Fixers

by Michael M. Thomas

Yesterday, with much fanfare, Holloway unveiled the new administration’s plan to deal with the financial crisis—and laid a total egg. Which is surprising, considering that he threw the Street a total softball. Here’s how the Times summarized the occasion.

  In the end, Mr. Holloway largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, according to administration and Congressional officials.

  Mr. Holloway … successfully fought against more severe limits on executive pay for companies receiving government aid.

  He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.

  Still, it’s too early for Wall Street to sound the all clear. Lucia tells me that a Bloomberg reporter named Pittman is raising a ruckus with a lot of questions about loan guarantees to GIG, BofA, and the like. This is not information Treasury or the Fed has the slightest intention of letting non-insiders get hold of, I’m told, and they’re turning their chanceries inside out searching for whistleblowers while they repel Pittman’s information-seeking sorties with salvos of doublespeak and denial. Sooner or later, of course, Bloomberg’s going to file a Freedom of Information Act request and then the fat cats may truly be in the fire, although it’s likely to be a year before Uncle Sam’s obliged to cough up any really embarrassing disclosures. In the meantime, Wall Street’s lobbyists are painting critics and truth-seekers as “unrealistic, misinformed, advancing ulterior motives, and damaging to U.S. competitiveness.”

  Lucia’s Washington sources also report that Winters and Holloway are scrapping noisily about how Citi should be broken up. Not about whether it should be, but about how it should be—and which one of them should handle it, since it promises to be a maximum-visibility assignment. This is good, since it lengthens the odds against anything concrete getting done. I wouldn’t be surprised if squabbling between the two hadn’t figured in Mankoff’s calculations from the outset.

  FEBRUARY 15, 2009

  For many on Wall Street, Valentine’s Day wasn’t happy. The Wall Street Journal reported yesterday that the Dodd-Frank bill is back on track. You’ll recall this legislation was shelved for review late last year at the request of the incoming administration. The new draft legislation still includes a clause forbidding the payment of bonuses to executives of the big banks, as well as outfits like GIG and GM that have received bailout aid.

  When this got out, great was the keening and rending of bespoke garments up and down the Street. “Where’s the gratitude?” they whine, noting all the campaign moolah that Dodd has sopped up over the years. While a bonus clawback or holdback might seem perfectly reasonable to thee and me, Gentle Reader, indeed, some might say richly deserved, the Street of course doesn’t see it that way because the crisis is all the government’s fault. You’ve heard the spiel: if it hadn’t been for Fannie and Freddie’s urging, subprime would never have existed, and so on.

  According to the Journal article, Dodd has already heard from—guess who?—Winters and Holloway urging that he withdraw the penalty clause.

  Certainly no one at STST is sweating it—not according to Lucia, who I ran into at a function at the Metropolitan Museum. She’s prepared to wager good money that by the time the Dodd-Frank bill approaches becoming law, sometime in the twenty-second century at the rate it’s being fiddled with and bent out of shape by K Street, etc., the bonuses will have been cashed and spent.

  MARCH 15, 2009

  Beware the Ides of March!

  Whoever said that first certainly got it right.

  Last Monday, both the Dow and the S&P touched lows not seen since the dot-com bust. This has not proved beneficial to Wall Street morale. STST suffered a mini-collapse to the mid-’70s, although the shares are still nicely up from last September.

  On top of this, Washington chose yesterday to reveal at long last that it had made STST whole on its GIG swaps. Now the firm really is everyone’s whipping boy of preference, a kind of two-word synecdoche for all that’s rotten about Wall Street. The media have spiced their accounts of the GIG deal with words like “favoritism,” “graft,” “backdoor rescue,” “Washington–Wall Street revolving door,” and the like. Uncle Sam’s secrecy on these matters is made out to be a capital markets version of Abu Ghraib. Even Fox News, which Lucia practically owns, is having a tough time lipsticking this pig.

