House of Cards (37 page)

“I haven't done a trade yet,” Cayne recalled. “I haven't done anything. I said, ‘Yeah, I got an interest.' He said, ‘What price?' I said, ‘Twenty-seven.' He said, ‘Twenty-seven what?' I said, ‘Twenty-seven cents on the dollar.' At which point he becomes ballistic: ‘I knew about you people. I knew what you were. I shouldn't have wasted my time. Your reputation precedes you.' Hangs up.” Although it was just the first call, Cayne was beginning to think that maybe there really was no market for these bonds—that the bid-ask spread was just too wide for a trade to occur.

Twenty minutes later, one of his partners on the municipal desk called Cayne and asked him if he wanted to bid on the same $300,000 of New York City bonds that he had just received the call about. The Denver banker had likely advised his client to see if he could get a better bid
in the market than the 27¢ that Cayne had just suggested. “I said, ‘Yeah, I'll bid 23.' So they called back about forty minutes later. ‘Okay. The bonds didn't trade, but you were the only bidder.' Now I know there's no market at all,
zero
. Lo and behold, the phone rings. It's the guy from Denver. Now, I wasn't there, but he obviously told his guy, ‘We were given a ridiculous price [by Cayne]. I could do better.' Goes out and finds out he not only can't do better, it isn't even 27. The rancher has said, ‘Get the fuck out of New York City, just get out, they're going to default. Get rid of them.' It's sort of like an interesting call because you know his dick is hanging out, he's dead. But he's got to now make nice-nice with this person he just accused of being the highway robber. He said, ‘Look, I was probably a little too rough and tough.' I said, ‘Sorry, I am obviously off the market.' He said, ‘Yeah, I thought it was a little low.' I said, ‘No, no, not low, high. Because I bought more bonds in the last two hours than I ever even dreamed existed. And I'm the only buyer. We're full for the day, probably for the month.' He knows he's in the shithouse because the rancher said, ‘Get out of New York City.' He said, ‘Well, I really would like to sell them.' I said, ‘Well, you know I'm not holding anything against you, but I'm no longer at 27.' He said, ‘Where are they?' I said, ‘Twenty-two.' There was silence, then he said, ‘Can't you do like what you said, the 27?' I said, ‘Look, that's ridiculous. That doesn't make sense.' He says, ‘Look, I sort of made a mistake.' And I said, ‘I'll tell you what, I'll take these bonds and take them to 25, but that's it.’” Cayne bought the bonds at 25¢ and turned around—in an instant, he said—and sold them for 30¢ to one of the small brokers he had previously identified in New York City who wanted the bonds.

Cayne played this hand successfully for seventeen months—improving the market's perception of Bear Stearns in the process—until Lazard partner Felix Rohatyn devised the idea of creating the Municipal Assistance Corporation to refinance the city's debt, and many of the city's bonds traded back up to par. “To his credit, Greenberg never cared that I went above him,” Cayne said. Thanks to this successful bet, and just like Lewis thirty years before, Cayne found that his status and authority at the firm rose dramatically.

Cayne said he was careful not to have too big an inventory of the city's bonds, which would have required the firm to put up more capital while exposing it to more risk, but when President Ford told New York City that the federal government would not bail it out and on October 30, 1975, the
Daily News
ran its famous headline, “Ford to City: Drop Dead,” the value of Cayne's inventory of bonds dropped like a stone. His partners couldn't contain themselves. “It was like a valve going off,” Cayne
said. “They were so excited about calling me up and basically kicking the shit out of me, saying, ‘Oh, you're too big there anyway. We probably lost our ass.' Nonsense, because inside two days, the market was right back.”

But resentment against Cayne from some of his partners at the firm grew. For instance, after a ruling by the New York State Supreme Court invalidating the moratorium on paying interest on the city's bonds— meaning that the interest had to be paid and the bonds would trade up to par—one holder of the bonds misread the decision and offered $500,000 of the bonds for 68¢ on the dollar. Cayne pounced on the opportunity. “We just took them,” Cayne said. “I mean, like that's ridiculous. They didn't read the release right. These are 68? It's going to be 98 overnight. So we complete that trade and I am really higher than a kite. I'm ecstatic.” When Cayne came back to the office the next day, the trading desk told him that one of the most senior partners at the firm, Marvin Davidson, had intercepted Cayne's moneymaking trade. When Cayne asked the desk whether Davidson had placed an order, he was told there was an order. But Cayne claimed that Davidson had not placed an order for the trade; rather, when Davidson saw Cayne's trade, he took it for himself. “Marvin Davidson was the managing partner of the partnership,” Cayne said. “He envisioned himself as Greenberg's right-hand man, an influential partner in the organization. Certainly I wasn't. I was a peanut. You couldn't weigh the difference between us from the standpoint of who was more important, right? Even though one of us was doing really good stuff and it was questionable whether he was getting anything done.”

