Fixers

by Michael M. Thomas

  I still looked puzzled. “My dear, dear Chauncey,” the Ancient Mariner said in a voice both soothing and condescending, “yesterday marked the end of the first quarter of what Mr. Bernanke in his wisdom has dubbed ‘quantitative easing,’ or ‘QE,’ whereby our central bank spends untold billions buying bonds from banks. While the final figures won’t be in circulation for a week or two, I think when we see them, we who understand how things work in this country will see what others will not and we shall rejoice and take advantage.”

  “You’d better explain,” I said. I’m actually up to speed on QE, but it seemed elementary courtesy to let my venerable friend tell it his own way.

  He was happy to indulge. “As you may know, this QE nonsense involves massive purchases by the Fed of Treasury and other debt securities, in the expectation that the liquid reserves thus freed up on bank balance sheets will find their way into the general economy and stimulate a broad, demand-driven recovery up and down Main Street. But of course that’s not what will happen. Wall Street will see to it, and the Fed will say nothing. Main Street will gain little, if anything, but for the banks it’s an absolute smasher. What happens is that the Fed’s bond purchases will create liquidity in the finance sector that will gush into the stock and bond markets. Those of us who own securities will seldom have done better.”

  He looked about him and raised his glass: “Gentlemen, again, please—to the chairman of the Federal Reserve system and all who sail in him! Crony capitalism—long may you thrive!”

  APRIL 17, 2010

  Yesterday was a bad day for Lucia. The Wells Notice shoe has finally dropped.

  She called me to have a late drink and commiserate. She sounded so unhappy I couldn’t refuse.

  “Some mess, eh?” I commented after we got our drinks. “So how’re Mankoff and Rosenweis going to play it?” I asked. “Stonewall? Try to cut a deal? How you going to get around those stupid e-mails?”

  “I’m not sure. Leon’s out of town, and no one can get hold of him.”

  “That’s unlike him.”

  “It certainly is.”

  “Where the hell is he?”

  “His wife won’t say. He calls in twice day on his mobile, talks to his secretary and Richard, then turns it off.”

  This made no sense. Mankoff leaves New York on business perhaps a dozen times a year, only for certain special occasions and particular clients. The Milken Institute meetings in the spring; Merlin Gerrett’s annual meeting circus in Shawnee a bit later; the Pasteur Institute in Paris; music at Salzburg, Leipzig, and La Scala; a few board meetings—that’s it.

  “So that means Rosenweis is handling the SEC? He wouldn’t be my conciliator of choice.”

  “Exactly. Richard is good at creating pressure, not so good at dealing with it.”

  “So what about Polton? Sounds like he’s being let off scot-free. Has he cut a deal with the SEC?”

  “Polton and his people are denying any cooperation with the SEC. They’re saying that they didn’t have anything to do with what specifically went into the CDOs that went bad.”

  “What’s Arnold Braum have to say?”

  “He’s planning to put up the defense that Protractor wasn’t ever material, given the size of our balance sheet.”

  “I could buy that,” I said, “were it not for the inconvenient fact that when the SEC announced it was going after you, your stock dropped over 10 percent. That strikes me as, well, a pretty material instance of nonmateriality. What are your people thinking in terms of settlement?”

  She shrugged. “Best guess: $50 million.”

  “Sounds low to me. If you get off at twice the price, it’ll be cheap,” I responded, signaling the waiter for another round. A lousy $50 million to settle an SEC rumpus? I’ve bought presidencies for less.

  We moved on to other subjects, a couple of burgers, more drinks, and somehow ended up outside my place. When she suggested coming up, I didn’t say no.

  Riding back up in the elevator after chivalrously seeing Lucia into her limo at 3:00 a.m., I suddenly felt a terrible rush of dry-mouthed guilt, as if I had been horribly unfaithful to Bianca. Which makes no sense: B is a woman I’ve met once, whom I’ve talked with for an hour.

  Oh well, we shall see. For now, to bed. Alone.

  APRIL 18, 2010

  It seems to me that I’ve broken my original compact with you, Gentle Reader. I did say at the outset that this diary would be all business, and not personal. The secret life of Wall Street and Washington, but not of Chauncey Suydam.

  It seems, however, to have swerved off into the personal—mainly, I guess, because that’s what I now find interesting in my life. I’m bored with the tireless money-grubbing that now seems to drive this country. I’m bored with the corruption—it’s too relentless and constant and everywhere—and that I’m technically part of it makes it worse. I’ve worn out my imaginary worry beads trying to figure out how the country gets out of the box it’s put itself in.

  I’m worried about Mankoff, but I figure that when he wants to get in touch, he will. I reckon that STST has extracted as much as it could reasonably have expected from the crisis and bailout; there’s not much juice left in those oranges. From here on out, they’ll mainly go with the flow, hang on to what they’ve got, and look for the next big thing—possibly even a new crisis offering new bailout goodies. Lucia reports that Rosenweis is calling more and more shots without checking with Mankoff, which has people edgy. Not that Rich isn’t capable of running STST—he isn’t Mankoff. No one is.