  The Fed’s taking the position that this segment of the bailout was essential, and that as a matter of comity it was legally obligatory for them to include STST in a package that mainly benefited overseas banks.

  Lucia utterly discounts the likelihood of Joe Sixpack reacting to this news and reaching for his pitchfork, because a great deal of thought and money has gone into making sure that Joe S. doesn’t really understand what derivatives are. What he probably does understand is the pink slip and foreclosure notice laid out on his kitchen table. For these he’ll blame Washington, not Wall Street.

  It really is amazing how much Wall Street gets away with, considering how idioticallyh suicidal they can be. Take the following e-mail that a usually discreet white-shoe lawyer showed me. Dating from last year, it was addressed to GIG’s top executive echelon by a high-level member of the company’s legal staff. It read: “In order to make only the disclosure that the Fed wants us to make we need to have a reasonable basis for believing and arguing to the SEC that the information that we are seeking to protect is not already publicly available.”

  “Only the disclosure the Fed wants us to make”! Are these people stark, raving nuts?

  Here’s what’s worrying Lucia now: because STST seems to have emerged from the crisis relatively unscathed while Citi and BofA and the rest of them are staggering around like lamppost drunks under the weight of hundreds of billions of bad paper, people are starting to say that STST must have been crooked. How else could they be in good shape while all the rest are damn near dead? people will ask. The answer’s obvious: they had to have cheated.

  MARCH 18, 2009

  While flipping channels after lunch, I happened on CNN, and there was Senator Dodd lamenting that “special interests” have neatly excised the restriction on executive bonuses from the financial reform bill that he and Rep. Barney Frank will be sponsoring, and have replaced this proscription with language practically demanding that these bonuses be paid, even to the GIG fraudsters. The White House has said nothing on this subject, which represents a complete 180-degree turnabout on the part of the administration, given that it was just a fortnight ago that the president himself attacked the bonuses. I thought about getting hold of Orteig to say thanks and congratulations but decided not to. As they say on the Street, discretion is the better part of value.

  MARCH 22, 2009

  Three days ago, the House passed a bill that imposes a 90 percent surtax on bonuses paid to executives of bailed-out firms. Wiser, cooler heads are now prevailing, I hear, as Wall Street comforts itself with the realization that there is little Washington can do that the Street cannot either evade or castrate. TARP was largely symbolic, anyway, and the banks in good shape that signed up simply to show themselves to be financial patriots will soon start paying back those forced investments and departing the program. Not that this will matter. TARP may be gone, but there remains no shortage of troughs.

  Tonight, on 60 Minutes, OG turned in a sterling performance. “We can’t govern out of anger,” he told Steve Kroft, which is pretty cool, considering that it was the anger of millions that got him elected.

  MARCH 27, 2009

  I had a 7:00 p.m. meeting with Mankoff in his apartment that I wasn’t looking forward to. I’d be bearing bad tidings: a program that Mankoff is personally funding at a leading music school has run seriously over budget and needs $50K pronto. On top of that, he’d spent the day in Washington—working Capitol Hill, I assumed—and having to kowtow to those idiots would put Pollyanna
in a black mood. Not that the horizon is totally dark. The Dow Jones has closed up almost 500 points for the week, up 1,000 points for the month and back within hailing distance of 8,000, and that surely is something.

  I was in for a surprise. When Mankoff opened the door himself, I could see that he was in as jolly a frame of mind as I could remember. Bluebirds perched on each shoulder merrily chirping away, chipmunks chortling at his feet, that sort of thing. He showed me a nice little Matisse he’s trying out, one of those 1912 paintings that gets the Mediterranean sky just right, made me a drink, and then, without my having to ask, explained the reason for his upbeat mood. It has nothing to do with the market.

