The Weekend That Changed Wall Street

it responsibly to prevent overreaction or false reactions in the market. But there seemed to be a lot of rot under the surface at Bear, and it was disingenuous to blame the media. Watching Schwartz, I thought, “Don’t shoot the messenger. What’s the real truth?” False optimism is never warranted, and the consequences are very real. A source of mine complained quite angrily about Schwartz. After watching him give assurances on CNBC, my source bought shares in Bear Stearns and ended up losing a million dollars.
Today, looking back on Schwartz’s claims of solvency during a period when clearly Bear was about to fail, I want to give him the benefit of the doubt. At the time, Bear had a strong balance sheet, so Schwartz’s claim was essentially true. What he didn’t measure was the destructive effect of a run on the bank. It was a slippery slope. The markets move fast, and at the hint of trouble, a run on Bear could demolish it.
Jamie Dimon was a youthful fifty-two—shrewd but personable, with one of the best résumés on the Street. He was born on Long Island of Greek heritage, a twin who was also the son and grandson of stockbrokers, and he chose to follow in their footsteps while forging his own identity. As a young man he was irreverent, long-haired, and bright, and he retained his shaggy style through Harvard Business School.
More than anything, what may have determined Dimon’s future was his choice of a mentor—a friend of the family named Sandy Weill, who had just become president of American Express. Weill had made a name for himself as brilliant but iconoclastic, and he was happy to take Dimon under his wing. After graduating from Harvard, Dimon accepted a job with Weill, as his assistant at Amex. As Weill’s protégé, Dimon was whip smart and deeply loyal. The two men were like father and son, and Dimon was so attached to his mentor that when Weill resigned from Amex in 1985 because the firm wouldn’t make him chairman, Dimon followed him out the door. They experienced some lean years together, but by 1998 they had come back with a vengeance, building the empire that would become Citigroup. By then their bond was so tight that everyone expected Dimon to be Weill’s successor when he eventually retired. But that didn’t come to pass.
If Weill had an Achilles’ heel, some people felt it was his outsize ego. He enjoyed being the headmaster, the man in the spotlight. Citigroup’s name was synonymous with Weill, and he wanted to keep it that way. As long as Jamie Dimon stayed in his place as the obedient, subservient son and heir-in-waiting, Weill was pleased with him. But when Dimon began establishing his own reputation and getting noticed by the press, Weill became touchy about not being the total center of attention. Although Dimon was hardly a media hound, the press warmed to the young, handsome financier, and he couldn’t always control it. As a result, the relationship between the two men began to fray. Then Dimon did the unthinkable—at least from Weill’s standpoint. He disrespected a member of the family.
Weill’s daughter, Jessica Bibliowicz, had joined the firm, and by all accounts Dimon welcomed her. But then Weill asked Dimon to put her in charge of Smith Barney, a unit of Citi. Dimon demurred, politely but firmly telling Weill that she was not ready to take on such a big responsibility. When Weill’s daughter resigned rather than accept a lesser position, Dimon’s goose was cooked. Weill could never look at him the same way again. He’d betrayed the king. Off with his head. In 1998 Weill fired Dimon.
Later Weill wrote a book, which he told me was a cathartic effort to get over the pain of the separation. “Jamie was incredibly smart and unbelievably loyal,” he said sadly. “He was a terrific partner who I really loved, and I hated to see our relationship come to an end. Unfortunately, it had to.”
Weill’s version implied that the split was Dimon’s doing, and with a guy like Weill, there could be no convincing him otherwise. Dimon wasn’t talking. He may have been deeply wounded by Weill’s actions, but he kept his feelings to himself. Eventually he bounced back, becoming the CEO of Bank One, which he then sold to JPMorgan Chase for $58 billion—a deal widely praised as good for everyone. In 2004 Dimon became the president and chief operating officer of JPMorgan and was made CEO the following year. He was admired on Wall Street and in Washington, and his recent claim to fame was that he’d limited JPMorgan’s exposure to subprime. He was also beloved by his people. One of his lieutenants told me, “Jamie inspires confidence,” and his team was extremely loyal to him.
On the evening of Dimon’s fifty-second birthday, Thursday, March 13, he received a desperate call on his cell phone from Alan Schwartz. JPMorgan was the clearing bank for Bear Stearns, and Schwartz put it to him straight: he needed $30 billion, and he needed it now. Dimon was shaken by the immediacy of the request, and he told Schwartz it was impossible—at least not without some kind of federal guarantee. He suggested that Schwartz put in a call to Timothy Geithner at the Federal Reserve.
Geithner took the call from Schwartz and sprang into action. Schwartz had warned him that bankruptcy was imminent without a rescue, and he was grim as he began to work the phones. He realized how damaging it was to be caught so off guard. Only days earlier Christopher Cox, chairman of the SEC, had told reporters, “We have a good deal of comfort about the capital cushions” at Bear. What the hell had happened?
Geithner’s concern went far beyond the fate of a single investment bank. He believed Bear’s struggle was a gateway to a systemic crisis that could have a devastating impact on U.S. and global markets. He likened it to a spreading contagion, whose