  APRIL 21, 2010

  Just got home from my first date with Bianca. We had a very nice evening together: a good dinner, a kind of dowsing for possibilities, then goodbye.

  I walked into the Veau d’Or at 7:10 p.m., twenty minutes early, as is my habit, since it gives me a chance to shoot the breeze with Catherine, the owner’s daughter, before she gets busy with the other patrons. I told her whom I was meeting, and she seemed appropriately curious; apparently she’s a fan of one of B’s shows.

  B turned up right on the dot. I introduced the two ladies, and could tell pretty quickly that they’d get along.

  “I love this place!” B said when we were seated, and a couple of kirs and menus had been brought. “It’s so real!”

  In the course of dinner, we discussed this and that: measuring one another, feeling each other out. I asked her to tell me about her friend Marina Hochster. I find it fascinating, and oddly reassuring, that her obvious loathing of Wall Street has searing personal roots. “I’m sorry I missed meeting her. I’ve been reading her stuff for years. Artie gave me some background. Quite a story. Explains why she’s so angry, why she hates Wall Street so intensely.”

  The girls had stayed close through their high school years; B was sent to Milton Academy, south of Boston, where her mother had gone, and Marina won a scholarship to Andover. They continued to see each other in the summers in Leeward, but when it came time to go to college, their paths diverged.

  Marina had found a vocation in political science and the “idea” of America, the sort of calling that great secondary-school history teachers can convey to impressionable, excitable postadolescents such as yours truly once was. Marina went from Andover to Georgetown, until it began to change for her. She interned on Capitol Hill and K Street, where what she saw in the way of corporate influence opened her eyes and wrecked her illusions about America. “She thought all bankers were like Daddy,” was the way B put it.

  A journalism course focused on the Tarbell/Norris era inspired Marina to become an investigative journalist. After graduation, she went back to Maine to work on a newspaper in Portland, where she stirred up a ruckus with a penetrating exposure of the financial hijinks underpinning a big construction project in Bangor. This led to Boston and the Globe, and from there she evolved into the Marina Hochster, Marina of “the TARPworm.”

  While Marina was making her way, B and her twin brother Claudio went to Harvard; that’s what Longstreths do. What a Long
streth had never done was to quit Harvard for UCLA film school, which Claudio did after his sophomore year, following his election to Porcellian and Hasty Pudding. Off to Hollywood he went, never to return. B was progressing steadily toward business school, from which she graduated at about the same time I was thinking about setting up Maecenas. Her brother persuaded her to go west and work with him. After writing and producing for a decade, they started Gemelli. The rest is entertainment history.

  Over coffee, she looked at me and said, “I was thinking that perhaps you’d like to come up to Leeward for Memorial Day. Before we start sleeping together, I want to see how you fit in with my family. They’re very important to me.”

  What could I say to that?

  “It’s strictly family,” she continued, “but Mother and Daddy always let us bring whoever’s in our life. Claudio’ll be bringing his partner Frederick, and Artie will be there, although Hal’s going to be in the Far East, shepherding some ghastly Russian through the souks of Hong Kong and Shanghai.”

  “I don’t think they have souks in Hong Kong,” I said. “They have souks in places like Marrakech.”

  “Well, whatever. So would you like to come to Maine? I really do think you’ll get on nicely with my parents, Mother especially. Separate bedrooms, of course.”

  “Of course. Memorial Day sounds terrific, although I’ll have to move something around—I have sort of a commitment to go to Fire Island.”

  “Fire Island!”

  “I have old friends who have a place on the very eastern tip called Point O’ Woods.”

  “Good lord, Point O’ Woods! Is that still going strong? I haven’t been there since I was at Milton. My roommate’s family had a place there. I never think of it as being on Fire Island, it’s so buttoned-up.”

  “It still is.” I find Point O’ Woods very agreeable; it’s so WASPy it makes Newport look like Bed-Stuy. I’m comfortable there.

  We parted on what seemed to me to be very good—even promising—terms. I offered to drop B in the West Village, but she has a late-night shoot in Brooklyn and a car was waiting. She kissed me goodbye, with what seemed like more energy and feeling than she’d deployed the first time.

  I stood on the curb and watched her car round the corner, just the way I had when all this began three years ago, with me standing on a Manhattan sidewalk watching Mankoff’s town car pull away. Things connect up, and fate lays down the paving stones one by one on a road that has led from Three Guys to today.

  MAY 6, 2010

  “Countries don’t go broke.”

  Thus, some forty years ago (I gather), spake Walter Wriston, Jamie Dimon’s spiritual avatar, the Citibank CEO who transformed banking into a growth business and in so doing destroyed it—if the consensus at San Calisto is to be believed.

  Remember the Santorini Shuffle that Scaramouche told me about not long after I began this diary? That was the 2001 island meeting between Greek officialdom and a hit squad from Wall Street, where everyone happily figured out how to cook the books in a way that would qualify Greece for admission to the eurozone. Well, it seems that Greece is really going bust, can’t pay its debts. And certain parties on Wall Street, having extracted hundreds of millions in fees and penalties from the mess, are scrambling to extricate themselves from the finger-pointing.

