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The Actuary The magazine of the Institute & Faculty of Actuaries

Book review: House of Cards

With the collapse of AIG and Lehman Brothers still in the minds of the general public, it wasn’t going to be much of a surprise to read about the collapse of an investment bank or insurance company. It is strange, then, that the book which arrived on The Actuary’s desk was not about the disintegration of the aforementioned two companies, but about what was perhaps one of the world’s ‘forgotten’ collapses — Bear Stearns.

Bear Stearns was the symbol of the American dream, flourishing as the capital markets flourished, and apparently improving balance sheet and employee prospects with every turn. When things were going well, an investor wouldn’t mind too much if seemingly the whole of the management team playing bridge, but when things were going badly — and in Bear’s case, during its collapse — the whole thing stank.

Written in a compelling style, House of Cards: How Wall Street’s Gamblers Broke Capitalism, is a page-turner of a story, keeping the reader gripped throughout. With every page turned, it is impossible not to get more and more annoyed by Bear Stearns’ management, which seemed to become increasingly feckless even as the bank was falling to its doom.

But then again, it wasn’t only the bank’s management that was irresponsible. The US Treasury was unwilling to help, ostensibly more worried about how things might look instead of saving the bank and its thousands of employees. Bear Stearns’ fellow banking chief executives weren’t prepared to come to a deal — until Jamie Dimon, CEO of JP Morgan, finally stepped in. By then, all the bravado from Bear’s management — and there was a lot of hot air being blown by their CEO Jimmy Cayne — was just that, hot air.

A book like this certainly raises a tonne of questions, too. For example, where was the risk management, which seemed to be completely non-existent? Why didn’t the board move to fire Bear’s leadership quicker? Why didn’t the Feds give Bear Stearns more time to pay back its loans?

House of Cards also gives the reader the chance to look forward. You see, hindsight’s brilliant when it’s 20/20. It’s probable that saving Bear Stearns would not have saved Lehman Brothers, Merrill Lynch or AIG. It certainly would not have ended the credit crunch, and the world would continue to panic. But House of Cards is a brilliant look at the demise of an investment bank, and how — in the end — everyone was helpless to stop the financial tsunami. Let’s just hope there aren’t too many more of these.

Alex Ferguson is a freelance financial journalist.