Fixers

by Michael M. Thomas

  BofA remains iffy, especially with Merrill included (that merger finally closed last month). Other year-end tidbits gleaned here and there include a Fed program that goes by the code name “ST OMO,” which stands for “single-tranche, open-market operations,” whatever the hell that’s supposed to mean. Apparently the fun and games now in place could cost as much as a trillion dollars. Money is money, but what I find somewhat troubling is that, according to one of Lucia’s sources, Uncle Sam—both past and present administrations—intends to keep this $1 trillion giveaway a secret from the taxpayers.

  People are totally puzzled by what the Fed’s up to. One suspicious hedge-funder I spoke with wonders if the Fed might not be engineering “a reverse dump”: lending Wall Street the money to buy back some of the garbage collateral Bernanke and Co. vacuumed up earlier, thereby making the Fed’s own year-end balance sheet look better. This sounds like “double secret greed” to me.

  Another bit of news about our central bankers is that, in uncontrollable save-the-world mode, they’ve thrown $30 billion of the taxpayers’ money at a shadowy Luxembourg outfit called Dexia, which is a major insurer of U.S. municipal debt. In this time of crisis, when hundreds of thousands if not millions of American households are squeezed, losing their jobs, being put out on the street, tens of billions of your full faith and credit and mine are being shipped overseas to foreign banks. Does that make any sense?

  Frankly, I’m beat, I’m tired, I’m ground down. The office will stay closed through the long weekend, and on Saturday I’ll head north for my annual New Year’s sojourn in the Berkshires—and that’ll take me into 2009. And STST will be back in sync with the calendar.

  One final note. Apparently a couple of weeks ago the president-elect was confronted by an influential senator who begged him to rescind the pending appointments of Winters and Holloway. This is a legislator who thinks Wall Street—especially Citi—is being let off too easy and whose opinion of Holloway, in particular, is not repeatable in polite society. He’s said to have made no bones to OG about his belief that these are the wrong people at the wrong time.

  OG told the senator to stuff it—presumably after consulting with Orteig. I can’t help wondering if or how much OG knows about my deal with Orteig, but for some reason I can’t make myself ask. Don’t I remember a novel called Shall We Tell the President?

  So here we are on the brink of 2009. How’ll it turn out? It has to be better than the year we’re leaving, all eleven months of it. Gentle Reader, a very Merry Christmas to you. See you in 2009.

  JANUARY 1, 2009

  New Year’s Day in the Berkshires.

  I had a tough night sleeping. It was late—maybe 1:30 a.m. when the last guests left, and my hosts and I cleaned up and dragged ourselves upstairs to bed. By then, my mood was already dark, although I managed a bright face and a frisky line of chatter right up to the moment I closed my bedroom door behind me and flopped down on the bed.

  So, you ask, whence this gloom? I might call it a crisis of conscience.

  Ever since I got here, I’ve felt like an alien life-form among people with whom I used to feel real intellectual and moral kinship. I look at them, and listen to them, and then I think they’re no longer (although they don’t know it) “my” people, “my” sort. Or I’m not theirs. Not any longer.

  The very first night, my hostess, Millie Hastings, turned to me at dinner and said, “How can you stand to work with those Wall Street people, Chauncey? It’s going to be a pleasure to see those people pay for what they’ve done to us!”

  This is a woman for whom, two or three years ago, I went to bat with some of “those people” and secured $1 million in grant funding for a lecture series at her alma mater. It helped, I suppose, that the people I approached had children applying to that college.

  I responded with what’s become my stock answer: “The way I see it, Millie, is that I help what some consider bad money find its way to good ends. Besides, 90 percent of the finance types I work with have nothing to do with the kind of stuff that’s caused this crisis.” Already I’d had to spend a certain amount of time establishing that my friend and patron, Leon Mankoff, isn’t the same as one Bernard Madoff, despite the similarity in the spelling of their surnames. It was disclosed about a month ago that the latter has been running a $60 billion Ponzi scheme, and since then Mankoff has been driven crazy by people confusing him with the swindler and whispering and pointing him out in places like Carnegie Hall.

