and a championship bridge player, still regaled its partners over lengthy lunches about gambling with the firm’s money in its wood-paneled dining room.” [a nice quote from the NY Times meriting a snicker.] Need another laugh from the NY Times? Here’s a report on Bear Stearns’ assessment of its mortgage-backed positions: “According to Bear Stearns’s annual report, $29 billion of them were valued using computer models “derived from” or “supported by” some kind of observable market data. The value of the remaining $17 billion is an estimate based on “internally developed models or methodologies utilizing significant inputs that are generally less readily observable.” This statement akin to a poker bluff hoping no investor will “call”! Side note: it’s strange that Spector, the guy who really flushed the toilet on Bear’s value, (Cayne’s right-hand man and Bear co-President at the time), is not mentioned in the NY Times birth-to-death history page. After all, the NY Times reports the blame game: “in the hallways at Bear, there were many to blame: James Dimon, chief executive at JPMorgan, whose stock rose 10 percent as the market cheered him for getting such a bargain; the Federal Reserve of New York for pushing hard for a deal; Warren J. Spector, the former co-president who was responsible for the two hedge funds that collapsed last summer; and finally Mr. Cayne and Mr. Schwartz (CFO), for not having brought additional capital into the firm last year. ” Author’s note: I worked as a consultant for JP Morgan for several years and it was a hoot. Go JP go! 2nd note: I worked at Drexel Burnham Lambert in the 1980s, another firm that blew up due to unethical and in that case, illegal “bets” on junk bonds and what have you. The Fed didn’t rescue “evil” Drexel (we were told to find new jobs several months in advance of the bankruptcy filing), but selling Bear @ $2/share is hardly a rescue to the lifer employees whose pensions were trashed. “An average Bear Stearns employee who had $200,000 in a retirement fund now has just $2,000.” Ouch.   

Spector Saves His Fortune

Here’s a postscript (3/27/08) guaranteed to get some groans from distraught shareholders: Spector’s sacking let him save his fortune by forcing him to vest options at more than $87/share (a million shares!).  Who hired this guy?


Never let a chess or bridge bum near vast amounts of cash, unless the person involved is purely beatific; i.e. GM Ken Rogoff and his leadership role at the World Bank. Here’s the thing: chess and bridge bums have the bad combination of extreme ego-involvement and extreme greed. This is the undoing of any venture that includes a lot of cash and a chess or bridge bum at the helm. We are also seeing this play out at Chrysler that is showing signs of demise (i.e. 2 weeks forced vacation for everyone (!)) – it is captained by a most certainly non-automotive LLC headed by NM Stephen Feinberg.Enjoy the Princeton connection. Spector (well, he only made it a few years before transferring; he did not get his undergrad degree there), the author, and Feinberg all attended that lofty institution. In addition, GM Rogoff at one point was the Charles and Marie Robertson Professor of International Affairs at Princeton University (the Woodrow Wilson School with its very nice fountain) but made the unfortunate early-life decision (maybe he was egged on by ill-informed well-wishers or relatives) to attend the rather downtrodden Yale University in the undesirable location of New Haven, Connecticut (I visited the frigid campus once, stayed on Lake St. a block or two from campus, heard sporadic gunfire, and was told it was normal – gratuitous irrelevant Hanken-style commentary). Another cool factoid: the current dean of the Woodrow Wilson School, Anne-Marie Slaughter, was my classmate. I observe she has changed her hairstyle since undergraduate days (gratuitous out of place Jerry Hanken-style physical comment). But I always laugh thinking of “Sgt. Slaughter from Slaughter!” Music radio promo. Does anyone remember the band Slaughter?

I admit the topic of extreme money and greed is depressing. Need an ‘upper’? Nick Conticello located the 1883-1997 Manhattan Chess Club Champions list!