THE former chairman and chief executive of Bear Stearns conceded yesterday that the failed investment bank had taken on too much risk.
“That was the business. That was, really, industry practice. In retrospect, in hindsight, I would say leverage was too high,” a weary-sounding James Cayne told a nine-hour hearing of the Financial Crisis Inquiry Commission.
Cayne’s admission under questioning came after he and other former Bear executives had testified that market rumors and a classic run on the bank were to blame for the firm’s collapse in March of 2008 and fire-sale to JPMorgan Chase.
The 76-year-old showed little emotion at the hearing, giving no hint of his reputation for profane and hot-headed outbursts during nearly 15 years at the helm of the company before stepping down in January of 2008.
Commission chairman Phil Angelides said Bear Stearns seemed to have taken on an extraordinary level of risk involving high leverage, a concentration in mortgage-backed securities and short-term funding of its operations.
“There’s a form of financial Russian roulette that Bear Stearns was playing along with other investment banks,” said Angelides.
The congressionally-appointed commission is charged with chronicling the causes of the worst financial crisis since the 1930s and has been holding a series of hearings. It is due to deliver a report by 15 December.
Today, the commission is due to hear from former Treasury secretary Henry Paulson and current Treasury secretary Timothy Geithner on financial firms and markets falling outside the traditional bank regulatory structure.
City A.M. Reporter