House of Cards, page 23
Teddy Low believed longevity should be the key criterion for selecting the firm's managing partner. “The fact that my dad built the firm up did not enter into Low's thinking,” Sandy Lewis continued. “But my dad had a different view. When Low [who had served in the naval reserve] came back from the war, he attempted to take the firm back where it was and stop all principal trading. [Founding partners] Harold C. Mayer and Joe Bear said, ‘Are you crazy?' And that was the end of Teddy Low's authority in that firm.”
IN THE WAKE of his success betting on the railroad bonds and after he consolidated his power at the firm, Lewis needed an encore. Bear Stearns did, too. So the partners focused on other event-driven deals, such as merger arbitrage (betting on whether an announced merger would happen or not) and taking controlling equity stakes in companies. In effect, after World War II, Bear Stearns was at the starting line of what has come to be known as the private equity business. “What you're looking at,” Sandy Lewis said, “is how does the firm make money with money, the firm's money?” This became his father's focus after the war. He wanted to climb the ladder of success and push his firm into the limelight. But he still had to pay occasional homage to the founding partners. “Mayer's on the floor and he has to call Mayer to get approval on everything,” his son continued. “Mayer was kind of a necessary nuisance.”
As wealthy as the Lewises were, Cy Lewis spent much time worrying about everything, though he communicated very little to his family. Cy Lewis's growing depression began to cast a pall over the household. “My mother got the feeling from her husband that things weren't good,” Sandy said. “His personality was always, ‘I'm worried.' This is a guy who's very concerned about building things. He carries all the worries of the whole place on his shoulders.”
And his words and actions could have powerful effects on his partners. For instance, Sandy Lewis recalled how his father devastated his partner David Finkle, whom Cy had recruited to Bear Stearns from Salomon Brothers and admired greatly. “David Finkle would come into the office with a new tie on,” Sandy recalled. “My father would look at the tie and say, ‘Where the fuck did you get that tie? Ah, come on, what kind of a tie is that? For Christ's sake, would you guys look at this tie? What did he spend on that tie?’” Lewis's supposedly friendly razzing caused Finkle to retreat to the bathroom and burst into tears. “Finkle was a very tiny little guy. Here's this massive Cy Lewis with his great presence and great gravitas. Cy Lewis walks in the room. Everybody sits up a little straighter. David Finkle walks in the room. Nobody notices he came in.” By this time, all the main players at Bear Stearns had specific roles: the WASPy affectations of Teddy Low, the showbiz demeanor of Don Lillis, the avuncular paternalism of Harold C. Mayer, the outsized intimidation of Cy Lewis. Lewis wanted to push his firm into the limelight—and climb the ladder of success himself.
ACE
nto this small second-tier Wall Street firm in 1949 came Alan C. Greenberg, a tough-minded midwestern Jew with a gambler's instinct and a serious itch to get rich. He was born in Wichita, Kansas, in 1928. He was the grandson of Russian immigrants who supposedly arrived “on these shores with nothing but dreams of America.” He had great admiration for them. “Getting from Russia to America without any money or profession or speaking the language, that took a lot of courage,” he explained. “And they had it.” When Greenberg was six years old, his father moved the family to the upper-middle-class neighborhood of Crown Heights in Oklahoma City, Oklahoma. Theodore Greenberg started Streets, a clothing store, on West Main Street in Oklahoma City, in 1930. The next year, the store was one of the first in the country to offer customer charge accounts. Eventually, Streets grew to thirteen stores in the state of Oklahoma, with around $30 million in revenue.
Alan Greenberg was a precocious little kid. “He was a terrific boy, never a problem at all,” his mother, Esther, said in 2000, when she was ninety-three years old. (She lived to be ninety-eight.) “But he was also a challenge. It's not easy to raise a boy when he's smarter than his mother…. After school, we would spend hours at home building model airplanes and, once, built a motor that he attached to his bicycle to power him to school.” He also saw a performance of Blackstone the Magician when he was eight years old and then became hooked on magic and card tricks. This dedication to a variety of hobbies—whether magic tricks, dog training, yo-yos, bridge, or big-game hunting in Africa using a bow and arrow— started in childhood. He always prided himself on being able to leave the office at the end of the day and not worry about it.
