As you sit there counting your losses from the global credit crisis, there’s one important thing to remember.
At least you are not a 19-year-old Marine in Iraq.
This is how Ralph Cioffi apparently viewed his fate as the hedge funds he managed at Bear Stearns collapsed.
“The worry for me is that the subprime losses will be far worse than anything people have modeled,” he told his associate, Matthew Tannin, on March 3, 2007, according to a federal indictment against the two money managers.
At least “we have our health and families,” Cioffi said. “We are not a 19-year-old Marine in Iraq.”
Weeks earlier, a 19-year-old Marine named Adam Q. Emul was on a foot patrol in Anbar province when a roadside bomb exploded — not that Cioffi knew anything about it.
Emul had joined the Marines weeks after graduating from high school in Vancouver, Wash., in 2005. In his brief career, he earned the National Defense Service Medal, the Iraq Campaign Medal and the Global War on Terrorism Service Medal. Emul had wanted to be in the military since he was a kid, family members noted at his memorial services.
At least Cioffi was not him.
Cioffi and Tannin are the highest -profile executives to take a perp walk in the subprime schemes that are now collapsing at banks around the globe, though prosecutors are probing for more at just about every struggling financial institution.
The two money managers deny wrongdoing. They’ve hired lawyers. And some observers have remarked that they are merely scapegoats in a global economic disaster beyond their control.
The biggest problem they may face in court is the difference between the very prescient things they said among themselves and the more optimistic remarks they gave investors as they scrambled for more cash amid the meltdown.
“I’m fearful of these markets,” Cioffi wrote in an e-mail to a colleague in mid-March 2007, according to the indictment. “It may not be a meltdown for the general economy, but in our world it will be.”
“The subprime market is getting pretty damned ugly,” Tannin said in an April 2007 e-mail to Cioffi, recommending they close the funds.
When they finally closed the funds in June 2007, losses totaled $1.4 billion, and their investors lost all of their money.
Nobody suspected that this relatively tiny tremor would foreshadow Bear Stearns’ demise and the global credit-market quake that finally shook the stock market below 10,000 Monday.
In the weeks before it happened, Cioffi had told investors the funds represented an “awesome opportunity” and Tannin touted “great possibilities.”
“Believe it or not, I’ve been able to convince people to add more money,” Tannin boasted in an e-mail by the end of March 2007.
In April 2007, a man whom prosecutors identify as “Major Investor No. 1” informed Bear Stearns that he wanted to redeem his entire $57 million investment. He was one of the three largest investors in their funds, and quite prescient too. Just not prescient enough.
The New York Post, citing unnamed sources, has identified him as billionaire investor Jeffrey Epstein, who is now in jail in Florida for soliciting teenage girls for sex while they gave him massages at his Palm Beach mansion.
At least Cioffi isn’t him, either.
But if I were Cioffi, I would not be thinking about those who have it worse. Because there is always someone who has it better.
Like Cioffi’s former boss, Warren Spector, who was co-president at Bear Stearns and thought to be its next chief executive until his 24-year career came to an abrupt end in August 2007.
Bear Stearns’ then-CEO, James Cayne, fired him in a sacrificial ritual designed to restore trust after the hedge-fund fiasco. It didn’t work.
In the years before he was fired, Spector reportedly sold more than $380 million worth of Bear Stearns stock.
If you have to be somebody else in this messy little world, it’s good to be him.
Al Lewis: 201-938-5266 or al.lewis@dowjones.com
