Still More On Bear Stearns

Here are three quotes from Aftershocks of a Collapse, With a Bank at the Epicenter:

More so than other firms on Wall Street, Bear had encouraged its employees, from secretaries to top executives, to be long-term holders in the company’s stock, and the employees own over 30 percent of the company.

“My life has been flushed down the drain,” said one person. There was talk Monday that with their life savings nearly depleted, some executives had moved quickly, putting their weekend homes on the market.

But to most Bear employees, many who face the prospect of not only losing their jobs but of a retirement without savings, such a thought is perhaps too elusive to contemplate.

Huh? How can this be? I could retire on what these guys make in one year. Look at this quote from The Evolution of an Investor about former stockbroker Blaine Lourd:

Still, he was a 29-year-old earning $200,000 a year, and he was, as he puts it, "ramping up the lifestyle." Rival firms noticed his success: He left Bear Stearns for Dean Witter, which would later become Morgan Stanley. Blaine’s business grew to the point where he became somewhat famous. Name a prominent director or big-time movie star, and there was a fair chance that Blaine Lourd was giving her financial advice. He lived near the beach in Malibu, drove fancy cars, and indulged an expensive taste for young women who had moved to Los Angeles to become movie stars. He routinely ranked in the top 10 percent of revenue producers for whichever firm he happened to be working for. In his best years, he grossed more than $1 million. His father had been right: His persuasiveness and ability to get people to like him went far on Wall Street.

Bear Stearns mostly hires college educated “smart” people. So why were these people not smart enough to follow a basic investing rule that has been pounded into every American brain since the collapse of Enron? You know the rule I mean: “Diversify.” I simply can’t believe that everyone (except for the lower paid employees who do all the actual real work) who works at Bear Stearns doesn’t have substantial amounts of money stashed away in something other than Bear Stearns stock. Get real.

Also, it goes without saying that all these “smart” people at Bear Stearns were ignorant of the first two rules of investing:

1. Don’t lose money.
2. See rule number one.

Greed is not good.