Former Bear Stearns chief Jimmy Cayne will take the stand today in Washington DC to explain why his firm no longer exists. Based on pre-released testimony, Cayne will say that Bear’s collapse was the result of “unjustified and irrational” behaviour on the part of the market.
We can understand why, psychologically and legally, Cayne needs to believe this–because he would probably spend the rest of his life huddled in the fetal position if he acknowledged the truth. (That was almost a century’s-worth of firm-building he destroyed, along with the life savings and jobs of thousands of colleagues).
But it’s ridiculous.
Cayne’s blaming “unjustified and irrational” market behaviour for the collapse of Bear Stearns is like Capt. Edward Smith of the Titanic blaming the iceberg.
Yes, it was, in fact, the iceberg that ripped a hole in the hull of the Titanic, sending it to the bottom of the Atlantic along with 1,500 people. But the reason the Titanic smashed into the iceberg is because Captain Edward Smith decided to keep the ship charging ahead at full speed at night with no radar through a North Atlantic dotted with icebergs–while more prudent captains had stopped their ships dead in the water to await the safety of the morning light.
It’s possible Capt. Smith decided to go down with the Titanic because he knew the disaster was his fault. If so, Capt. Smith was a lot more honest with himself than Jimmy Cayne.Like other Wall Street CEOs, Cayne sat by as Bear Stearns plowed ahead at full speed with no radar in the middle of the night in a sea dotted with icebergs. Everything seemed good: The ship was in great shape and making record time (profits). But anyone who has been around the markets for as long as Cayne has understands that unforeseen (or at least unappreciated) risks hammer traders all the time. The most important job of any trader is to make certain that, regardless of what happens, one lives to trade another day. Cayne, Schwartz [Bear], Fuld [Lehman], O’Neal [Merrill], Lewis [BOFA], and other Wall Street CEOs failed to do that.
Again, psychologically and legally, we can understand why Jimmy Cayne doesn’t want to admit to himself how badly he screwed up. But he screwed up. So badly that, like the Titanic, his firm no longer exists.