  I can understand how my Berkshires bunch feels. They’re basically all of a type: well spoken, candid, cultivated, liberal, humane, old-school; mostly acquaintances of long standing, along with a couple of new additions. They’re people who accept the rules and play by them—and expect the same of others. The problem is they live by premises no longer in force—you simply cannot disdain money in a culture that worships it. And the current crisis has left them in shock. They could pride themselves as being the flower of society, guardians of the minds of our youth and of the great cultural traditions, but what use are those attainments when overnight their 401(k)s have evaporated; the value of their houses has dropped by half; their friends and colleagues suddenly find themselves unemployed; their departmental budgets are slashed; their exhibitions, fellowships, lectureships canceled.

  And the worst part, the complaint I’ve heard most often in the five days I’ve been up here? Their children are mainly interested in making money. I know how they feel; I recently read that over 50 percent of this year’s graduating class at Yale signed up to interview on Wall Street, and all I could think was that something has gone terribly wrong somewhere.

  So where does that put me? Do the missions I’ve successfully carried out for Mankoff make me a traitor to my class, as FDR was accused of being? You tell me.

  I’m glad I won’t be around when my friends up here see the kind of profits STST expects to report. They’ve had to give up vacations, pet projects, and other life enhancers, and there’s more to come, while the people that caused these sacrifices are emerging from the crisis richer than ever. I know Lucia’s concerned about how to respond if STST shows juicy earnings barely six months after being handed billions in taxpayer money, but that’s just an image nuisance. Mankoff himself is concerned that if STST’s profits get back up to where they were in 2007, his top people are going to want their compensation levels back up to where they were in 2007. I can hardly expect that fat Wall Street bonuses are going to sit well with Main Street, where “For Rent” and “Going Out of Business” signs are already sprouting like winter daffodils, but with the crazy way we live today, you never know.

  I hear people stirring in the house. I’ll go down to breakfast and make cheerful New Year’s Day noises, then say my goodbyes and head back to the city. Happy New Year.

  JANUARY 7, 2009

  Orteig called today with two bits of interesting news. Like all good fund-raisers, he likes to keep his patsies warm and toasty for the next time around. Politics is the gift that keeps on wanting, and I can tell he’s already thinking about 2012, even before OG is inaugurated.

  It seems there’s this economist close to the president-elect, a woman named Romer, who’s pushing OG to up his stimulus package from $800 billion to $1.9 trillion. She has Main Street in mind as the beneficiary, through massive new federal investment in infrastructure and possibly even direct cash contributions, but Winters has persuaded OG that the most beneficent restorative for the economy will be via the financial/banking system, which will pipe the money to the nation’s farms, small businesses, and distressed homeowners. Romer is understandably very unhappy. Personally, I think she has a point about infrastructure: New York City’s streets look as if they’re maintained by Rwanda’s Department of Transportation.

  Orteig also reports that OG summoned Holloway to the White House, along with the woman who heads up the SEC, and the three of them had a session about implementing serious oversight of the financial system, but that Holloway managed to get that can kicked d
own the road, pleading that the Street needs to concentrate all its energy on the present.

  JANUARY 8, 2009

  I strolled across the elevator lobby at the end of the day, and found the Nitmeister and Scaramouche engaged in a discussion of a scam in Detroit, a city that was once a bastion of this country’s industrial might but which in recent years has deteriorated into a slough of poverty and criminality, with a good third of its decrepit housing stock either abandoned or in foreclosure. It seems that the city’s credit rating has been downgraded to junk levels, which will trigger $200 to $300 million in penalty payments to the banks that sold Detroit a complicated swaps issue back in 2005. The transaction was designed to protect the city in the event interest rates rose; when they instead declined, thanks to a crisis brought on in large part by the very people who sold the city on swaps “protection,” Detroit was on the hook for huge make-whole payments to Wall Street. The city doesn’t have the money, and has asked for forbearance, but Wall Street is playing hardball, even threatening to seek a lien on the priceless collections of the Detroit Institute of the Arts, one of the great museums of the country. It appears the Street is within its legal rights to do so; as is not the case with other major museums, DIA and its holdings are city property and therefore legally vulnerable.

