A few more seconds passed, and the news finally hit Bloomberg: “Bear Stearns Bailout Keeps Firm Afloat.”
Embattled firm will tap emergency funding from JPMorgan and N.Y. Fed in effort to fend off collapse.
“This is huge!” Franz yelled across the floor.
A few traders immediately bought stock off the headline, and put it up higher.
“Huge!” I agreed. “But what the fuck does it mean? And what did Bear have to give up in exchange for this?”
I stared hard at my glowing green screen.
The full press release was just now hitting the Bloomberg wire and other news services would soon pick it up:
Battered Wall Street brokerage Bear Stearns said Friday that it is receiving short-term emergency funding to prevent its collapse. JPMorgan Chase & Co. and the Federal Reserve Bank of New York said they would provide Bear Stearns funding for up to 28 days, with the Fed providing the money to JPMorgan through its discount window.
To help facilitate the deal, the Federal Reserve is taking the extraordinary step of providing as much as $30 billion in financing for Bear Stearns’s less-liquid assets, such as mortgage securities that the firm has been unable to sell, in what is believed to be the largest Fed advance on record to a single company. Fed officials wouldn’t describe the exact financing terms or assets involved. But if those assets decline in value, the Fed would bear any loss, not JP Morgan.
“What the hell is going on?” all of us seemed to say at once.
The last time the Fed had played capital-raise matchmaker had been back in 1998. Global markets had been melting down, and the object of the Fed’s affections, Long Term Capital Management, had been literally self-destructing. And that had been but a $3 billion salvage operation to “save the world.” This was $30 billion? Could things at Bear really be ten times as bad as they were at LTCM?
“Mike, any thoughts here?” Nu yelled across the floor as we all braced at our terminals like fighter pilots caught in a sudden hurricane. I didn’t have anything to add. Not yet. I was still trying to digest the press release. If they really were just backstopping Bear Stearns in the interest of beneficent capitalism—or just injecting some short-term confidence to stop the liquidity panic—then the stock should probably be bought. It was trading at $60, and it had been over $90 a share only two weeks ago.
But this still didn’t make sense. Why would the Fed and JPM be doing this? Did JPM have exposure to Bear’s toxic assets? Were they opportunistically positioning for a buyout? Everyone knew Jamie Dimon was a pretty shrewd guy. Perhaps this was even being forced upon Bear.
I only knew one thing for sure. If Bear was doomed to become a carcass—which I thought probably it was—then $60 wasn’t even remotely cheap. And any first year PR hack knows that you don’t put “collapse” in a financial news release unless you want to set off a thermite grenade in a movie theater with the doors glued shut. Something was definitely happening. There were simply way too many unanswered questions for the press release to be credited at face value.
The confusion running through my head was of no benefit to anyone else, but it did keep my hand frozen on top of the mouse and prevented me from buying or selling any shares. The answer to Nu’s question was “E” on the multiple choice grid: “Not Enough Information.”
“I don’t know,” I finally said. “We don’t know the full story. Watch the share price—it’ll tell you whether the market likes it or not, and whether it’s a good deal for Bear. Feels bearish to me.”
We watched. All of us.
The stock continued ticking up to $63 … and then, ever so slowly, like a wave cresting, began ticking off.
“Fuck!” Paul yelled, as he tried to sell the stock he had just bought moments earlier for a slim profit. “Nice goddamn execution. Order at $62.50 and they filled me deep in the hole.”
Filled in the hole. The clearest signal that there is supply and demand imbalance. The flip side holds true as well. If I were to put in a market order to buy when the stock was trading at $61.10, I’d rather be filled at $61.15 than $61.10. The higher fill tells me that I am competing with other buyers out there and the stock should head higher. Get filled at $61.05, and you know it’s going lower.
Once Bear ticked back through $60, it started peeling off dollars. $59, $58, $57, $56, it sounded like a New Year’s Eve countdown in Times Square. But instead of the ball dropping, it was a financial bomb aimed at global capitalism, the result of a decade of leverage, greed, and extremely bad policy decisions by our so-called leaders in Washington.
