Two former Bear Stearns hedge fund managers who made very, very bad bets on subprime mortgages, Ralph Cioffi and Matthew Tannin, were found not guilty of securities fraud in Brooklyn federal court on Tuesday. The verdict invites a look back at how the history of the financial crisis is being written in real time.
William D. Cohan's riveting account of the fall of Bear Stearns, "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street" was one of the first books published on the financial crisis to hit the market. It also held pride of place as one of the best, at least until the publication of Andrew Ross Sorkin's "Too Big To Fail." Full of detail from numerous interviews and copious access to company e-mails, Cohan's account is noteworthy not least for the compelling and lengthy circumstantial case that it makes against Cioffi and Tannin. If you were judging from "House of Cards" then Cioffi and Tannin seemed obviously guilty of telling investors in their funds one thing while doing another.
Just one example of how Cohan tells the story;
The problem was that none of it was true. Cioffi had not been avoiding residential mortgage-backed securities, as he had suggested to his investors on their monthly statements. Actually, he had done precisely the opposite and had started to load up on these toxic securities at exactly the wrong moment.
The indictment of both men on charges of conspiracy, securities fraud, and wire fraud is part of the last chapter of "House of Cards." The case against them, from Cohan's telling, seems airtight.
Two months after the publication of "House of Cards," Wall Street Journal reporter Kate Kelly's book on Bear Stearns, "Street Fighters: The Last 72 Hours of Bear Stearns, The Toughest Firm on Wall Street," finally made it to stores. Although Kelly broke some important stories for the Journal on Bear Stearns, "Street Fighters" -- about half as long as "House of Cards" and much less comprehensive -- suffered in comparison. The saga of Cioffi and Tannin only occupied two pages near the beginning of her story, and the fact that they had been indicted for securities fraud in federal court wasn't even mentioned, a point I noted with several exclamation points written in the margins of my reviewer's copy.
At the time, I thought this was a pretty serious flaw in "Street Fighters." But now, after seeing Cioffi and Tannin acquitted in a court of law, I wonder. Maybe it was Cohan who gave their misadventures too much attention, while Kelly got it just right.