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

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?

Moral 

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!

The Fabulous 00s: Chess Whiz turned Financial Guru Faces Car Tsuris

“NEW YORK (CNNMoney.com) — Chrysler Corp., the troubled automaker bought by private equity just four months ago, is scrambling to sell assets amid indications of huge losses, as access to cash becomes increasingly scarce, according to a published report Friday.

“Someone asked me, ‘Are we bankrupt?'” the Wall Street Journal quoted Chrysler boss Robert Nardelli telling employees at a meeting earlier this month. “Technically, no. Operationally, yes. The only thing that keeps us from going into bankruptcy is the $10 billion investors entrusted us with.”

To raise money, Chrysler is looking to sell over $1 billion in land, old factories, and other holdings, even if it has to let those properties go for under book value, the Journal said.

In an interview with the Journal, Nardelli confirmed the comments and declined to give a financial forecast for 2008, saying only that Chrysler “will make a pretty significant improvement” over the $1.6 billion the company is set to lose this year. The Journal said Nardelli originally hoped to turn a profit in 2008.

The rush to raise capital comes amid constricting access to money as more banks and other lenders face heavy losses related to subprime mortgages.

Chrysler’s owner, Cerberus Capital Management, is now facing serious subprime-related losses from GMAC Financial Services, which it bought from General Motors (GM, Fortune 500) for $12 billion, and is also trying to walk away from a now pricey deal to buy United Rentals Inc., (URI) the Journal said.

Cerberus bought Chrysler from German automaker Daimler in a deal that closed in August.

In the arrangement, Daimler (DAI) essentially paid Cerberus to take the automaker, which fell to No. 4 in U.S. sales behind Toyota Motor (TM) in 2006, in an effort to get out from under a $1.5 billion loss from last year, along with continued obligations to union members and retirees. ”

  

How does this relate to chess?  Master and fellow Princeton Alumnus and bazillionaire Stephen Feinberg (I wrote about him previously in conjunction with bridge-player Warren Spector’s spectacular Bear Stearns flame-out) is the puppetmaster of Cerberus.  When his company bought Chrysler and appointed Nardelli (who failed horribly at Home Depot) the Wall Street community questioned these twin moves as evidence of Cerberus’s (temporary?) insanity.  Perhaps it wasn’t Feinberg who orchestrated this deal – if so, subordinates’ heads are going to roll.  If he did, it warrants a “??” in chess terms.    Let’s review the recent ‘strategy’ – Cerberus seems to be eating its own multiple heads.

Synopsis of Cerberus’s Recent Blunders in Chess Terms

Cerberus maneuver	Consequence	In chess terms, this is…
Buying Chrysler	Chrysler Operationally Bankrupt	Hanging queen
Appointing Nardelli of Home Depot disaster fame to run Chrysler	Nardelli runs Chrysler into bankruptcy	Overlooking bank rank mate
Acquiring GMAC	GMAC hit by subprime defaults	Moving queen to where the queen and king can be forked by a knight

Chess, Bridge, Wall Street, and Huge Amounts of Money

I chanced upon this New York Times article today.  Turns out a top Bear Stearns executive, Warren Spector, was ousted due to the subprime mortgage mess and the collapse of two major Bear Stearns hedge funds.  That name was familiar to me.  When… where…?  Suddenly I remembered.

The year was 1979 and I was playing in an intramural bridge tournament.  One of my opponents was the very same Warren Spector, a former “King of Bridge” (a high school player with the most yearly “Master Points”.)   At this point we were both classmates at Princeton, but as I read in some other Internet bio article, he recently donated so much money to St John College (Annapolis MD) they built a dorm in his name.  He must have transferred there, since he graduated in 1981.

I am “declarer” in the hand and I start running my trumps in desperation.  Spector makes what seems to me to be a terrible discard, letting me take the rest of the tricks when he threw away an honor card.  He mutters, “You just executed a guard squeeze and didn’t even know it!”  He gave the impression of haughty imperiousness. But he was right.  I didn’t know a guard squeeze (a complicated bridge ‘endgame’ maneuver) from shinola; I was just running my trumps and from my perspective, he had made an elementary blunder. This is a typical injustice of strategic games; it happens in chess too. An opponent stumbles into a resource that draws or wins for him, having seen nothing.

Returning to the impression of imperiousness, that’s what they said in the Bear Stearns ouster article too!  “Mr. Spector is a cool, aloof man who has the casual confidence of one who achieved significant professional success at a young age.”   They say also, “[he is] a smooth and at times imperious man with a wide-ranging intellect.”  A leopard does not change his spots, but he acquires plenty of them!  Witness this mind-boggling Spector compensation report from the Forbes bio sheet:

Cash Compensation (FY November 2006) Salary $250,000 Bonus $16,194,430 Latest FY other long-term comp. $18,847,625 Total CASH $35,292,055 Stock Options (FY November 2006) Number of options Market value unexercised 510,607 $46,257,839 unexercisable 247,372 $9,892,364 Total OPTIONS 757,979 $56,150,203

Not a bad combined compensation package for this imperious card player.  There was a strange (or maybe not so strange, a good example of narrow-focused nepotism?) bridge link amongst all the top Bear Stearns executives:  “Ace” Greenberg, the CEO Jimmy Cayne, and Spector are all very good players.  An analogy in a game more familiar to us would be GM Patrick Wolff working for Clarium Capital, an investment fund captained by a chess player, Peter Thiel, the famous founder of PayPal.  Another one is the famous surge by Bankers Trust into chess in the early 1990s that hired Norman Weinstein and Max Dlugy as traders. Let’s hope the chess connection trumps (get it?  hahaha) the “deck of cards” which might “topple” at any time. Abusing a tired metaphor!

Conclusion?   There might be more lucrative things to do than chess or bridge.  Still doubting?  Ask Stephen Feinberg, another classmate at Princeton!  If memory serves, he was either a high expert or low master at his USCF peak. His investment fund Cerberus is always in the news, gobbling up companies left and right. 

MG Addendum 6/29/08:  Currently Cerberus LLC is running Chrysler (a car company) into the ground.  Poor Chrysler is not long for this world.

In a weird coincidence, both he and I worked at some point for the toppled titan Drexel Burnham Lambert (felled by the misdeeds of junk bond king Michael Milkin).  Stephen’s compensation is not public but estimated to be at least $50M/year.   Do you think Feinberg and perhaps the newly “disgraced” Spector might be convinced to run a chess tournament?  The “intensely private” Feinberg might cough up a few bucks (as might Spector) if we name it after them. Note: there’s something to be said for running PRIVATE companies. No embarrassing inspection of one’s net worth on public web pages.

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So we reach the Caissic Crisis: who will approach this titanic duo to organize the first $10 million Open prize fund tournament? All the spokesperson needs to do beforehand is think of how it benefits the interests of Spector and Feinberg. There has to be an angle! Maybe play the Princeton card.  Or we could play the Harley card. Both Stephen and I enjoy riding Fat Boys, Sportsters, Dyna Glides, what have you.