Eventually, at both Harding Junior High School and at Classen High, he would become a standout student who was captivated by all of his classes. He was also a star athlete, although he was only five feet ten on a good day. He had more of a pugilist's density rather than a true athlete's sleekness. But he made it work all the same. He was a blue-ribbon sprinter. He was also a star halfback on the Classen High football team that had an 11-1-1 record and defeated Tulsa Central to win the first official state high school championship.
He graduated from high school during World War II, and with so many young men in the army, his football skills were sufficiently good that he received a full scholarship to play football at the University of Oklahoma, eighteen miles from home. Freshmen were allowed to play on the varsity during World War II and Greenberg started the first two games of the 1945 season. But in the second game, against Nebraska, he ruptured a disc in his back, and his intercollegiate athletic days were over. At the end of the school year, he decided he wanted to “go East” to school. He transferred to the University of Missouri, Columbia, five hundred miles from home. He majored in business. With his cousin, Ronnie Greenberg, he joined the Zeta Beta Tau fraternity. They would also go camping, hunting, and fishing together when they could. He claimed to be only a B student who focused on sports and girls, “though not necessarily in that order.” He said he majored in “getting out.”
It was in pursuit of co-eds that Greenberg became known forever-more as “Ace.” At Mizzou, a friend advised him that it would be difficult for him to date women given his obviously Jewish name. “You know, you're not a bad-looking guy,” his friend told him, “but with a name like Alan Greenberg, you're not going to do well at the University of Missouri.” His friend suggested Ace Gainsboro. “I dropped the Gainsboro, but Ace stuck at the University of Missouri and it followed me to New York,” Greenberg said. He also pursued his interest in playing bridge in college. “If he was up until two o'clock, it was because he was playing bridge,” his Mizzou roommate (and future Bear Stearns chief operating officer) Alvin Einbender said.
Although Greenberg used to work sweeping out the family store on Saturdays growing up, he knew early on that his ambitions were far larger than running a women's clothing chain. He had his sights set on Wall Street. “I just thought it was something I might be good at,” he said in 2004. “I loved playing cards, I loved—shall we say—making bets on things. So I headed to New York. Bet making was illegal at that time, so I didn't have many options.” Greenberg said he took with him some valuable lessons about life he learned from his family. “My father had a tremendous amount of common sense,” he said. “During World War II, a lot of people had cash. I said to my father, ‘How come all these people have cash?' He said, ‘They do business away from the cash register'—because at that time we had price controls…. So I said, ‘Why don't you?' He said, ‘I never want to end up working for my bookkeeper or my secretary.' And I never forgot that.” According to Mark Singer, the New Yorker writer who profiled Greenberg in the magazine in 1999 and in whose piece this bit of homespun wisdom first appeared, “That was it, an ostensibly revelatory anecdote that terminated in a business axiom: steal from the tax man and your underlings are liable to blackmail you.”
Another lesson he learned from his father the retail merchant would become the bedrock of the Greenberg myth. “There were certain things that I heard him talk about that stuck with me through Wall Street and I think pertain in any business,” he said. “For instance, he'd say if you had some merchandise that doesn't look good, sell it today because tomorrow it's going to be worse. That's certainly true of securities, I assure you.”
He also owed his father his everlasting thanks for staking him to the $3,000 he used to live in New York City after college while he tried to get a job, any job, on Wall Street. He had not graduated from an Ivy League school, he was Jewish, and the competition for Wall Street jobs, then as ever, was keen. “Other than the Jewish firms, Wall Street was an inhospitable place for a Jewish boy,” Einbender said. Greenberg also had in his pocket a letter of recommendation from a business friend of his uncle's— whom he had never met—and he used that letter to get interviews at six of the Jewish Wall Street firms. It was very tough going.
His money was quickly running out. He was twenty-one years old. Then, at last, Bear Stearns asked him to come work as a clerk in the loan department, making $32.50 per week at the firm's new office at 1 Wall Street.