He went to see Greenberg to protest Davidson's action. “I walked into Greenberg's office and I said, ‘You've got to rescind that. You've got to cancel that trade. That was bullshit.' He didn't have any order.” Greenberg told Cayne he would not rescind Davidson's trade. “That's an impossible conclusion only because basically what he had to do was accuse Davidson of not telling the truth. You learn one thing about Alan Greenberg—his ability to take a little guy and kick the shit out of him and be a tough guy is solid.” (Davidson declined to be interviewed.)

For a time, Cayne did respect Greenberg's intellect and his business acumen, but theirs was always an odd relationship. “Greenberg had very few friends and I was one of them,” he said. Cayne used to pick up Greenberg at his Fifth Avenue apartment every day in his car and drive him down the slow-moving FDR Drive to the Bear Stearns office at 55 Water Street. “It's like the Mafia where the driver becomes the number two, except I insisted he sit in the front,” he said. “He couldn't sit in the back.” But Greenberg rarely spoke to his younger partner during these rides. “If you understand the makeup of the man, he can't carry a conversation,”
Cayne said. “He has lunch with you, it lasts four minutes because there's no talking, unless you talk.” But Cayne could sense the opportunity and managed to turn these awkward trips to his advantage. “Well, that's ideal,” he said. “I have the boss in the car. He's captive for the twenty-five minutes. What's better than me sitting there and being able to say, ‘You know, this guy's full of shit and that guy's full of shit'?”

The gregarious, outgoing, and scheming Cayne could not have been more different from the cerebral and ruthless Greenberg. “We're two different people,” Cayne said. “He's the opposite of me. To him, you're a piece of meat. I'm a piece of meat to serve him, to help him to have a better life. He always would constantly tell me when [Bill] Montgoris was the CFO, what a fucking idiot he was. And when Sam [Molinaro] became the CFO, what a fucking idiot he is. I said to him, ‘Do you have any idea what Sam does? Could you write down like a memorandum of what are his responsibilities?”

During one of the plethora of tedious but politically astute downtown excursions with Greenberg, Cayne decided to broach the subject of his own promotion to the firm's powerful executive committee. He had been at the firm about seven years by this time and, as he said, had “certainly delivered.” The tradition at Bear Stearns was that partnership percentages were set every two years, essentially by the senior partner of the firm after some supposed vetting by the executive committee. As part of the executive committee's consideration, each partner would write down all of his successes on a piece of paper and then ask for a specific percentage of the pretax profits. This exercise was completely in keeping with Bear Stearns's reputation for being a place “where everything had a ‘bid and asked,’” according to Doug Sharon, a longtime senior managing director at the firm. “Greenberg decides who gets what, period,” Cayne said. “Then you get your percentage and it's in black and white. It's never changed.”

When he became a partner, Cayne had a 2 percent stake in the firm's profits. After the first two-year cycle, he submitted his “paper” to Greenberg and the other members of the executive committee, making his case for an increase based on the performance of the brokerage division and the time he spent “busting my ass traveling around the country” and signing up small brokerage firms as clients for Bear Stearns's growing clearing business. “So, the first year I was a two-point partner,” Cayne said, “and two years go by and they put out the new list and I was still a two-point partner.”

Eventually, though, Cayne started to get larger and larger slices of the pie. He went from being a partner who had 2 percent of the firm's
pretax profits—at a time when the firm wasn't making much money and all he received in pay was his $20,000-a-year draw—to one with around 5 or 6 percent of the pretax profits in the 1970s. To get that, he enumerated all of his accomplishments—including his view that “I was responsible for 80 percent of the profits at Bear Stearns one year”—and then boldly asked for 7.5 percent of the pretax profits—an act of such chutzpah and daring that Greenberg could not quite believe it. “I thought I was being really nice for saying 7.5 percent,” Cayne said. “Greenberg actually said to me—he's such an egomaniac—he says, ‘I have to tell you, everybody in the community thought that I helped you write your paper, until they saw you requested 7.5 points. Then they knew I couldn't have done that because it was so dumb.' I said, ‘Yeah, right, really dumb, man. They really think that you helped write my letter.’”

