Cocksure

Banks, battles, and the psychology of overconfidence.
by Malcolm Gladwell
The New Yorker
July 27, 2009

In 1996, an investor named Henry de Kwiatkowski sued Bear Stearns for negligence and breach of fiduciary duty. De Kwiatkowski had made—and then lost—hundreds of millions of dollars by betting on the direction of the dollar, and he blamed his bankers for his reversals. The district court ruled in de Kwiatkowski’s favor, ultimately awarding him $164.5 million in damages. But Bear Stearns appealed—successfully—and in William D. Cohan’s engrossing account of the fall of Bear Stearns, “House of Cards,” the firm’s former chairman and C.E.O. Jimmy Cayne tells the story of what happened on the day of the hearing:

Their lead lawyer turned out to be about a 300-pound fag from Long Island . . . a really irritating guy who had cross-examined me and tried to kick the shit out of me in the lower court trial. Now when we walk into the courtroom for the appeal, they’re arguing another case and we have to wait until they’re finished. And I stopped this guy. I had to take a piss. I went into the bathroom to take a piss and came back and sat down. Then I see my blood enemy stand up and he’s going to the bathroom. So I wait till he passes and then I follow him in and it’s just he and I in the bathroom. And I said to him, “Today you’re going to get your ass kicked, big.” He ran out of the room. He thought I might have wanted to start it right there and then.

At the time Cayne said this, Bear Stearns had spectacularly collapsed. The eighty-five-year-old investment bank, with its shiny new billion-dollar headquarters and its storied history, was swallowed whole by J. P. Morgan Chase. Cayne himself had lost close to a billion dollars. His reputation—forty years in the making—was in ruins, especially when it came out that, during Bear’s final, critical months, he’d spent an inordinate amount of time on the golf course.

Did Cayne think long and hard about how he wanted to make his case to Cohan? He must have. Cayne understood selling; he started out as a photocopier salesman, working the nine-hundred-mile stretch between Boise and Salt Lake City, and ended up among the highest-paid executives in banking. He was known as one of the savviest men on the Street, a master tactician, a brilliant gamesman. “Jimmy had it all,” Bill Bamber, a former Bear senior managing director, writes in “Bear Trap: The Fall of Bear Stearns and the Panic of 2008” (a book co-written by Andrew Spencer). “The ability to read an opponent. The ability to objectively analyze his own strengths and weaknesses. . . . He knew how to exploit others’ weaknesses—and their strengths, for that matter—as a way to further his own gain. He knew when to take his losses and live to fight another day.”

(More here.)