I have to confess to a rather morbid fascination for books about high profile bankruptcies. I am sure that similar books about the fall of Lehmann Brothers are on the way but, in the meantime, this is the best book around for understanding how an investment bank can go bust and what it feels like to be part of it. This largely forgotten collapse of Bear Stearns, the USA’s fifth largest investment bank, was the first of the dominoes to fall in March this year but was ‘saved’ when the US Treasury intervened and arranged for JP Morgan to take them over at a knockdown price.
Bamber was a Managing Director – to give you an idea of size and organisation, he was one of 400 – of a division of Bear Stearns, one that, according to him, was operating very profitably. He and his co-author tell a story which does not try to hide the bitterness and frustration of someone who saw his net worth – as represented by shareholdings in the company – decline from $3 million to almost zero in one week. His bitterness is based on two complaints; that the collapse was based on rumours that were stoked up by jealous rivals and that the US Treasury could have bailed the company out by similar moves to those that are now being implemented by the US and other governments.
He feels that Bear Stearns was singled out but his reasoning falls down when you look at the subsequent chain of events which saw an even bigger bank – Lehmann Brothers – collapse even more disastrously, without even the lifeline of a JP Morgan takeover. As you read about the turmoil that followed Bear Stearns’ collapse, you wonder how and why the US authorities did not learn from it and why they allowed Lehmann to go down even more spectacularly, thus triggering the chain of events that led to the global crisis.
Apart from the fascinating story of the happenings and feelings in the week when the company went from hero to zero, there are some excellent, down to earth explanations of the new language that we are all hearing about; for example sub-prime mortgages, hedge funds, selling short, structured derivatives etc. Sometimes the explanations go on a bit too long but they are simple and comprehensive.
The interesting postscript is that, despite his resentment of the JP Morgan takeover and the knockdown price that he claims was forced on them by the US Treasury, all of Bamber’s team were offered similar jobs at Morgan. But Bamber, having written the book, decided he had had enough of being a master of the universe and the epilogue has him surfing in New Zealand.