Bear Stearns CEO James Cayne, 73, has denied reports in The Wall Street Journal that he smokes dope.
He’d be better off saying he does.
How else can one explain loaning billions of dollars to millions of deadbeats?
On Thursday, Bear Stearns announced its first quarterly loss in all of its 84 years. The nation’s fifth-largest U.S. investment bank took a $1.9 billion write-down to reflect the plummeting value of its mortgage- backed-securities portfolios.
All those foreclosures you hear about — you know, the ones that are destroying property values in your neighborhood. Well, many of the mortgages on these homes ended up in investment pools Bear Stearns put together and in turn sold to other investors.
“We are obviously upset with our 2007 results,” Cayne said in a statement.
He’s so upset that he passed on his bonus, which totaled $40 million last year.
As bad a sign as this is — a Wall Street guy saying no to a bonus? — the mortgage meltdown has only just begun.
In 2003, interest rates hit a 45-year low, prompting millions of Americans to buy a home or refinance their existing home so they could spend the equity in their house on something more useful, like a new Hummer or a big-screen TV.
Many took out five- and seven-year adjustable-rate mortgages that will reset over the next couple of years, sparking even more defaults.
Wall Street met demand for these loans by creating the mortgage- backed security. By bundling loans into securities that they hawked to investors, banks could keep lending and bagging commissions while never having to worry about whether these loans would ever be repaid.
Lending standards became so lax that some people were becoming mortgage brokers from prison. People who might otherwise be day-trading on the Internet became real-estate investors. And the one clear sign that this trend was about to peak was A&E’s 2005 launch of a TV show called “Flip This House.” Now, they should do another one called “Flip This Mortgage-Backed Security.”
Were these guys high?
Anyone who thought this could not end badly was clearly smoking something.
Already, banks around the world have written down more than $100 billion in bad mortgages. Citigroup Inc. CEO Charles Prince and Merrill Lynch & Co. CEO Stan O’Neal were forced to resign after reporting massive write- downs.
On Wednesday, Morgan Stanley, the nation’s second- largest investment bank, reported a shocking $9.4 billion write-down.
Morgan Stanley chairman John Mack took full responsibility for the debacle and also said he would decline his bonus.
“The results are embarrassing for me and our firm,” Mack said on a conference call with analysts. “Ultimately, accountability for our results rests with me.”
It seems as if the greatest minds in capitalism have gotten together, once again, and ruined the economy.
As our homes plunge in value, even the Bush administration, which pays lip service to the ideals of the free market, is telling private banks how to run their businesses. And then there are the communists
Morgan Stanley’s plan to stay afloat involves a $5 billion cash infusion from an investment vehicle owned by the Chinese government.
This state-controlled fund will hold up to 9.9 percent of Morgan Stanley once its investment converts to common shares in 2010. Maybe they’ll replace chairman Mack with Chairman Mao.
Anthony Accetta, a former federal prosecutor who works as a private fraud investigator in Denver, has seen this coming.
He said he went to Wall Street’s biggest firms with a pitch, only to find that they did not care how their money was loaned, as long as they could keep bundling the loans into mortgage-backed securities and pass them off to investors.
“I was trying to sell these firms quality-control programs, and they laughed at me,” he said. “This is not a gamble that went wrong. This is not an accident. This is fraud, and I want it prosecuted.”
Nobody on Wall Street will confess fraud. Particularly not if they can blame it on the dope they smoked.
Al Lewis’ column appears Sundays, Tuesdays and Fridays. Respond to him at blogs.denverpost.com/lewis, 303-954- 1967 or alewis@denverpost.com.