The war at $55 per share was ferocious. This was the proverbial line in the sand because it was the price at which the stock had closed the day before. Traders often refer to such a price as the “Armageddon Level.”
If the stock went negative again today, after absorbing this news and after having been down almost 30 percent for the week, it meant that Bear was in much bigger trouble than anyone imagined, and half the Street would have a foot in the aisle, ready to hit eject.
“God, I hope Raj is flat Bear,” I said to myself.
A few weeks earlier, Zvi had talked Raj into taking a position based upon the likelihood of an imminent takeover. If Raj was still long, Zvi’s head would soon have an apple in its mouth, and our biggest ticket to investment Easy Street might well be lost. Raj had recently agreed to provide us investment capital, and being backed by a billionaire was bliss. But now we faced the reality that Raj would surely renege on his commitment if Zvi continued to lose Raj money. My only hope was that Raj had been smart enough to treat Zvi’s “get long Bear Stearns now” whisper wink with the appropriate amount of skepticism, or that if Raj had bought it, that he’d punched the eject button long before today’s news.
When the stock finally knifed through to $55, I looked up and noticed that the Spooz (S&P futures contracts) were still up fifteen points from their open, an obvious mispricing considering the catalyst for the entire bounce was the purportedly good news for Bear Stearns. I stared into my screen like a deer caught in the headlights. Even though my gut told me it was a bigtime short, I was terrified that some other news would come out and propel it higher.
Buying puts was the obvious route, but they were now too damn expensive. The volatility in Bear and the market in general had jacked option premiums. I had little doubt that the market was going lower, and so I shorted about $3 million of SPYs (the stock equivalent of the Spooz).
“Shorting SPYS!” I yelled to the room. “Gonna trade them off Bear Stearns. As long as Bear keeps going down, I’m staying short! Cover and flip long if Bear goes green.”
Now that I had let everyone know my game plan, they were on their own.
“Look at the puts!” Eric shrieked. Murmurs of “Jesus,” “Holy shit,” and the more secular “Oh, fuck” filled the room. Someone had backed up the proverbial truck and was buying a ton of the March $40 puts! And the $30s?
“WHAT SICK FUCK IS BUYING THE MARCH $10s?” someone cried at the top of his lungs.
With the stock trading in the low $50s, traders were purchasing the $30 puts, the $20 puts, and now the $10 puts hand over fist. Never in Bear’s 100-year history had the stock moved even 1/10 as much as traders were now predicting it would move in the next few days.
Were these buyers hedging hemorrhaging long positions in the stock or buying relatively cheap insurance against a Black Swan? Or did someone know something? There. There the darkest possibility. A flashback to President Nixon, but the question now for traders and later for regulators: “What did these Bear Stearns put buyers know, and when did they know?”
Bear continued to tumble as the afternoon passed and the market finally, blessedly closed for the day. We understood, however, that this was not the end. This was a short, temporary armistice in what was going to be a war for Bear’s future, and maybe the future of the Street itself.
“No, No, NO!” she screamed, each shriek successively louder and more desperate than the last. Most husbands would hav
e jumped at these escalating cries. I just shook my head because I knew exactly what was coming. I could hear the calm, sedated voice of a National Geographic narrator, The female primate shows her frustration by yelling and banging on the butcher block in a show of force. These weren’t cries for help, just exasperation.
“April fucked this up! How could she? There’s only one tray! Where’s my second tray of mini-cheesecakes?”
I tried to ignore my wife and focus on my more immediate problem.
“Where the hell did I put that diaper bag?” I asked myself, as I tore apart our mudroom looking for the navy blue and white canvas bag. The only bag I could find was a Lily Pulitzer bag, hot pink with green trim and green and white polka dot handles. There was not a chance in hell I was carrying that thing, especially since my wife had just informed me, ten minutes before our scheduled departure, that due to a “work emergency,” she didn’t think she could come with us to Sylvie’s friend Patrick’s fourth birthday party.
