A Bare Sterns Story
August 2008
by William P. Meyers

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Bruce’s stature continued to grow at Bare Sterns. A pool was begun to see how late he would arrive each day. His resume was dug out by a woman in personnel, showing he had graduated from an Ivy League college and then done a year of law school. His meteoric rise from broker trainee to Mr. Big was attributed by Henry to bringing in a big client who was the father of a college buddy. Though he was not a poet, Henry, like most successful brokers, could weave a believable story out of thin air.

Even the fact that Bruce wore the same suit every day, and a shabby one for a broker at that, simply added to the mystique. “He’s worth over $2 million,” said Henry, “and he made his first lucky option calls in that suit, so he thinks it is lucky.”

As the Tao teaches that to be straight, you must be crooked, Bruce’s calm office, with its Zen poetry and its thoughtful consideration of the Wall Street Journal, became the center of a financial maelstrom. Some brokers at the New York Bare Sterns office noticed that some traders in the San Francisco office seemed to be developing a certain prescience about their stock bets. They started plunging in, or out, based on San Francisco cues. This, of course, made the market movements more pronounced, and other players took notice. The Wall Street rumor mill, with its intricate network of personal relationships, began to give Bruce’s nods and shakes concrete verbal substance. The usual believable stories were tried to see what would stick: mergers, acquisitions and divestments, secret new technology products that would dethrone IBM, yet undisclosed drops or rises in sales, anything that from past experience might, if true, change the value of a stock or bond. Newspaper men, including some who worked at the Wall Street Journal, heard these rumors from their confidential sources. Sometimes they reported them as news, completing the loop.

It was the late 1970’s, an era when the United States economy was emerging from a decade of stagflation, a depressing condition of high unemployment, low profits, and galloping inflation. Those who lived off investments were desperate, and the brokerage houses were desperate to give them reasons to trade and generate commissions for the brokers. Everyone wanted to believe anything that seemed to offer a chance to make some quick money.

Bruce found that simply being late to work no longer allowed him to elude the gauntlet of men who hoped to get an indication of the day’s rumor in the short space between the reception desk and the door slamming to his office. First the guys waited in the building lobby for him. Then a couple of them changed their commuting habits to walk with him. When he started staying overnight with female companions and sneaking in at 5:00 AM, it simply resulted in his new friends finding excuses to knock on his office door or call him on the extension throughout the day.

Bruce began to purposefully choose stocks at random and praise them or slam them. He figured that the brokers would soon realize his batting average was no better than average. “XYZ should be getting a bump soon,” he would say. Thirty brokers would get on the phone and tell their clients they should buy some XYZ. Three would tell friends in New York, not necessarily other Bare Sterns brokers, that something was up with XYZ. If anyone knew what XYZ actually did, some concrete possibility was added: XYZ’s about to get a big contract from the government. Someone would call XYZ, where the official spokesperson would refuse to comment. But call enough people at XYZ, and since the company got government contracts on a regular basis, that person might say “that must be the contract for 5 million boots that we bid on.” Somewhere some day trader who had bought XYZ on the early rumor would tell another day trader friend that XYZ was going to be bought by CBA, at a 15% premium to the current stock price. Then, in fact, CBA, which was in fact always thinking about merging with XYZ to eliminate ruinous competition, decided it had better go ahead and make an offer before XYZ stock became too expensive.

Bruce started to be right each and every day, with each and every stock recommendation he threw to the hungry wolves. He tried recommending depressed stocks that seemed to have no future, but their stock price would head up, management and employees would pull themselves together, and within a few of weeks actual, real, good news would be announced that more than justified the earlier stock price uptick.

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