Fixers

by Michael M. Thomas

  I shook my head. I couldn’t begin to.

  “Try fourteen trillion dollars. A lot of it owed by people living pretty close to the bone.”

  “Ouch!”

  “If there’s a recession, millions of people are going to come up short. There’ll be foreclosures and repossessions, and that’s how revolutions get started.”

  “Or movements to penalize foolish lenders.”

  He nodded. “Quite right. There’ll be pressure on Washington to force creditors to take haircuts.”

  “Makes sense to me.” I instinctively root for the little guy. Mankoff doesn’t. I knew who he was really worrying about: creditors’ creditors. I thought about adding something to the effect that with Congress and regulators in the Street’s pocket, there couldn’t be much to worry about—but decided to keep my trap shut.

  “Worst case,” Mankoff said, “we could see a repeat of the savings-and-loan mess of the eighties, only carried out to about the tenth power.” He reminded me that when the savings-and-loan industry blew up in the late eighties, just about the time that Mankoff and I were putting the blocks to the Bank of West Congo, the American Taxpayer, who would be obliged to put up $125 bil-lion to ultimately fix the mess, called for the blood of the people responsible and Washington granted his wish. Names were named; the manacles were brought out; federal and state prosecutions succeeded in sending a bunch of big-name S&L executives to jail. You probably remember photos of one Charles Keating, friend of presidents and a man of influence, doing the perp walk. A thousand S&L executives, some say, ended up doing time.

  This time could be worse, Mankoff says. A lot of the top executives on the Street have knowingly or unknowingly signed off on various forms of transactions that walk, talk, and smell like fraud, he told me. He’s concerned that he hasn’t been as vigilant as he might have been with respect to what Rosenweis’s regiment of traders may have gotten up to. Worst case, if the Feds get serious and go strictly by the book, they could bring criminal charges against many of the million-dollar earners on the Street.

  I thought about asking him about a series of trades that STST’s been doing with a major hedge fund, bespoke transactions that sound distinctly dodgy to my untutored sense of straight and crooked, but I’m not sure I’m supposed to know about them, so I keep silent. I’ll tell you about them in due course.

  Anyway, what worries Mankoff is that Washington, which, thanks to the utter corruption of Congress and the regulatory agencies that will have been Wall Street’s equal in precipitating the coming crisis, will try to cover its ass by attacking the Street with new legislation and regulation. Wouldn’t be the first time a guilty party turned on his coconspirators to save his own skin. There will be calls for punitive retribution, and people may go to jail, but what he really fears are reformist policies and programs that widely heeded “progressive” pundits like the Nobel economists Krugman and Stiglitz will have a hand in shaping. The thirst for reform will be sharpened by the massive financial inequality that is now an acknowledged fact of the U.S. economy. There will be calls for legislative reaction that will take Wall Street back to the New Deal regulatory structure that the Street has spent millions to dismantle over the past fifteen years.

  “You mean like bringing back Glass-Steagall?” I asked. I swear he paled at my mere mention of the New Deal’s cornerstone bank reform—which separated deposit banking from investment banking and trading, and has protected the country from highrollers and usurers in marble halls since 1933.

  “Precisely. And much worse. If there has to be a government bailout of outfits like Citi—Chuck Prince hasn’t got the slightest idea of what his people have been up to—and I don’t see any way around it, Washington may end up nationalizing a number of the banks. We can’t let that happen. Wall Street is essential to the American way of life.”

  I nodded. I was brought up to believe that while freedom is wonderful, one needn’t exploit all its loopholes. “In other words,” I said, “you don’t want another Pecora.”

  “Precisely.” Even seventy-odd years after the fact, the name “Pecora” still makes Wall Streeters grimace. Ferdinand Pecora was the special prosecutor FDR forced on the Senate Banking Committee in 1933 to go after “the malefactors of great wealth” responsible for the 1929 Crash. When Pecora got through with the big boys—Morgan, Chase, and First City (predecessor of today’s Citi)—a couple of famous bankers were in jail, others had been forced to pay up, and Wall Street was smothered in disgrace and mockery. When my old man went to work at the bank, my grandfather gave him a copy of Pecora’s book, Wall Street Under Oath; it’s still on my shelves—though I can’t say I’ve read it.