A sign I once saw above a school administrator’s desk flashed through my head: “Poor planning on your part DOES NOT constitute an emergency on my part.” I kept that one to myself. My vodka-centric diet hadn’t yet totally destroyed my self-preservation instinct.
It wasn’t the fact that I was flying solo that annoyed me. That was the ordinary course of business. Lisa worked most weekends, so I usually had the kids all to myself. It was the timing, and the fact that she had already raised Sylvie’s expectations that she’d be joining us. Had I known that an entire tray of mini-cheesecakes would vanish into thin air, I would have politely requested that she check “No Thanks” on that RSVP box.
While things were hectic at home, they were even crazier at work. I was encountering Class 5 rapids, trying to navigate the nastiest financial crisis in anyone’s lifetime in a kayak. Or maybe a secondhand canoe. I was also building a business from scratch, pretty much on my own, and attempting to raise capital when the “smart money” was being put under the mattress, shotgun sales were soaring, and a few people upstate were literally locking themselves in the house with enough food and ammo to last six months. Every day a new crisis roiled the markets and interrupted my plan to expand the firm. I longed for a day to simply take a breath, to wind down, and decompress.
Today was clearly not going to be that day.
My daughter Sylvie was extraordinarily shy, to say the least. Even a neighborhood birthday party with her regular group of schoolmates had the potential to be a traumatic experience for her. Syl much preferred reading a book alone in her bedroom to interacting with groups of people. And the situation was worse now that Lisa would be working, and my attention would be divided because her younger brother Cam was gonna have to tag along.
Cam hadn’t been properly invited, but bringing him wasn’t a total faux pas. It was acceptable for the younger sibling to show up at a party sans invite at that age, especially if he didn’t consume a lot of cake, juice, bathroom time, or party favors.
I was perfectly capable of handling both of them, at least enough to guarantee no permanent injuries or scars would occur. Besides, I was capable of exploiting the “Single Dad” phenomenon, and knew that I could expect to have a little help from my wife’s friends. There was a bit of social sexism at work at these things, and I sure as hell was happy to use it to my advantage. A mother showing up to a birthday party without her husband was expected to have her shit together on all fronts—on time, well dressed, hair perfect, armed with a fully stocked diaper bag, anticipating any and all contingencies and mishaps. Throw a single dad alone into the same party, and the other mothers would inevitably find it adorable that he’s “trying,” and prove eager to lend a helping hand. It was a double standard and I knew it, but with everything in my life seeming ready to go to hell at any moment, I was going to take what I could get. “Come on, this bag has to be here—I just saw it!” I yelled at the room, knowing full well that “just saw” to my stress and Ketel-addled brain could mean days or months ago. I knew it was here though. In fact, we had a few of them lying around. The LL Bean, long handle, extra large canvas bag with a monogrammed name was my go-to baby gift. I would have patented it had the girl at the Trademark Office been willing to play ball. It wasn’t just the practicality of the bag, it was the wondrous efficiency of the whole damn process. Receive a baby announcement in the mail? Go immediately to the LL Bean website. XL long handles? Check. Boy? Navy. Girl? Pink. Block small capital letter monogramming and free shipping courtesy of our LL Bean Visa card. All I needed was a name and an address, and in under five minutes I could knock off one of society’s more painful rituals—the finding, purchasing, and delivering of an appropriate baby gift for proud new parents who wanted for naught.
After several years of enjoying a personal monopoly on the LL Bean gift bag, a few recipients decided they liked my idea, or that turnabout was fair play. When Cam was born, we received three of the bags back our way. It one of these “regifts” of my trusty navy canvas gift bag that I was desperately searching for.
“These are YOUR friends, sweetheart!” I yelled, knowing full well that Lisa couldn’t hear me over the furious hum of kitchen electronics. “Next time that you’re not sure you can make it, do us all a favor and skip the RSVP for me.”
I mean, at this point, I knew that I was going and taking along the damn hot pink Lily Pulitzer bag with the green polka dot handles and trim. There was just no way around it. As I walked past the front hall mirror, I tried to ignore my reflection, but still managed a glimpse and enjoyed a reflexive shudder. SHE did this to me.