  It seems that the Washington trip had nothing to do with Congress, but with a top secret meeting at the White House, to which Mankoff, Dimon, and the rest of last October’s original TARP group had been personally summoned by OG. To a man they reckoned that what they’d feared since last fall had at last come to pass: with the country in the terrible shape it’s in, the president and his people had decided to make good on his campaign commitment to “fix” Wall Street. Mankoff told me he hadn’t been that nervous since Tap Day at Yale.

  When they were all seated, OG’s opening remarks hadn’t soothed the heaving bosom. “My administration is the only thing between you and the pitchforks,” the president said. He hadn’t smiled when he said it. Here it comes, Mankoff had thought: Christmas in reverse. Instead of visions of sugarplums dancing in his head, what he pictured were excess profits taxes, limits on executive compensation, tough new capital controls.

  But that isn’t what came next. OG’s a bit of a ham, and he was having fun playing all these big shots. He’d looked around the table, pausing to study each of his guests’ nervous faces, and then, with a big grin, said, “You guys have an acute public relations problem that’s turning into a political problem. And I want to help … I’m not here to go after you. I’m protecting you. I’m going to shield you from congressional and public anger.”

  With that, the smiles broke out around the table, and Mankoff swears there were even one or two loud sighs of relief. Then everyone put their serious faces back on, and listened gravely as OG delivered a few platitudes about thinking long-term and everyone pulling his oar and the best interests of the country. Then it was time for cheese and crackers and for everyone to have their picture taken with the president before he had to leave for another meeting. Winters and Holloway came in, along with Orteig, and worked the room pretty effectively, and made everyone feel that their interests were being properly looked after.

  After the president departed, Orteig had drawn Mankoff and a couple of the other bigger hitters aside and asked for a return favor that shows just how clever a politician he is. Essentially, what he’s asking from the Street is to launch a chorus of complaint about being roughly treated by the White House.

  “We don’t want anyone to get the idea that we’re in bed with Wall Street,” he told them, “and some blowback from you people will help dispel that misconception.”

  That’s Orteig, I thought when Mankoff told me this: don’t listen to what we say, watch what we do.

  Wall Street is an amazing place; it must be the only line of work whose practitioners have zero moral perspective.

  APRIL 15, 2009

  STST just released its first quarter results, a day earlier than expected, in order to keep the markets a bit off balance. Here’s the good news: the market was looking for 1Q profit of $1.60 a share; the firm actually earned $3.30, more than double the consensus expectation. Most of the profit came from fixed-income trading, a fact STST was reluctantly required to disclose, and it will take the media a while, if they ever can, to figure out that a good part of this profit came from the “carry trade,” from leveraging Uncle Sam’s zero-cost TARP money into Treasury securities that pay between 1 percent and 3 percent. A neat double-dip into the taxpayers’ pocket.

  Of course, the deal I made on TARP with Spass has left STST free to trade as it pleases, while the weaker competition has to use its bailout money to paper over balance sheet cracks and fissures. BofA, for instance, is still sorting out the crap that came with the Countrywide acquisition—a deal that, in retrospect, seems to have involved between one and three minutes of serious analysis on the big bank’s part. In addition, the situation at Merrill Lynch—which, to be fair, BofA was pretty much bludgeoned into buying by the Bush Treasury when Washington was in one of its “got to get this done before Asia opens on Monday” panic attacks—is said to be enough to cause a risk manager’s hair to fall out. Citi and Morgan Stanley remain in resolution mode, which means fewer hands to share out the goodies, and goodies there are aplenty.

  This doesn’t mean that STST is entirely free and clear. Based on what Lucia tells me, old stuff keeps crawling back to nip at STST’s ankles. There are nasty rumors about other dodgy overseas financial sleights-of-hand that STST took part in. Greece and Lybia, in particular. Whether any of this will actually cost STST is open to question. It never seems to.

  Then there’s the Month That Never Was. It took a while for the media to catch up and catch on, but not long ago, the Times ran a piece about how STST made December ’08 vanish just like that, and others have followed up. I rather liked this phrase from a recent Wall Street Journal article on the subject: “Struthers Strauss provided as much detail as it could.”

