Penguin.com (usa)

Much of Wall Street relied on repo loans to help finance its day–to–day operations, but Bear was more dependent on these short–term loans than its competitors were. With a leverage, or debt–to–cash ratio, of 30 to 1—meaning that for every $1 it actually held in cash, Bear had borrowed $30 from other parties—the firm had one of the heaviest debt loads of any firm on the Street. That made it more vulnerable than other firms when repo lenders faced a crisis of confidence.

To streamline the daily lending process, Bear operated financing desks in the fixed–income and equities units staffed by people whose job it was to "roll," or renew, expiring loan agreements on a nightly, weekly, or monthly basis. Eyes turned now to Tim Greene, one of the two heads of Bear's fixed–income financing desk. Greene, a West Point graduate with a soldier's sense of loyalty, had been working at Bear for twenty–four years, rising through the ranks to help run the bond unit's repo desk, which handled about $160 billion of funding at any given point—about half of Bear's entire balance sheet. He had met his wife, Maryann, on that desk, and he loved the job.

Greene was used to operating under pressure. From the time he arrived at work from suburban Connecticut at 7:00 a.m. to the time he finalized the day's funding agreements around 2:00 p.m., every day was a scramble to renew the firm's loans and keep the cash coming. Ironically, just as the stress was amping up, Greene had tried to reverse years of unhealthy eating habits with a 1,100 calorie–per–day diet and had already lost thirty pounds.

Up to now, borrowing $10 billion or $20 billion in a day generally wasn't a problem. But Friday was likely to be no average day, and the firm needed $14 billion in new money to fund its operations. On top of that, Bear had to replace, or roll, more than $10 billion.

Greene, who was facing Molinaro on the opposite side of the room, tried to sound optimistic. His relationships with lenders ran deep, and he didn't think they'd abandon Bear overnight. "I'm confident I can do it," he told the group.

"How?" asked Molinaro.

"I can do it without anybody knowing, on the screen," Greene told him, referring to a popular computer–driven lending system in which participants could trade anonymously, without revealing their identity to the other party in the transaction.

Next to him, Greene's boss, the fifty–two–year–old Friedman, doubted it. Ever since the prior August, when two internal hedge funds had failed—giving the lie to Bear's long–vaunted prowess in careful risk management—Friedman had felt like the sky was falling. He joked to associates that he spent his days on Bear's seventh–floor mortgage–backed–securities trading hub either hiding under his desk or puking into a trash can. He hated that the funds' embarrassing failure had thrust his insular company into the spotlight.

Now Friedman told the group he thought there was no way that at least half of the next day's repo loans were going to roll in order to help fund Friday's operations. Like any trading firm, Bear spent the day buying and selling securities for itself and for clients, processes that required bundles of cash at the ready. More days than not, the firm was profitable and not losing money, but it had to be prepared to refund loans or provide additional collateral when asked. Now, with rumors sweeping Wall Street about Bear's cash drain, Friedman worried that Bear's usual lenders might be too spooked to lend as they normally would, for fear that the firm would never pay them back.

He suggested that Greene might try raising the $14 billion or so the firm had in bonds backed by Fannie Mae and Freddie Mac, government–sponsored housing agencies that were considered safer than loans packaged by other players. Those were the bonds tradable "on the screen," where no one would know it was Bear making the transactions.

Molinaro turned to his treasurer, Bob Upton, who sat across from him next to Friedman. "Where are we with cash?" he asked.

Upton studied the legal pad in front of him, on which he had jotted down his best estimates of the credits and debits in Bear's various accounts.

He felt beaten down. An unsmiling father of two, Upton had spent years toiling as an analyst of securities firms and international banks for Fidelity Investments, hoping to someday actually manage the cash at a big Wall Street firm. Since April 2006, when he had been named treasurer of Bear, the workload had been brutal. During a three–year period his dark brown hair turned almost totally white. Though he was trim, didn't drink, and watched his diet carefully, Upton now looked far older than his forty–seven years.

Like Greene, Friedman, and others, Upton and his team had suffered fallout from the hedge fund failures, as funding the firm became more difficult. For much of the past year, Upton had been arriving at work from his suburban home at 5:00 a.m., and not leaving until as late as 10:00 p.m. Many nights he got as little as four hours of sleep. I'm fucking killing myself, he often thought. Yet he, too, adored the place.

The firm's troubles had been building throughout the week. On Monday, a batch of home loans it had packaged and sold were found to be exceedingly high risk by a major rating agency, which meant that conservative investors would have to sell any of the bonds they held that were backed by those loans. Based on the headlines, some market watchers mistook the finding as a downgrade of Bear as a whole, seeing it as an indication that the company was very likely to default on its debt. Its shares tumbled. Bear was now trading at about $65 on the New York Stock Exchange.

Overnight, some of Bear's lenders—the dozens of American and overseas banks that extended it billions of dollars a day to conduct business—began tightening the reins. The Dutch bank ING refused to refresh some of Bear's credit, and others soon followed suit. Right away, Bear's major clients heard the message: The firm was no longer safe. Hedge funds like Renaissance Technologies Corp., the enormous trading firm that had long been a top client, began reducing their balance levels immediately, worrying that if Bear went down, their money would be stuck on a sinking ship. Bear shares fell further, even amid public denials by Molinaro and others that any real trouble was afoot.