How Spitzer's Hooker Scandal Stymied Bear Stearns' FightbackThe Wall Street Journal is in the midst of a trillion-word ongoing series chronicling the downfall of Wall Street firm Bear Stearns earlier this year. Today's installment looks at the rapid compounding of the firm's financial problems, which builds inexorably into a crisis. That's nice and everything, but the really interesting part comes when the story reveals what threw a wrench into the multibillion-dollar firm's effort to save its public reputation: Eliot Spitzer and his stupid hooker! Not to mention their old card-playing stoner chairman of the board:

Bear Stearns executives believed another public statement was needed. Arrangements were made for Mr. Schwartz to appear from Florida on business network CNBC.


Minutes after 9 a.m. on Wednesday, Mr. Schwartz told the cable-TV audience, "Some people could speculate that Bear Stearns might have some problems...since we're a significant player in the mortgage business. None of those speculations are true."

But before he could get through his talking points — which included mentioning the firm's strong cash reserves and indicating to investors that Bear Stearns would have a profitable first quarter — Mr. Schwartz was interrupted by breaking news from New York: Gov. Eliot Spitzer, having been linked to patronizing prostitutes, was resigning. Mr. Schwartz was dismayed, but got a chance to make his points after the news break.

Later, as the crisis is reaching a breaking point, Bear convenes an emergency board meeting. But hey, former weed-smoking CEO James "Jimmy" Cayne had better things to do:

Mr. Schwartz arranged an emergency board meeting to brief directors that Thursday night. It was late, so most phoned in. James Cayne, who'd remained as chairman after stepping down as CEO Jan. 8, missed part of the discussion because he was playing in a bridge tournament at a Detroit hotel.

[WSJ; pic via Lolfed.com]