Island author tapped for book on collapse of Bear Stearns
COMMUNITY
BY MARY LANCASTER INDEPENDENT WRITER
It was the fifth largest investment bank in the nation, but after 85 years it took only one week for Bear Stearns to become absorbed by J.P. Morgan. Amidst a devastating sub-prime mortgage crisis, the only other alternative for Bear Stearns was bankruptcy.

ROB BENCHLEY/The Independent Spencer: "What we're trying to do is write a book to explain what happened to the people who don't understand. It's a very complex thing."

Now, islander Andrew Spencer has been hired to write a book about the banking giant's collapse. The book, "Bear Trap," is scheduled for a September 22 release.

Over coffee last week, Spencer, who writes the "Tight Lines" column for The Nantucket Independent, explained that summer resident and CEO of Creative Management Group, Alan Morell, was contacted by John Colby, owner of Brick Tower Press, seeking someone to produce a book explaining what put Bear Stearns on the verge of bankruptcy. Spencer heads the literary division of CMG. The publisher, who knows a former Bear Stearns senior managing director, told Morell that the director wanted to tell the story behind the bank's demise and subsequent purchase as an anonymous source because he is uncertain whether he will stay on with J.P. Morgan or branch off on his own.

"Until he gets a little distance on this thing he doesn't want to be the guy who wrote the book," said Spencer, adding that he took the assignment at the end of April with a manuscript deadline of June 15. "This has turned into my life. I spend six to eight hours writing every day. This is so far from anything I've ever done. People who are in that [investment banking] world know what happened. What we're trying to do is write a book to explain what happened to the people who don't understand. It's a very complex thing."

Spencer is writing from the first person perspective of the former Bear Stearns director, and though the book will read somewhat like a novel, it contains definitions for terms such as 'adjustable rate mortgage' and 'IPO' (initial public offering). Simplifying what may be a confusing set of circumstances for laypeople, Spencer explained that on Monday, March 10, rumors began circulating on Wall Street that Bear Stearns was in financial crisis because of its deep investments in mortgage bonds, which are thousands of individual mortgages packaged into a single bond that investment banks buy from lenders. In Bear Stearns' case, as borrowers started defaulting on their mortgages and the value of the mortgaged properties dropped below the value of the loans, investors who held the bonds began selling them back to Bear Stearns.

"There was a panic going on. People started returning the bonds and wanting their money back," said Spencer. "The rumors were that Bear Stearns didn't have enough money to cover all the bonds being returned, though in reality they did - they had $11 million in cash reserves."

Bear Stearns executives tried using news programs to squelch the rumors, but to no avail. By Friday of that week in March, the bank realized it would either have to declare bankruptcy and cease to exist because of the continuing bond returns or allow itself to be purchased. Rival investment bank giant J.P. Morgan stepped in with an offer that Bear Stearns was forced to accept.

"It is complicated," said Spencer. "The first third of this book is an explanation - kind of a primer on basic Wall Street terminology. It's a whole other world and it's a whole other language. I'm learning a great deal. I've got a brother who worked in investment banking so I'm calling him a lot to get answers. It's been a fun experience so far. I'm about one-third

of the way home, I hope." I