CFO of Verizon, and their wives. Coincidentally at the next table was Rocco Marano, an old colleague of Salerno's from New York Telephone who ran Bellcore and was the father of Tommy Marano, the head of Bear Stearns's mortgage desk. “We're sitting next to each other and I introduce Rock to Vince,” Salerno recalled, “and we had just finished saying to Rock, Vince had, what a great guy Tommy was, you should be so proud of him and everything. Then boom, boom, boom, and his phone goes off. And we get the bad news.” Molinaro told Tese how desperate the situation was. “Nobody expected this to hit the fan that quickly, so we all ran back to our houses and we got on the [board] phone call later that night,” Salerno said. “The next day we're on the plane going back.”
At 7:30 P.M. , Geithner had a conference call with the SEC to talk about how Bear Stearns's predicament had worsened during the course of the day. The SEC had been monitoring Bear Stearns's cash balances through the afternoon, and their early-evening report was not the least bit encouraging. According to the federal agency, Bear's $18 billion cash balance at the start of the day had dwindled to $2 billion at the end of the day (in the vicinity of where Upton had told Molinaro and Schwartz the firm'scash balances were) as hedge fund customers stampeded for the exits. The firm had to use its own cash to make good on their demands since it had—perfectly legally—used its customers' free cash balances to buy assets that were now difficult to sell quickly. The firm had effectively run out of cash on Thursday afternoon. Absent a major shot of capital, there would be no way for the firm to keep up with cash withdrawal demands during the next business day. Bear Stearns's fellow Wall Street firms would no longer take Bear's Treasury securities as collateral for the overnight loans essential to the smooth running of the global capital markets. The confluence of the two events—either one of which on its own likely would have been fatal—proved devastating.
According to Geithner, the seven-thirty call changed the dynamic completely. Without additional financing in the repo markets, Bear Stearns would have to repay billions of dollars in repo borrowings beginning twelve hours later. If the firm could not repay, the lenders could then seize the pledged collateral and begin selling that to get their money back. The repercussions of such an action—which had never happened before—could have plunged the interconnected global economy into uncharted waters, as Bear Stearns had trading positions with some five thousand other firms worldwide. “The SEC gets on the call,” Geithner explained, “and says, ‘We've looked at the numbers, the end-of-day numbers. Our sense is that [Bear] doesn't have enough resources relative to what's maturing. They believe they have no option but to file for bankruptcy. That's our view too.' … We talked for forty-five minutes or so. Then I got everybody back here. We tried to think through what we could do to protect the rest of the system because we didn't really think there was a viable option.”
After the SEC call, Schwartz called Geithner. Recalled Geithner: “At that point, I said, ‘Alan you told me in the morning you were talking to a bunch of other people about funding. Where are those conversations?' He said, ‘Well, so-and-so said they were interested but haven't gotten back to me.' I said, ‘Why don't you call them? Now might be a good time.’”
T HE A RMIES OF THE N IGHT
hile Geithner headed back into his office to grapple with the emergency, Gary Parr called the cell phone of Jamie Dimon, the chairman and CEO of JPMorgan Chase, to ask if he had a moment to speak with Alan Schwartz. Dimon was having dinner at Avra, a Greek restaurant on East 48th Street, just down the street from his midtown Manhattan office. Dimon was celebrating his fifty-second birthday with his parents and one of his three children. He was
At 7:30 P.M. , Geithner had a conference call with the SEC to talk about how Bear Stearns's predicament had worsened during the course of the day. The SEC had been monitoring Bear Stearns's cash balances through the afternoon, and their early-evening report was not the least bit encouraging. According to the federal agency, Bear's $18 billion cash balance at the start of the day had dwindled to $2 billion at the end of the day (in the vicinity of where Upton had told Molinaro and Schwartz the firm'scash balances were) as hedge fund customers stampeded for the exits. The firm had to use its own cash to make good on their demands since it had—perfectly legally—used its customers' free cash balances to buy assets that were now difficult to sell quickly. The firm had effectively run out of cash on Thursday afternoon. Absent a major shot of capital, there would be no way for the firm to keep up with cash withdrawal demands during the next business day. Bear Stearns's fellow Wall Street firms would no longer take Bear's Treasury securities as collateral for the overnight loans essential to the smooth running of the global capital markets. The confluence of the two events—either one of which on its own likely would have been fatal—proved devastating.
According to Geithner, the seven-thirty call changed the dynamic completely. Without additional financing in the repo markets, Bear Stearns would have to repay billions of dollars in repo borrowings beginning twelve hours later. If the firm could not repay, the lenders could then seize the pledged collateral and begin selling that to get their money back. The repercussions of such an action—which had never happened before—could have plunged the interconnected global economy into uncharted waters, as Bear Stearns had trading positions with some five thousand other firms worldwide. “The SEC gets on the call,” Geithner explained, “and says, ‘We've looked at the numbers, the end-of-day numbers. Our sense is that [Bear] doesn't have enough resources relative to what's maturing. They believe they have no option but to file for bankruptcy. That's our view too.' … We talked for forty-five minutes or so. Then I got everybody back here. We tried to think through what we could do to protect the rest of the system because we didn't really think there was a viable option.”
After the SEC call, Schwartz called Geithner. Recalled Geithner: “At that point, I said, ‘Alan you told me in the morning you were talking to a bunch of other people about funding. Where are those conversations?' He said, ‘Well, so-and-so said they were interested but haven't gotten back to me.' I said, ‘Why don't you call them? Now might be a good time.’”
T HE A RMIES OF THE N IGHT
hile Geithner headed back into his office to grapple with the emergency, Gary Parr called the cell phone of Jamie Dimon, the chairman and CEO of JPMorgan Chase, to ask if he had a moment to speak with Alan Schwartz. Dimon was having dinner at Avra, a Greek restaurant on East 48th Street, just down the street from his midtown Manhattan office. Dimon was celebrating his fifty-second birthday with his parents and one of his three children. He was
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