  Mankoff plans to batten down the hatches at STST. “We’re going to put ourselves in position to come out on the other side of the mess in a stronger position than anyone else—except maybe Dimon, who has all those insured deposits to back him up.”

  Jamie Dimon is the CEO of JP Morgan Chase (JPMC), regarded in most quarters as the best-run of the big banks and a ferocious rival to STST. The media routinely run his and Mankoff’s photographs side by side, as the two reigning powers in high finance. Dimon is Mankoff’s virtual opposite: youthful and athletic, looks good in a yellow tie, says stuff that the media laps up but that I know drives Mankoff batshit. When it comes to brains and banking sense, my money’d be on Mankoff, but ours is an era when image is all. Or at least 90 percent. And Dimon’s certainly no lightweight.

  The conversation now turned to politics. Mankoff expects the financial crisis—and there’s no other word for it—to erupt sometime next year, probably late next summer. “At that point, the GOP will be dead,” he said. “The Democrats could nominate a cow and the animal would win.”

  “Which at the moment looks like a bovine named Hillary, correct?”

  “Exactly,” Mankoff replied. “And that we can’t let happen. Which is where you come in.”

  Now this surprised me. Up to now, it’s been known that Mankoff has supported the presidential hopes of the junior senator from New York. He’s attended a few dinners and lunches that have gotten into the papers; he’s probably dropped off a couple of decent-sized checks. Apparently he’s had a major rethink.

  I’m not so hot on Mrs. Clinton myself; there’s too much steel in her for a gentle soul like me, her ambition’s too transparent and too flagrant. She reminds me of practically every Wellesley girl I’ve ever been involved with: that frightening self-confidence, that certainty of being born to rule. Slam bam, thank you ma’am, and then she’s out of bed to discover radium, run GM, or rewrite the Constitution. She must be a tiger to live with; her husband, even when he was president, has exhibited many of the characteristics I’ve come to associate with truly oppressed “great men”: mainly an inability to keep it in his pants, as if philandering is some kind of proof to his mirror that he’s still the head of his household, no matter what it looks like to the world outside. My old man always said that was the case with JFK.

  Mrs. Clinton is way out in front of all the other would-be Democratic nominees when it comes to war chest, state caucuses, and party delegates locked up, all that goes into winning her party’s nomination.

  “I thought you were supporting her,” I said. “I thought she’s supposed to be the Street’s bitch. Weren’t you at that big fundraiser a couple of weeks ago?”

  “I was. Strictly to have a look. I kicked in my statutory $3,800 just to stay in the hand. But the closer I listened, the more I had second thoughts. There’s something about her I just don’t trust. She’s almost too political.”

  I knew what he meant. This is a woman known for, shall we say, a certain moral flexibility. The country’s still trying to figure out where she stands on the mess in Iraq. And like most really ambitious politicians, she has a long memory. A very long memory. No slight, whether intended or unintended, goes unremembered.

  What Mankoff’s heard is that she secretly hates Wall Street for persuading her husband to dump her elaborate health-care s
cheme on the grounds that it would be a budget-killer, an episode that left her looking like a complete fool. On top of that, there’s the obscene wealth garnered by the Street in the wake of the deregulatory bill of goods pushed on her husband by former Treasury Secretary Robert Rubin and his principal stooges, Harley Winters, the big-shot economist, and former Fed Chairman Alan Greenspan. With the rich getting richer while the middle-class goes nowhere (just check out the wage statistics), there’s a political opportunity too juicy to pass up. If there’s a crisis for which Wall Street can be blamed, she’ll blame Wall Street and call out the tumbrels of reregulation. That the bulk of the deregulation occurred on her husband’s watch and with his support won’t affect her campaign rhetoric. Politicians like her live strictly in and of the moment. They put aside their deepest long-range yearnings—with the Clintons that’s obviously money—for near-term tactical advantage.

