"House of Cards" reports on the collapse of the investment banking house Bear Stearns (America's fifth-largest investment bank), and the beginning of the worst banking crisis since the Great Depression. Cohan's background as an investment banker allows him to cut through the complexity to explain what happened in simple, clear terms.
Bear Stearns had survived every crisis of the 20th century, including the Great Depression - without a single losing quarter - until the end of 2007. In 1997, Bear Stearns had helped pioneer the subprime mortgage-backed security by serving as co-underwriter on a $385 million offering. By the mid-2000s, it was the market leader in this segment.
The focus of the book is the last ten days of Bear Stearns, leading up to its absorption by J.P. Morgan at a fire-sale price ($10/share, down from $167; less than the value of its $1.5 billion office building), greased by $30 billion in Federal Reserve funds. (The Fed was worried that a bankruptcy of Bear Stearns could wreak fiscal havoc around the world.)
Just a year earlier it had been identified as "America's most admired securities firm" by Fortune magazine; in 2006 its Asset Management fees had reached $335 million. Bonuses were in the 8-figure range. Unfortunately, it was also the most heavily invested in mortgage-backed securities. Bear Stearns, like its competitors, financed itself with oversight sources (the cheapest source).
However, when analysts began questioning Bear's viability, given its shaky mix of assets, continued financing for Bear dried up, and it toppled. Amazingly, its chairman was too buy playing bridge and golf to get involved until too late; earlier he had forced out the only many who understood what was going on. The firm even turned down a last-minute offer from a Saudi Arabian for substantial financing ("not needed"). Its leadership then blamed the media and short-sellers for Bear's demise.
True, Bear's fall was quite rapid. However, there had been warning signs - problems at smaller firms with similar asset structures, rising risk premiums for its mortgage bond holdings ($50,000 for $10 million during the first half of 2007, rising to $350,000 on 3/5/08), its first quarterly loss at the end of 2008, and the downgrading of some of its bond holdings. Worse yet, Cohan also alluded to failing to conserve cash by reducing dividends and ceasing stock buybacks, as well as increasing leverage - unfortunately, it is not clear whether he was referring to Lehman, Bear, or both.
The bad news - the 468 pages, complete with endless interviews and accounts of bridge games, is a bit much. The even worse news - Bear Stearns' and others playing for billions has left American taxpayers with a debt of trillions. And we still haven't heard "the rest of the story."