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Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy by Aaron Task, Barry Ritholtz

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Chapter 15. The Fall of Bear Stearns

 

Buying a house is not the same as buying a house on fire.

 
 --Jamie Dimon, CEO of JPMorgan Chase, on his $2-per-share offer for Bear Stearns

When Bear Stearns fell apart, few suspected a cascading collapse across the entire financial firmament. Yet that is precisely what occurred as the house of cards built atop residential mortgages wavered, then crumbled.

The first signs of the mess to come burst into view in the early summer of 2007. That was when Bear Stearns reported heavy losses at two of its internal hedge funds. The announcement would prove to be the tip of the iceberg for the coming global financial crisis and the beginning of the end for the firm that had survived the Great Depression, two world wars, the 1987 crash, the Long-Term Capital Management implosion, and the 2000 dot-com tech wreck.

The culture at Bear was unique. The firm was heavily focused on fixed-income trading and institutional clients, as opposed to equity trading and retail clients. It was considerably smaller than rivals such as Merrill Lynch and Morgan Stanley. The firm had a history of hiring traders with street smarts, rather than the best pedigrees. This was a polite way to say Bear Stearns didn't hire only WASPs when that was the de rigueur on Wall Street. You could be Jewish with a degree from Brooklyn College, or (later) from India or Pakistan, but it didn't matter as long as your trading made money for the firm.

Bear was different from most other Wall Street firms ...

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