In 1949 there was no question that it was Cy Lewis's firm. He was the managing partner and had by far the largest percentage of the profits, which made sense because he and his ideas were generating most of them. Lewis presided over the growing firm from his large leather seat at the center of a U-shaped arrangement of desks. The firm had 125 employees and $17 million in capital. The firm was referred to then as “Boys' Town” for obvious reasons. Singer, in his New Yorker article, elaborated: “Bear Stearns had something of a Sammy Glick profile. It was a ‘trading' operation—smart, sharp-elbowed, busy in the equity markets—but not an enterprise whose partners were likely to be invited to Washington to offer the President or his Cabinet members insights into how to mind the nation's business.”
At first, Greenberg's tasks as a clerk were indeed menial. He was assigned to the oil-and-gas department—he was from Oklahoma, after all. He read technical journals and placed pushpins in a wall-sized map of the United States to show the location of oil-drilling activity. “I was very well prepared for that,” he said once, with some sarcasm. “I had good hand-eye coordination.” One of the main aspects of his job was to move the pins around the map. He started hanging around the trading floor during his lunch hour and fell in love with the action there. Its mysterious, magical quality appealed to him. His youthful curiosity came to the attention of John Slade, the partner who was then running the arbitrage department at the firm. On old Wall Street, arbitrage was a gambler's paradise, where grown men could take calculated risks on whether and when announced mergers or acquisitions would actually occur. But since the risks of the deals that arbitrageurs invested in were often beyond their knowledge—and certainly beyond their control—the roller-coaster ride could be at once thrilling and nauseating.
Slade quickly arranged for Greenberg to work for him on the arbitrage desk. Greenberg found out immediately how gut-wrenching the work could be. By midmorning on his first day, after a “verbal lashing by Slade,” Greenberg headed to the bathroom and threw up. Slade, of course, was used to such tirades from Lewis, who once berated his partner for losing $400 on one bond trade at the same time he had made $80,000 in profit on another bond trade; Slade almost quit the firm as a result, but then joined the risk arbitrage department. Firm mythology held that after Slade had taken his pound of flesh out of Greenberg, never again in his career would Greenberg reveal any nervousness.
In truth, Greenberg just wanted to make money, and the arbitrage department at Bear Stearns was doing precisely that. “It was one of the few places in 1949–50 that was making any money,” Greenberg explained. During those days, the arbitrage department was said to make about 30 percent of the firm's profits in a good year, and all of them in a bad year.
By 1952, Cy Lewis was becoming a major figure on both Wall Street and in New York City. He pioneered what became known as “block trading”—the buying and selling of huge blocks of stock for institutional investors—along with Gus Levy, the head of Goldman Sachs. Also along with Levy, Lewis became a tireless fund-raiser for the Federation of Jewish Philanthropies, which served as the umbrella organization for charitable gifts to more than a hundred New York area hospitals and social services organizations. Lewis, more than anyone else at Bear Stearns, initiated the practice of charitable donations at the firm, a practice that over time both Greenberg and Cayne perfected. Bear Stearns was unique on Wall Street (for requiring the firm's senior managing directors to donate 4 percent of their annual compensation to charities of their own choosing).
In 1953, at the ripe age of twenty-five, Greenberg succeeded Slade as head of the risk arbitrage department and “was on his way toward establishing a reputation as one of the shrewdest and most self-possessed traders on Wall Street,” according to The New Yorker. That year, he married Ann Lieberman, also a native of Oklahoma City.