  “It isn’t just towns and cities and water districts that fell for this garbage,” Scaramouche was saying when I sat down. “What about places like Harvard? I hear it’s going to cost them close to half a billion to get out of a deal they let themselves be talked into.”

  “No doubt we missed a splendid opportunity,” the Nitmeister commented, his canny old features scrunched up with remembered greed. “Once these swaps deals with municipalities became common currency, you and I should have shorted a bunch of XYZ municipal bonds, then bribed someone at S&P to drop the ratings and held the issuers’ feet to the fire. As I have no doubt someone may have. We’d’ve done very nicely.”

  Scaramouche smiled. “You’re right, Ira. It does bear thinking about, whether someone at one of the rating agencies hasn’t gotten a kickback. Of course, we’ll never know, not with the way things work today.”

  A cheering thought with which to kick off a new year.

  JANUARY 18, 2009

  Mankoff knows how to pick ’em! If Harley Winters never does another thing, as an investment, he’s already a winner, and inaguration’s still two days away. It’s been widely reported that Winters has been working Capitol Hill and has managed to quell residual anger over where most of TARP has gone. Congress only just woke up to the reality that money intended to help Main Street has instead been handed out to Wall Street, and several congresspersons were urging cancellation of the last big bundle of TARP handouts.

  Winters promptly dispatched two letters to Congress that eloquently paint TARP as a genuine and far-reaching populist initiative that will be channeled via Wall Street purely in the interests of economic efficiency.

  Lucia showed me copies over drinks. I can’t recall when I’ve read such skillful examples of technocratic twaddle. I asked her if she’d had a hand in writing them. She shook her head vigorously. “All Winters,” she said. “The man is a genius.”

  I don’t believe her. Nowadays, I don’t know if I believe anyone about anything.

  JANUARY 20, 2009

  OG’s inaugural address was a big nothing. No economic call to arms, no rallying cry, no anti–Wall Street rhetoric. If I was a raving supporter, I’d be upset, possibly suspicious. The public was expecting an FDR or Honest Abe; instead it got a corporate-style pitch, PowerPoint without the slides. Management in place of government, as I recall Christopher Hitchens writing somewhere.

  JANUARY 22, 2009

  Lucia bought me breakfast at the Regency this morning. The place is as reliable a barometer of the plutocratic mood as any venue in the city. This a.m.’s buzz was definitely upbeat—and so was Lucia. She’s just returned from D.C., where she did the whole inauguration deal: balls, buffets, tribute breakfasts, check-writing fiestas, embassy receptions, chic Georgetown lunches—all sandwiched around strategic huddles with her K Street janissaries.

  She brought back one bit of news that I found very interesting. Apparently, the president had barely left the Capitol steps following his grade Z inaugural address when the GOP called a meeting of its congressional delegations at which they pledged their life, liberty, and sacred honor that from this day forward they will oppose every single initiative, policy, reform, or what-have-you that OG or his administration puts on the table. Clearly, they feel his wishy-washy inaugural address signals a shift from the supercharged populism that carried the election, and that they have only the president to go up against, not the will of the people. Whatever the White House asks for, the GOP will oppose it. If the president says he wants to go the john, they’ll move to have the lock on the men’s room changed.

  “If I was calling the PR shots for the president,” Lucia said, “I’d play it the way Roosevelt did. Tell the people that he’s well aware that Wall Street hates him, and that he welcomes their hatred. Get Main Street into a proper Us against Them frame of mind. Apparently his wife feels the same way. But this is a man who seems to think that life is a gigantic moot court, in which reason and the rule of law will prevail, with himself playing the Great Conciliator.”

