C&B Notes

RIP: Ace Greenberg

Full of wit and wisdom, Ace Greenberg’s “Memos from the Chairman” is a must read for anyone in business.  Mr. Greenberg passed away on July 25th in New York.

Mr. Greenberg began his career at Bear Stearns in 1949 and rose through the ranks over many decades, taking over as chief executive in 1978 and running the New York firm until 1993, when he handed the reins to trusted associate James Cayne.  An avid bridge player, Mr. Greenberg liked risk takers and found, in Mr. Cayne, a like-minded protégé.

Mr. Greenberg was raised in Oklahoma City and briefly attended the University of Oklahoma on a football scholarship.  He brought an outsider’s sensibility to Wall Street.  While rival investment banks such as Goldman Sachs Group Inc. and J.P. Morgan fashioned themselves as white-shoe firms catering to the global elite, Bear Stearns was a scrappy upstart that often managed to out-hustle rivals on deals…

For years, Mr. Greenberg reflected the securities firm’s outcast culture on Wall Street.  Rather than seek Ivy League talent, Mr. Greenberg looked for what he called “PSDs”—poor, smart employees with a deep desire to get rich.  He often hired people who were fired from rival firms.

A legendary trader, Mr. Greenberg was fanatical about having static or losing trading positions sold — quickly.  For years, he led what Bear Stearns called “cold-sweat” meetings in which he would grill traders on their positions.  The firm printed an “aged-position report” that showed “stale” trades not sold within 90 days.  He recalled that his father, a clothing retailer, often told him: “If something isn’t moving, sell it today because tomorrow it will be worth less.”

At a key risk meeting during the financial crisis, Mr. Greenberg had reviewed a number of the firm’s negative stock bets, and wasn’t happy.  The positions were too risky, he warned, and should be closed out immediately.  He also wanted the firm’s heavy inventory of mortgage securities slashed. “We’ve got to cut!” Mr. Greenberg demanded.

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Mr. Greenberg was one of Wall Street’s quirkier characters.  e was as well known for his voluminous memos and expertise outside Wall Street as his trading acumen.  In 1988, he printed a bound, 50-page booklet of his memos, “Memos from the Chairman.”  Of the more than 100 memos he wrote between 1977 and 1993, nearly half concerned controlling costs.

His most famous memo was about expenses.  The message: Stop buying paper clips.

“All of us receive documents every day with paper clips on them,” he wrote.  “If we save these paper clips, we will not only have enough for our own use, but we will also, in a short time, be awash in the little critters.  Periodically, we will collect excess paper clips and sell them (since the cost to us is zero, the Arbitrage Department tells me the return on capital will be above average).”