  Right now, she’s making nice with the Street, and the Street’s making nice back, but what bothers Mankoff is that her inner circle—the Wall Streeters closest to her, people like Roger Altman, Alan Patricof, and Steven Rattner—aren’t really Wall Street souls. They make it plain that they consider themselves to be of a higher order of moral and intellectual being. They’re the sort “who pound the pulpit with the same hand they use to endorse the check,” as a friend of mine puts it.

  Mankoff then got to the crux of the matter. If a crisis comes, Mankoff told me, it’s likely to be so big that only Uncle Sam will have pockets deep enough to stave off total calamity. The Street’s going to want—it’s going to need—a big dollop of the people’s full faith and credit to bail itself out, a process unlikely to win the approval of an electorate howling for Wall Street blood. And there’ll be Mrs. Clinton: Joan of Arc in a pantsuit instead of chain mail.

  So Hillary Clinton has got to be headed off. Capitol Hill is pretty well bought and paid for, no worries there, but wherever one turns one sees what some call “regulatory capture,” which is Stockholm Syndrome in reverse—in this case, the captors submit to their victims. The SEC and public-private finance schemes like Fannie Mae and its siblings are run by people who’ve stood by and let Wall Street have its way while they polish their CVs in anticipation of lucrative private-sector employment. Still, the picture isn’t complete without the White House.

  Now, you and I might, out of innocence or resignation, argue that those who caused the damage should pay for at least a significant part of it, but that’s not the way the Street thinks. This may not sound fair, but “fair” is one of those words—like “right,” “wrong,” and “conscience”—that are not to be found in the Official Wall Street Lexicon. Say any of those words to your average “big-swinging-dick” trader and they look at you like you’re speaking Swahili. The same goes for certain phrases that were integral to the moral vocabulary of my father’s generation—notions like “civic responsibility” and “public spirit” that are now as extinct as the passenger pigeon.

  When I say this, don’t take me for one of those knee-jerk anti–Wall Street types (accent aigu on the “jerk,” as a friend puts it). It’s just the lay of the land. Take Mankoff, for example. You have to admire the guy for his brains and his “Street smarts,” but I’m under no illusions about his overall moral depths. He may know about Bach and Scarlatti, and others may consider this a virtue, but at bottom he’s simply a culturally and intellectually dressed-up version of the Wall Street breed, not a representative of a wholly other philosophical or ethical species who finds himself on an alien planet and must make the best of it.

  Pragmatism is his middle name, profit and capital preservation are his vocation. To have risen as high as he has requires a soul and mind attuned to the Street’s values—or lack of them. Does he have a conscience? I couldn’t tell you, not even after thirty years. “Conscience” is about feelings for other people, it’s about God and country and civic duty and the Golden Rule, stuff like that—values and systems of belief in which someone like me was marinated beginning in the cradle and survive even now, when I’m obliged to confront the way the real world works. You should see the looks I get from younger friends who work at STST when I tell them I was educated to be a good loser. In their catechism, losing is a mortal sin.

  “OK,” I said, “so you think Mrs. Clinton could be a problem. How do you stop her?”

  Mankoff smiled. “What do you think about this guy from Illinois?” he asked me.

  The politician to whom Mankoff made reference is an Illinois Democrat who just last week announced a run for the White House in 2008. He did so on the steps of the Illinois state capitol in Springfield, where Lincoln declared his candidacy in 1860. From now on, I’ll refer to him simply as “OG”: “Our Guy.”

  OG vaulted into national prominence at the 2004 Democratic Convention when he gave a real stem-winder of a keynote speech that unleashed a tidal wave of adulatory, rock star-type enthusiasm and springboarded him into the Senate, where he’s a bit over two years into his first term. Now he thinks he’s ready for the White House.

  Has he got the chops? His résumé is very impressive, at least on paper. Columbia University, Harvard Law, editor of the Law Review. He’s worked for IBM and a couple of think tanks, been a law professor, a community organizer, and an Illinois state senator; seasoned political experts talk about him as if he walks on water, but I’ve been around long enough to know that while a big-deal résumé can help get you the job you’re after, it’s no guarantee of performance. Look at George H. W. Bush or Herbert Hoover.