I was a Wall Street trader. A cool guy. An alpha. As an athlete in high school, I had hit the game winning single off future Cubs pitcher Derek Wallace to beat a heavily favored Chatsworth team in the Valley Regional finals. Was Lisa even aware that my unwillingness to try cocaine had kept me from once hooking up with Naomi Campbell while partying with Leo DiCaprio and the NY Yankees after they’d hosted Saturday Night Live? I was a real fuckin’ person who knew real fuckin’ people and did real-guy shit!
But none of this, it seemed, erased the fact that I was now wearing light brown Tod’s, sporting a pink diaper bag and a cloth belt with some kind of fucking freshwater fish on it. Did it really even matter how I looked?
Ultimately, I decided to relax and just roll with it. What difference did it make if I was carrying a bright pink bag? Hell, I was going to Greenwich. I would probably seem more out of place there with the plain bag. And as long as I was carrying the pink one, “I might as well throw on my Kobe’s,” I shouted at Lisa, who was unable to hear me over the din of her Cuisinart.
A few minutes earlier, I had come downstairs with a blue polo shirt half tucked into my shorts, wearing a pair of black and yellow Kobe Airs. I figured my footwear choice would be controversial, but at least up for debate. As I walked into the kitchen, Lisa took a break from delivering avocadoes to guacamole heaven and offered a simple, “Uh, uh. No way. Go upstairs and put on your Tod’s. We’re going to Greenwich, not Studio City.”
But now circumstances had changed, and I was flying solo. Back upstairs, Kobe’s back on! Still king of my castle! Lisa glanced over at my feet when I walked past the kitchen, and decided to let it go.
I nodded and smiled. Oh yes I was.
With the diaper bag on one arm, and Cam in the other, I played the parents’ pre-trip version of treasure hunt which included finding diapers and wipes, putting snacks in Ziplocs, filling spill-proof drink cups, and packing up hats, sunscreen, and any other items that I could bring along to help maintain my sanity.
“Remember, Michael, you have to take your car; I need mine for work,” Lisa shouted.
I got the kids in the car and then remembered my car meant no GPS, a semi-devastating turn of events. Sure, I had once backpacked through the Oregon Desert alone for a week, armed only with a compass and a map, driven cross country on multiple occasions with my friend Rand McNally, and navigated the streets of LA selling popcorn machines with only a Thom
as Guide and a tin of mint Skoal—but that had all been many years ago. Ages. I’d seen the tech light since then. In today’s world, a road trip to Greenwich with just an address and two pissed off kids? This was downright barbaric, bordering on an outtake from an episode of The Amazing Race.
After finding the address and Mapquesting directions for the first time in years, we were finally ready to go. I wrestled the second car seat to a draw before successfully popping it in. I strapped the kids in, maxed out the AC to cool the sweat off my face, and headed for I-95. I took a giant breath and checked the rearview mirror. Cam looked content. He was old enough now that his car seat could face forward, and he was drinking in the world speeding by. Syl, on the other hand, looked like she was on the verge of tears, and we hadn’t even left our neighborhood.
“You okay, sweetie?” I asked her.
“Why can’t Mommy come? She said she was going to come with us.”
“Mommy has to work, sweetheart,” I said. “She wanted to come but she couldn’t. We’ll have a great time.”
Divert and deflect.
“Do you want a snack for the ride?” I asked her. “Or a drink?”
“Okay,” she said with a big sigh. I handed her the bag of Wheat Thins and a bottle of cut apple juice. She was quiet for the rest of the ride.
I surprised myself by using the Mapquest successfully. We arrived at the party, and I soon found myself enveloped by other parents and kids.
“I’m so sorry Lisa couldn’t make it,” Patrick’s mom sing-songed as we walked inside the house She leaned in for a cheek air kiss. She was the picture of Greenwich style, white cropped pants, and an obviously expensive embroidered shirt with matching ballet flats. She looked as if she hadn’t consumed non-blended food in the six months since I’d last seen her.
“She was really looking forward to seeing everyone.”
Confessions of a Wall Street Insider Page 17