  As it could! Though to be fair to the Journal, its story then went on to ask the right questions: “Struthers booked an unexpected profit in the first quarter; would that have been true if it had to count December?”

  Finally, probably the largest and potentially most dangerous of the giant chickens on final approach, there’s Protractor and Jimmy Polton. The news that Polton personally cleared $5 billion last year—that’s personally, and that’s billion—mainly shorting subprime has hardly elicited great gusts of approving admiration among the chatterati. That a significant part of this obscene profit derived from deals designed in collusion with STST to go snap, crackle, and pop overnight has not escaped general notice. Lucia’s had an ominous tip from her Washington minstrelsy that the SEC, which has been looking for a way to land a shiner on Mankoff and his colleagues, thinks it’s found gold in Protractor and is considering issuing STST with what’s called a Wells Notice, a formal notification that an investigation is under way with a view to possible prosecution. No word as to how the SEC will treat Polton, but I’m damned if I can see how Uncle Sam can go after STST without looking at Polton as an indictable coconspirator.

  The good news is that none of this concerns 1600 Pennsylvania Avenue, where it’s suddenly all health care, all the time. I’m told that anyone who thinks Wall Street is a pack of blood-sucking rent extractors is in for a shock when Big Pharma sinks its fangs into whatever health plan gets passed through Congress—if one does. A guy who was in Bones with me is an executive VP at one of the major drug companies, and what’s he’s told us in the sanctuary of the tomb about that industry’s plans for universal health care—should it pass, no sure thing—would make your hair stand up straight.

  APRIL 17, 2009

  Yesterday, a Frenchman with one of those ten-barrel Almanach de Gotha names killed himself out of shame at losing close to a billion dollars of his friends’ and clients’ money with Bernie Madoff. I’m as surprised as I am saddened. I thought shame and disgrace, fearsome forces in my upbringing, had long since ceased to count in the way we live and behave now. That honor has become a moral nonstarter. Our national emotional policy doesn’t grant them official recognition. I can understand this poor guy; the social culture he was born into left him no choice. There was no way he could wave a wand and make the money stolen by Madoff reappear, and his own resources weren’t sufficient to make his investors whole. All he had left was honor, which demanded that he do the right thing. I grieve for him, I grieve for his family. I grieve for all of us. It’s always puzzled me how the noblesse oblige can’t ever seem to grasp how dishonorably and innocently other men a
ct, often for money.

  There are times like this when I just don’t get it. I need a vacation.

  MAY 6, 2009

  Lucia passes along an interesting bit of gossip from a K Street source. There’s a newcomer to Washington who is making a lot of noise and has the potential to be a real pain in the ass to the inner circles who decide who gets what and how much. She’s named Elizabeth Warren, a Harvard Law professor who’s been appointed to one of those congressional oversight panels set up to keep an eye on Uncle Sam’s various giveaway programs. Apparently Warren isn’t buying the numbers that Treasury is putting out about what a great investment of the people’s money TARP and other bailouts have turned out to be, and won’t shut up about it. She’s apparently a person of principe.

  The White House isn’t happy with Warren’s complaints, and so OG deputized Harley Winters, no less, to sit the lady down and instruct her in the ways of Washington and consensual democracy. She, of course, naturally told the media about this conversation, in which Winters advised her that to have any influence you need to be an insider, and to become an insider, you do not start by not pissing on those who are.

  Now I’m sure the lesson was effectively put. To have Harley Winters fill you in on the niceties of crony capitalism and insiderness is like having Albert Einstein as your freshman physics teacher. But Warren wasn’t buying, and now she’s made him look like a self-important jackass and gained herself an enemy for life, although maybe she figures that over the long term, that won’t matter. On this she may be right: if the past is any guide, the winds will shift and Winters will tack off on another heading.