  But performance, as it turns out, isn’t what Mankoff is looking for. All he cares about is how OG stacks up as a candidate.

  I shrugged. “I’m not sure what I think about him. I know people whose opinions I value have been impressed when they met him.”

  “Do you think the race issue will matter?” he asked. OG is half black.

  I shrugged again. “Might, might not.” What do I know?

  “Would it affect the way you vote?”

  “Of course not.” And it wouldn’t.

  “Here’s where I come out right now,” I said. “The guy gives dynamite podium. I thought that keynote speech in 2004 was great; it certainly established him as a player. But since he’s been in Washington, what’s he done, really? He could turn out to be another Mario Cuomo, a one-speech wonder, as my old man used to say. Plus there was that big-time flip-flop on Iraq.”

  Mankoff responded with a shrug of his own, a “so what?” gesture he really ought to patent. “I’ve looked pretty hard at this guy,” he told me. “I think he’s the kind of person most people will vote for on faith, without asking the hard questions, because he looks good and sounds good and after eight years of Bush-Cheney, people are desperate for a chance in White House style. Plus, I think there’s still enough idealism left in this country to be a force.” He pronounced “idealism” in a way that said he doesn’t put much stock—literally—in the concept.

  “OK,” I replied. “Whatever you may think of the guy, what you’re really trying to figure out is: how can he get past Hillary?”

  Mankoff nodded, then said exactly what I expected him to say. “I think it can be made to happen. Provided he gets his hands on enough money now.”

  I could see where this had to be going. “And since you mentioned West Congo when you called last night, I’m guessing whatever you’ve got in mind involves discreet, untraceable transfers of large sums of cash? How much?”

  “I’m thinking $75 million for openers. Think you can handle it?”

  Before responding, I did the X’s and O’s on my mental blackboard. Twenty years ago, at the Agency, $75 million would have been considered real money, but today, it’s chickenfeed—a drop in a global torrent, especially now that China’s in the equation, and that’s good. Thanks to connections at Langley and elsewhere, I fancy I’m pretty state-of-the-art when it comes to the tradecraft of laundering money. The transfer points are pretty much the same today as twenty years ago: Andorra, the Caymans, Americ
an Samoa, Vanuatu, Malta. As regards conduits, transfer points.

  When I was at Langley, we liked to use closely held offshore corporations that own a lot of McDonald’s and other cash businesses; $1,000/day added to the day’s receipts between the cash register and the bank and who’s to know? Enough of these and you’re talking real money. We had special software that mashed up tax registers, phone books, voting records, and so on to create the illusion that what was actually five people at keyboards in a Washington suburb was an entire demographic of smallholders. There are also certain foundations where—for a slight commission—the administrator will be helpful in setting up a cutout. In its heyday, if you added up the assets of the not-for-profits the CIA used in this fashion, you’d’ve been looking at one of the largest charities in the world. The gap between then and now is mainly one of scale and digital technology.

  The trick is to break the money up into bites sufficiently small and scattered to fly under the electoral regulators’ radar, and digital technology has made this a no-brainer.

  “You think $75 million will get the job done?” I asked. U.S. politics has become the most expensive game ever thought up. You need enough money to set up a multistate campaign infrastructure, involving thousands of people ringing doorbells and hitting the phones and computer keyboards. Enough money to buy game-changing media exposure. Enough money to finance all kinds of events and functions. Enough money to pay for hundreds of hours aloft in hired jets.

  “It’ll be a start,” Mankoff said.

  “Let me ask you this, then. Am I right? Do I recall reading somewhere that the guy’s pledged to limit his campaign spending to public money?”

  He assured me I shouldn’t worry.

  “OK,” I said. “Next question. You’ve told me where the money’s going, but I also need to know where it’s coming from. In general terms, that is. I can’t handle—I won’t handle—anything dirty. Mexican drug money, money from countries under sanction, Russian oligarchs: none of that shit. You know what I’m talking about?”