Corporate & Securities Law

Profits were just too big said Bear's Greenberg:



Ace Greenberg was the man most responsible for Bear's alleged "strong culture of risk management."



Greenberg was Chairman of the Bear Stearns Executive Committee until the firm collapsed.



Greenberg led the Bear Stearns risk committee until at least 2007.



Ace Greenberg was the man who said many times that his number one rule was to take small before they turned into big, crippling losses. He also presided over Bear's famously intimidating Monday afternoon risk meetings.



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SO- What did strict risk manager Ace Greenberg tell PBS Frontline in an interview for an episode called "Inside the Meltdown?"

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Speaking after Bear collapsed, Greenberg discussed how he felt and what he did (and did not do) about the housing/mortgage bubbles back in the days when Bear was still raking in the profits:  



Ace Greenberg:



"I thought ... the speculation was crazy. I thought it was crazy to see ads where people would lend you 140 percent of the assessed value of your house. I thought that was nuts.    



I was [nervous], and I felt some things were going on that were just nuts.... But I wasn't as vociferous as I should have been, maybe.



It's very hard to stop a locomotive going 60 miles per hour. It takes a lot of braking power to stop that.



And this stuff was highly lucrative when it was working.



Excesses did occur. So did I know things were getting a bit out of hand? Yes. Was I as vociferous as I should have been? Maybe not.  



As I said, it's hard to turn off the spigot when things are profitable.



[W]e were big boys. I'm not complaining. We made mistakes. 



I guess it's a question of overexuberance and getting caught up in thinking the good times are here forever and they never are. 



So these things, if they're not built on solid ground, they just disintegrate in a hurry..." 



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TRANSLATION (or, more accurately, our take at Wall Street Law Blog):



Ace knew Bear Stearns was sitting on a powder keg, but so much money was rolling in that he didn't have the guts to do anything . Rather than manage risks, he (and Bear Stearns) simply managed to take them.



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-Conclusion



Greenberg's comments - and his demeanor - during the interview (we watched it a bunch of times) were quite stoic. Of course, Ace, Jimmy Cayne, and their fellow Executive Committee members made immense fortunes during the bubble years (and that takes into account all paper stock "losses" they "suffered" when the roof caved in).



Public shareholders didn't fare quite as well as the Executive Committee.



Our guess is that Bear's other shareholders would find Ace Greenberg's comments about being "big boys," making "mistakes," and allowing "excesses" a touch upsetting.



We wonder how judges, juries, and arbitrators will react...



(Note - the entire Greenberg interview - portions of which were edited out of the televised program - is available @ PBS.org.)



By Brett Sherman, The Sherman Law Firm

(Disclaimer- we represent former Bear Stearns shareholders in litigation and so we may not be entirely objective about these issues).

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