In 1956, a seat opened up in the U-shaped array of desks right next to Lewis, and Slade recommended to Greenberg that it would be good for his career if he could get close to the managing partner. Without the nudge from Slade, Greenberg later claimed, he would not have taken the open chair, as otherwise there was no reason to put oneself voluntarily in a position to incur Lewis's wrath. “Being seated next to Lewis meant suffering the full force of his frequent titanic rages,” Judith Ramsey Ehrlich and Barry J. Rehfeld wrote about Greenberg in their 1989 book, The New Crowd. “If anyone disagreed with him, it was a virtually no-win situation. Lewis had an ego as large as his physical proportions. If you were wrong, he would never let you forget it. If you were right and he was wrong, then Lewis would hold a grudge.” While this, sadly, is not unusual behavior on Wall Street, what was unusual was how, despite this characteristic, the two men effectively married their skills—Lewis in block trading, Greenberg in risk arbitrage—to the firm's benefit and their own. The slowly emerging world of mergers and acquisitions provided both men with the incentive to combine their talents. “The natural marriage between block trading and arbitrage is pretty obvious [since big blocks of stock start moving when a deal is rumored or announced],” Sandy Lewis said. “At Bear Stearns, that took place between Alan Greenberg and Cy Lewis sitting on the trading desk together.”
In April 1957, there was a bit of a hiccup in Greenberg's career ascent. On April 2, the New York Stock Exchange accused Greenberg of violating what is now Exchange Rule 345.17 (and was then rule 434), to wit, “No member, member firm or member corporation shall permit any person to perform regularly any of the duties customarily performed by a registered person, unless such person shall have been registered with and is acceptable to the Exchange.” He was suspended from the firm for two months without compensation, a significant slap on the wrist at the time. The Exchange required then—and still does now—that most people who work on Wall Street, especially those involved with clients or with buying and selling securities, must pass a test and become “registered.” The Exchange has no additional detail about what Greenberg did wrong that resulted in such a significant penalty. (Greenberg declined to be interviewed on this topic.)
But the suspension had little obvious effect on Greenberg's career trajectory. He returned to the firm in June 1957 and, with his business and political skills working in tandem, became a partner of Bear Stearns in 1958, when he was thirty. The first year-end partners' celebration he attended was as simple as could be imagined: pitchers of beer in the back room of a local steakhouse after the market had closed.
A year later, Greenberg received news that any young man would find shocking: He had been diagnosed with colon cancer and the doctors told him he had about a 25 percent chance of survival. Surgery was the only choice, since in those days there was no chemotherapy. “Well, the odds aren't too bad,” he told his brother Maynard, “but the stakes are awfully high.” He flew off to the Mayo Clinic, in Rochester, Minnesota, and underwent what turned out to be successful surgery to remove the cancer. The cancer was cut out completely and had not spread. “According to friends and family,” goes one account, “Greenberg never seemed frightened or depressed all through the months of convalescence. He did, though, have a store of mordant jokes.” He would joke that for him the future now meant next week: He would only invest in short-term securities and decided he might as well rent everything, instead of buying. But, in truth, his existential crisis quite normally focused his attention with laser precision on the things he thought were most important: making money and having fun. “I never put anything off after that,” he said. “I took magic lessons and judo lessons. I went to Africa. Really, I just kind of exploded.”
At 1 Wall Street, Cy Lewis took the news of Greenberg's illness hard. Greenberg had proven to be a lucrative partner for the firm, which always needed new ways to make money with its own money and didn't have many sources of recurring revenue. “Brains like that don't come along like that very often,” Sandy Lewis remembered his father saying about Greenberg during his illness. “The risks to the firm were substantial. There was a huge sigh of relief when his prognosis improved.”
GREENBERG'S BRUSH WITH his own mortality inspired him not only to live more for the moment but also to be somewhat more confrontational with those partners who he felt were making wrongheaded decisions with the firm's capital. Suddenly, Greenberg's father's maxim of selling slow-moving inventory as soon as possible became his mantra for the securities business. Public enemy number one on this front, Greenberg thought, was the managing partner of Bear Stearns, Cy Lewis. Whereas before his cancer diagnosis Greenberg was content just to talk to the other partners about his perception that Lewis was holding on to certain securities too long, now he was willing to be more confrontational. If Lewis would not sell the firm's losers, Greenberg decided, he would just have to be the one to get him to do it. “People don't hesitate for a minute to take a small profit,” he said once. “But they don't want to take losses. Which is, of course, just the opposite of what you should do. If you're wrong, you're wrong. Sell, and buy something else.”