At first Cayne didn't want the responsibility of managing the brokers, especially the poorly performing ones. But Greenberg insisted. “That's your future here,” he told Cayne.

By Cayne's account, shortly thereafter, Lewis Rabinowitz, one of the other men running the department, decided he wanted to run retail himself. “I'm driving in the car,” Cayne said, “and Greenberg says, ‘Well, Lew has come to me and said he wants a clear title. It seems to me it's something you guys can work out.' I said, ‘Well, how do you work that out? He wants to be the head of what?' Greenberg says, ‘All retail.' I say to him, ‘Why don't you do this? Why don't you tell him that he can have a choice. He could be head of all the retail except New York or he could be head of New York and have nothing to do with all the branches. Give him his choice.' He looks at me and says, ‘Well, what if he chooses New York? What are you going to do?’”

Cayne said Greenberg was worried about Cayne leaving New York City for the provinces both because of the success Cayne was having buying and selling New York City bonds and because Cayne had started to teach Greenberg how to improve his bridge game. Greenberg didn't want to lose either of those two perquisites. “I'm waiting for him to say, ‘Okay, I'll take care of it. I'll make sure he gets the branches and you get the city,’” Cayne said. “He says, ‘Well, what if he chooses New York?' I said, ‘He won't. It's not as glamorous as the whole head of retail.' He said, ‘Well, you're making a big bet.' I said, ‘Well, yeah, you're putting me in a position by not making a decision that I have to make a bet, so I'm making a bet.’”

Just as Cayne suggested, Greenberg offered Rabinowitz his choice. A week later, just as Cayne had hoped, Rabinowitz chose to be head of all retail except for the New York City office. But it wasn't a good fit. “He
finds when he goes out to the branches, they don't give a shit who he is,” Cayne said. “They're not reporting to him, so he finds out he's got this empty title, and he goes to Greenberg, and he says, ‘I've changed my mind. I want to be the head of New York and let Jimmy be the head of everything else.’” Greenberg told Rabinowitz that it was too late to change his mind. Rabinowitz left the firm.

Although Cayne's tactic worked, he was plenty peeved at Greenberg for forcing him to make the bet. It was in this context that Cayne played his hand about wanting to be on the executive committee. “I'm driving to work with Greenberg,” Cayne recalled. “I said to him, ‘You know, you have an executive committee that I should be on.' He didn't say anything. I said, ‘The very fact that you are in a position to do something about that and haven't done it is some issue I've got with you.' He said, ‘Well, why with me? Your buddy is Lewis. Lewis is the boss. He'll take care of it. Talk to him. Talk to your buddy Lewis.' Again, look at the history of the two of us. Because synergistically there's no question about the fact [that] the two of us created something that worked. It clearly worked. He brought something to the party from the standpoint of the Street looking at who's running Bear Stearns. Never was there any question about who was running Bear Stearns. It was Alan Greenberg.”

Cayne called Lewis, who agreed to receive Cayne at his Park Avenue apartment. “He's got his slippers on,” Cayne said, “and he's got the butler with his scotch, and I tell him, ‘Now look, Cy. It's been a while, and I've been at the firm for close to, you know, seven, eight years. And I've certainly delivered.' He's had a few drinks but says, ‘I'll take care of it.’”

A month passed, and Cayne had not heard back from Lewis. “And remember I'm picking Greenberg up every day,” Cayne said. “And I bide my time. And I say to him after thirty days, ‘Well, whatever happened?' He says, ‘Why ask me?' He says, ‘You went to Lewis.' I said, ‘Well, Lewis said he'd take care of it.' He said, ‘Well, I guess he didn't.' So I go back to Lewis. And I said, ‘Cy …'And he turned to me and he said, ‘I'll definitely take care of it.’”

By this time—the late 1970s—Cy Lewis was no longer the vigorous and brilliant authoritarian figure that he once had been. He had become a heavy drinker and a heavy smoker. “His nose was raw and bulbous,” Ehrlich and Rehfeld wrote about him. A lifetime of smoking had left him with a myriad of physical maladies, chief among them being a severe case of Buerger's disease, acute inflammation of and clotting in the arteries and veins in the extremities. In Lewis's case, the disease severely affected his feet, causing him great pain and making it difficult for him to walk.