Bear Trap: The Fall of Bear Stearns and the Panic of 2008.

Bear Trap: The Fall of Bear Stearns and the Panic of 2008

Bill Bamber and Andrew Spencer

Brick Tower Press NY, 2008

I could hardly believe what I read when I started this book. Within a few pages, Bill Bamber, a former Bear Stearns senior managing director, declares (without a word of explanation) that he worked in "structured equities" at this investment bank. Wondering what on earth these are, I scurried to my search engine to find that these instruments are defined as equity interest structured notes and a kind of derivative. This seemed to be yet another dubious financial product created for these times. Deeply involved with the current crisis and defying all understanding and logic, this bizarre combination of equity and debt epitomizes the mess the financial markets are in today.

The first few chapters of Bear Trap are a history and chronology of the bank with a chapter on the Bear Stearns hedge funds that failed in July 2007, just before the credit crisis began the next month. The tone of the early part of the book immediately invoked parallels for me with another insider "tell all" book--the one about the Enron collapse. Brian Cruver, who was hired to work with another improbable financial product called "insolvency futures," had the same sort of inexplicable faith in the products he was selling. *

I found it odd that Bamber does not reflect at all on the nature of his work and how far he and his department had deviated from straightforward financial instruments by creating these ridiculously exotic structures. While I couldn't fully sympathize with the blame game and the long list of characters that apparently contributed to the failure of Bear Stearns in this tale, I did have some feelings for the demise of what, Bamber constantly reminds us, was once a great and long-established investment bank. It turns out that unlike many investment banks that had become listed companies over recent years, Bear Stearns employees held over a third of the bank's shares. Bamber informs readers of this several times, making it abundantly clear that they definitely had the most to lose in the failure. They seemed completely unable to stop the rot and the ultimate closure even though their jobs and their savings (in their stockholdings) were at stake.

My credibility was also a little strained when several times in the last couple of chapters of the book Bamber names then U.S. Treasury Secretary Henry M. Paulson as the main protagonist said to have caused the failure of Bear Stearns. He places the blame firmly at Paulson's feet because, for many years before he entered public life, Paulson was one of the leaders of rival bank Goldman Sachs. The reason Bamber gives (and one of the major "revelations" in Bear Trap) about why Bear Stearns was not Paulson's favorite investment house and thus beyond government help was because it had refused to join other ...