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.The New York Times focused one ofits stories on BSAM executive Richard Marin, noting that during oneweekend while Bear was trying to salvage the hedge funds the exec-utive was busy adding to his personal Internet blog, which he haddubbed Whim of Iron. Marin had blogged about how he stole away from the crisis-hedge-fund-salvation-workaholic weekend to take inthe new Kevin Costner murder thriller Mr.Brooks.His recommenda-tion: skip it.(The blog embarrassed Bear, which strongly encouragedMarin to block access to it.)In late July, after haggling with other lenders (including Barclays),Bear threw both funds into bankruptcy, disclosing that the newerfund, the one called Enhanced, was worthless.In the weeks preced-ing the crisis, the investment banking arm of JPMorgan Chase, another9Raice, like many Bear (and ex-Bear) officials contacted by co-author Paul Muolo,declined to comment about anything having to do with Bear or EMC. Deep in the Belly of the Bear 245lender to the funds, had at least one conversation with Spector, urgingBear to lend more money to the funds.According to the Wall StreetJournal, Spector told the JPMorgan executives that they were naive, reminding them of Bear s expertise in the mortgage business.Laterthat evening JPMorgan sent a lawyer to Bear s midtown headquarters,armed with an official default letter.Like Merrill, JPMorgan wanted itsmoney back.The newspaper also noted that Spector, with the hedgefunds future hanging in the balance, had spent several days in Nashvilleplaying in a national bridge tournament, as did Cayne.On Wednesday morning, August 1, a day or so after the fundsbankruptcy filing, Cayne called Spector into his sixth-floor office.Bear sshare price had fallen almost 30 percent since June.Not only had thehedge funds collapsed, costing investors (including several managingdirectors at the company) hundreds of millions, perhaps billions, butBear itself, a fi rm that had built its reputation on its analytical abilityand sound risk management practices, was looking at potential lossestotaling billions because the firm, too, had bought subprime CDOs forits own account.Cayne, who was more or less forced to talk to themedia about the hedge fund debacle, said the firm had suffered a bodyblow of massive proportion. In Cayne s view, Spector was at least partlyresponsible.Even though he wasn t the one making the trades for thehedge funds, he was ultimately responsible for BSAM and for whatCioffi had done.The 73-year-old Cayne asked for Spector s resignation.A friend of Spector s described him as devastated, adding, Youhave to realize Warren grew up at the company. Spector, who was49, had spent his entire 24-year career at Bear, starting out in govern-ment bonds and then mortgages a product that was now the reasonfor his demise.(Even though he was devastated, his severance packagewas $23 million, money that would help heal his psychic wounds.)Friends came to his defense, portraying him as the fall guy for Cioffi smistakes, but not all of his colleagues were sympathetic. Warren is nota hands-off boss, said one. You don t fool Warren. A trader who was close to Spector, though, said that he had warnedhim about what he called the cascading risk the hedge funds weretaking on. Warren had taken his eye off the ball. The cascading risk comment was a reference to all the trades Cioffi was making on thehedge funds behalf.Cioffi, though, was not fi red along with Spector, 246 chai n of b l amebut the firm was now saying little about exactly what he was doingfor Bear.The firm couldn t afford to get rid of Cioffi , at least notright away, because he was the manager of the two funds the onemaking all the trades on their behalf.(Cioffi was also carrying the titleof co-CEO of Everquest, whose IPO was now deader than dead andwhose future was in doubt.)A few months later, Massachusetts sued Bear Stearns Asset Man-agement, accusing Cioffi of making hundreds of trades on behalf of thehedge fund without receiving the approval of the fund s independent10directors.In 2003 when he first convinced Bear s board to let himstart the High Grade fund, 20 percent of his trades had not been signedoff by the directors.By 2006 the number was markedly higher 80percent didn t have prior approval.By November it was commonknowledge that the U.S.attorney s offi ce down on Foley Square wasnow taking an interest in the two funds.11 If a U.S.attorney was look-ing at the hedge funds, that meant it was now possibly a criminal mat-ter.Apparently Cioffi, according to one lawsuit, had been making optimistic forecasts about the hedge funds even though he had with-drawn millions of dollars of his own money from one in Februaryand March of 2007.Supposedly, the reason Spector got the boot sosoon after the funds collapse was that so many senior managing direc-tors at Bear had invested their own personal money in Cioffi s creation.Arturo DiCifuentes, the CDO expert who used to work at Wachovia,said he counted among his friends a few top Bear Stearns executiveswho did just that. I can say this, he told reporter Paul Muolo. I knowthey bought into those funds with their own money. He laughed. Youmight say that they bought their own shit. In December Cioffi resigned from Bear, resigned perhaps being theoffi cial word for fi red.He remained as a consultant to the fi rm as Bearbegan to sift through the funds bankruptcy and all the related lawsuitsfrom investors who had seen their millions evaporate.Cayne announcedhis retirement as CEO in January but remained as chairman.A few10Massachusetts staff attorney Michael Regan would only say that 10 to 15 individuals,family trusts, or partnerships located in the state had been investors in the High Grade fund.11Bear disclosed that the hedge funds were the subject of a criminal investigation in anOctober 10, 2007, filing with the Securities and Exchange Commission. Deep in the Belly of the Bear 247weeks earlier Bear disclosed an $850 million loss for the fourth quarter,adding that it had to write down its mortgage investments (the hedgefunds) and other ABSs that it couldn t off-load to investors by almost$2 billion.Alan Schwartz, a veteran in the firm s mergers and acqui-sitions (M&A) group, was named the new CEO.Historically, roughly30 percent of Bear s revenue had been tied to mortgages in some fash-ion or other. Does Schwartz have any mortgage experience? askedone Bear shareholder, laughing. Not even a little. One of Schwartz sfi rst decisions as the firm s new CEO was to shut down Encore.As forBear, the market wasn t quite done with it.The next few months woulddecide its future
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