House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan

PART I

HOW IT HAPPENED:
TEN DAYS IN MARCH

CHAPTER 1

THE ULTIMATE ROACH MOTEL
The first murmurings of impending doom for the financial world
originated 2,500 miles from Wall Street in an unassuming office
suite just north of Orlando, Florida. There, hard by the train
tracks, Bennet Sedacca announced to the world at 10:15 on the
morning of March 5, 2008, that venerable Bear Stearns & Co., the
nation's fifth-largest investment bank, was in trouble, big trouble.
“Yep,” Sedacca wrote on the Minyanville Web site, which is
dedicated to helping investors comprehend the financial world. “The
great credit unwind is upon us. Credit default swaps on all brokers,
particularly Lehman and Bear Stearns, are blowing out, big time.”
Sedacca, the forty-eight-year-old president of Atlantic Advisors, a
$3.5 billion investment management company and hedge fund, had
been watching his Bloomberg screens on a daily basis as the cost of
insuring the short-term obligations—known in Wall Street argot as
“credit default swaps”—of both Lehman and Bear Stearns had
increased steadily since the summer of 2007 and then more rapidly
in February 2008. Now he was calling the end of the credit party
that had been raging on Wall Street for six years. “I've been talking
about it for years,” Sedacca said later. “But I started to notice it that
fall. Because if you think about it, if you have all this nuclear waste
on your balance sheet, what are you supposed to do? You're
supposed to cut your dividends, you're supposed to raise equity, and
you're supposed to shrink your balance sheet. And they did just the
opposite. They took on more leverage. Lehman went from twenty-
five to thirty-five times leveraged in one year. And then they
announce a big stock buyback at $65 a share and they sell stock at

House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan