Penguin.com (usa)

5:30 P.M.

Early on the evening of Thursday, March 13, Sam Molinaro, chief financial officer of The Bear Stearns Companies, called the firm's CEO, Alan Schwartz. "We have a serious problem," Molinaro said.

Up in his forty–second–floor office, Schwartz had been hearing snippets of bad news all afternoon. Bear traders, trying to do business with rival firms, were getting pointed questions about whether they could make good on their financial obligations, and hedge funds had been yanking money out of their Bear accounts. By the time he got the call from Molinaro, Bear's cash supply appeared to be draining fast.

"This is looking pretty serious," Schwartz replied. "I'll be right down."

Schwartz took the elevator to the sixth floor, where executives were slowly congregating outside Molinaro's corner office. Though no one had sent out an e–mail, the word got around that the firm's top managers were meeting at 6:00.

Like many meetings led by Molinaro, however, the tone seemed to be one of hurry up and wait. Bear's CFO was hopelessly disorganized, and had a knack for making important people hang around outside his office while he wrapped up a phone call or had an impromptu meeting. The delays sometimes lasted for hours. Molinaro's chaotic scheduling was so widely remarked on that Paul Friedman, the sardonic chief operating officer in the fixed–income division, liked to sum it up with a joke: "What time is our six o'clock meeting?"

This time, Molinaro was tied up in his office with his former secretary, now a managing director in the firm's operations department, which handled Bear's real estate dealings around the world. Knowing the urgency of the meeting they awaited, managers rolled their eyes as they glanced from their watches to their BlackBerrys outside Molinaro's adjoining conference room.

Finally Molinaro walked in and took a seat. Schwartz, at fifty–seven a towering, impeccably dressed former baseball star, sat near the door at the head of the table, legs crossed, silently leaning back in his chair. He had not expected this when he was named CEO barely three months earlier.

He was surrounded by a wily group of fellow executives who over the years had supported one another, challenged one another, and vied for one another's jobs and pay. Bear was a dysfunctional family, driven by greed and a complex code of internal politics. Far above the lower and middle ranks, where most of the firm's fourteen thousand employees worked, was an upper tier of some seven hundred senior managing directors, or SMDs, who made fat bonuses and enjoyed perks like a private lunch room, special expense accounts for ordering meals and flight upgrades, and unique access to key clients and public figures. Partly to justify their pay, management forced

SMDs to give a small portion of their annual compensation to charitable causes, and tax returns were reviewed to make sure people complied. ("Trust but verify" was the motto governing the philanthropic program. Though many of Bear's senior managers were civic–minded, enforcement was still in order.)

But the vast majority of Bear's SMD pool was blissfully unaware of the firm's inside workings. As at most investment banks, its levers were pulled exclusively by a short list of managers who ran divisions like fixed income, equities, and prime brokerage, which handled trading and lending to Bear's most important hedge fund clients. Managers in places like risk management and operations were considered less important to the firm's core franchise and therefore largely excluded from important decisions.

Tonight's gathering, at which nearly all the power players were present, guaranteed a clash of opinions and egos. For months Bear had been struggling with a choppy stock market, plummeting home values, and an exodus of the lenders and clients that were its lifeblood. The developments had created deep fissures within Bear's sharp–elbowed ruling class. The trader who ran mortgages had nearly come to blows with the cochief of equities the prior fall over whether the fixed–income department, which included the mortgage unit, deserved bonuses after such a terrible year. Bear's finance officers, who were advocating for safer ways to manage the firm's own cash, had been involved in screaming matches with their counterparts in equities who argued for the status quo. Some of Bear's top traders and executives had begged the mortgage team to divest their portfolios of its shakiest assets, to little avail. Now all the bad blood from those tumultuous months was coming to a boil.