The collapse of 85-year-old Bear Stearns in late 2008 was the biggest early signal to the general public that something was very wrong on Wall Street.
In House of Cards, William Cohan chronicles the investment bank's rise from second-tier backwater house to one of the Street's most admired firms and its stunning fall during a 10-day period in March 2008.
He also profiles Cy Lewis, Alan “Ace” Greenberg, and Jimmy Cayne, three larger-than-life men who personified the ruthless, profit-above-all-else mentality that both fueled the company's success and set the stage for its failure.
House of Cards is a Wall Street book for laymen. Cohan, a former investment banker turned author and journalist, effectively explains why complex financial instruments, such as credit default swaps, eventually proved so toxic for investment firms.
The book also offers valuable lessons for PR pros. As Cohan notes early on, “Wall Street operates on trust... In a world of instant communication, that trust can be eroded instantly.”
Bear Stearns found itself in a tough spot well before March 2008 by failing to monitor one of its own, as he invested heavily in subprime mortgages and other risky securities that tanked as the real-estate bubble burst.
But Cohan cites many Bear Stearns executives who noted that what really triggered the firm's final demise was the in-ability to combat rumors that it had a liquidity crisis. Once the rumors gained steam, the reputation damage was complete and no amount of spin could prevent hedge funds and major institutions from pulling their money.
PR pros will also be amazed at how little thought or effort Bear Stearns seemed to put into media relations. Cohan writes that unlike many Wall Street firms, Bear Stearns never had the ability to manipulate reporters into writing or broadcasting “fawning stories,” suggesting that what eventually helped trigger Cayne's departure as CEO in January 2008 was a critical Wall Street Journal piece that included accusations of marijuana use.
As the financial world clamors for government to let Wall Street get back to the business of making money, House of Cards is a cautionary tale of what happens when greed gets in the way of sound financial judgment.