  Fat chance, I reflected. With the GOP laying down artillery fire from the front, and the fifth column established by my compact with Orteig subverting behind the lines, “Hope and Change” isn’t going anywhere.

  FEBRUARY 2, 2009

  Had lunch with Lucia today at the Veau d’Or, my check. We seem to be going steady, but life’s like that. You’ll see a certain friend every day for a month and then they vanish from your existence. When I asked her what she’d been up to recently, her reply was concise: “Sowing confusion as always.”

  “Anything in particular?”

  “The bailout. People are starting to ask, did we really need Uncle Sam’s money or didn’t we?”

  It seems that the Fed is covering its TARP ass by passing the word that twelve of the thirteen biggest banks were on the brink of insolvency last fall. I think a good one-third of the banks represented at the Treasury meeting last October could have gotten by without TARP. But of course, everyone’s new favorite guessing game is Which was the exception? The smart money likes JPMC and Wells Fargo, but there are a few influential holdouts for STST.

  One thing’s for certain: Citi couldn’t have survived without TARP. Which is an irony, because Citi’s the prime poster child for the lunacy of deregulation. The amending and subsequent repeal of Glass-Steagall, which many believe lie at the heart of the present crisis, were concocted precisely so that the banking and investment banking components of Citi could be combined into the present unmanageable mess. Of course, if Citi had gone under, there would have been a huge popular demand for the reinstatement of Glass-Steagall or something like it.

  We also discussed our new president’s press conference last week during which he used the tough language on the subject of Wall Street that many had expected to hear in his inaugural address. I doubt that one tenth of one percent of the people who watched the inauguration watched this press conference, which is probably the point. Here’s how the Times reported it: “ ‘There will be time for them to make profits, and there will be time for them to get bonuses,’ the president said during an appearance in the Oval Office with Treasury Secretary Thomas Holloway. ‘Now’s not that time. And that’s a message that I intend to send directly to them.’ ”

  Naturally the Street’s in an uproar. How dare he? From the outset, Orteig has assured me to “watch what we do, not what we say,” so I brushed it off. But not Rosenweis, who obviously hasn’t been clued in about Winters-Holloway. He’s urging that STST and the rest of the Street team up with the GOP in a concerted, tough-talking propaganda pushback and has given Lucia orders to initiate a boycott of the forum of an event next month at which Holloway is scheduled to announce the admini
stration’s grand plan for reform. Lucia doesn’t think that’s a good idea, but she’s unwilling to take on Rosenweis, who’s already making her life hell about Davos. For the past eight years, ever since he and Mankoff took over at STST, Rosenweis has attended Davos and peacocked among other “world leaders.” This year, however, with Wall Street taking desultory fire for lining its pockets while the rest of America is turning theirs inside-out, Mankoff thinks STST ought to skip Davos and has instructed Rosenweis to cancel

  FEBRUARY 7, 2009

  Lucia called with an interesting bit of news.

  “Remember you once asked me about a lawyer named Eliza Brewer?”

  “Vaguely.” I’m really getting good at this.

  “Well, she’s just signed on at Justice. Deputy Attorney General for the Criminal Division. The sigh of relief up and down K Street practically crashed a couple of buildings. The lady apparently doesn’t believe in criminal prosecutions for anything short of outright felony. You’d have to be Bernie Madoff to get her attention.”

  Winters, Holloway, and Brewer, I thought: the trifecta is complete.

  The markets are tanking, but STST stock has been heading straight up. The shares sold below $50 at its 2008 low, so to be back at almost $90 is a hell of a bounce. Lucia’s concern is that the firm’s success, including the nice recovery in its stock, may be exploited by the envious and beleaguered to make STST the prime target for the anti–Wall Street faction. We shall see.

  FEBRUARY 11, 2009