  As it’s being described in the financial press, what’s going on with Greece sounds to me like a Foreign Affairs version of Repo 105, the sleight-of-balance-sheet stuff that helped sink Lehman. Apparently there have been nasty rumors for some time about the birthplace of democracy, but with the help of its Wall Street coconspirators it has financed itself by borrowing, since its GDP and balance of payments aren’t up to the job. Add to that the fact that the richest Greeks keep their money and themselves mostly elsewhere, in tax havens like Switzerland. (Hence the joke that the second largest Greek city after Athens is Lausanne.)

  So there’s that. And now another fresh hell seems to have opened up. By late this morning, the Dow had dropped a thousand points.

  A thousand points!

  Why?

  Some point to the incipient Greek crisis, but economic and credit fundamentals no longer matter to markets the way they used to. Instead, the smart money’s calling it “a flash crash” and is blaming it on HFT—algorithmically generated orders: strictly computer-driven, untouched by human hand or mind—for millions of shares that crashed into each other the way that waves from opposite directions will sometimes collide at a breakwater. I don’t really understand it—apparently most of the orders are phony, what they call “spoofs”—so I’m not going to try to analyze it. By the close the market had cut its losses by two-thirds, with STST closing at $148, so no real damage done. Still, the story has a clear moral: put not your faith in robots.

  MAY 7, 2010

  Yesterday, thanks to Winters—or maybe it was Holloway—the Senate killed off something called the Brown-Kaufman Amendment. Named for the two senators who sponsored it, the amendment was intended to be incorporated into Dodd-Frank; basically it says that if you’re too big to fail, you’re too big to exist, and attacks the moral hazard that got the world into its present mess with a mechanism to break up the big banks.

  Another piece of hot news that has the hedge-funders I work with jumping for joy is that Holloway is close to outright victory in a campaign he’s been waging to have the Fed pick up the Street’s absolute worst junk, using a program called Term Asset Lending Facility, or TALF. Meanwhile, Mankoff remains out of pocket. His assistant will only say he’s still out of town. Something’s obviously up, something serious. I’m starting to worry.

  MAY 13, 2010

  I thought the world went topsy-turvy a week ago with the Greek business and the flash crash, but today was worse, for entirely different reasons. It was unsettling and upsetting.

  Here’s how it went. Around 7:30 this morning, my apartment phone rang. My regular landline, that is. No one calls me this early except maybe Mankoff, and I knew it wouldn’t be him—I still haven’t gotten through to the man.

  To my astonishment, the voice on the other end was Ian Spass. I hadn’t spoken to him for well over a year. Hadn’t thought much about him, either. I guess I assumed that, like most of those who’d had a hand in the Washington side of TARP and other bailout giveaways, Spass had simply ridden off into the sunset and was now pulling down a nice seven figures at some bank or law firm or lobbying shop.

  “Ian,” I said, “long time no talk. What’s got you up at this hour?”

  “I wanted to make sure I got you. Will you be at home this evening?”

  “If there’s a God. Why?”

  “I’m in New York. I need to speak with you about something.”

  “Sure. I’ll be here after six. Drop on by.”

  He showed up a little after seven. I made us a couple of stiff drinks and settled him in my most comfortable chair. “The stage is yours,” I said. “Is this an official or unofficial call? I thought you’d abandoned the marble halls for the dark side.”

  “Let’s call it semi-official,” he said. “The SEC wants to get a message to Mankoff. I told them you’re the person to talk to.”

  “I’m flattered,” I said. “Fire away.”

  “All right: here’s the deal. Are you familiar with this Protractor business?”

  “Familiar enough, I suppose.”

  “Washington—and not just the Commission—prefers not to go forward with a public prosecution. For obvious reasons, they’d rather it be settled out of the limelight on a basis that will sound reasonable to the public. There are bigger scandals brewing. The Brits have apparently stumbled on a possible manipulation having to do with LIBOR …”

  “Everybody knew about LIBOR back in ’08,” I interrupted. “And nobody did fuck-all about it then.”

  “That may be,” Spass replied. “We all had a lot on our plate, and at that particular moment, it simply didn’t make sense to throw a huge price-fixing scandal into the mix.”

  �
�Especially when the commodity whose price was being fixed was money.”

  He shrugged. “What I’m here to work out with you is a suitable Protractor settlement.”

  “What do you have in mind? The usual? A large-sounding fine and a promise not to do it again. That is, a promise not to do again what you never did in the first place?” In most of their settlements with Uncle Sam, STST and other Wall Street houses are permitted not to admit to malfeasances they’re totally guilty of. It’s one of the best legal scams going.

  “We’re thinking of settling for $600 million,” he said. “That’s the word we wish you to pass along to Mankoff. It’s his call. We’re tired of Arnold Braum’s theatrics.”

  I let out a low whistle. Still, in terms of the potential aggro, $600 million didn’t sound all that bad. A large fraction, admittedly, but still a fraction of the money they’ve made on those Polton deals. And first out is usually cheapest, as the San Calisto wisdom has it.

  “Plus the usual disclaimer?” I asked.

  “Not exactly. In this case, we’d like to see some admission of wrongdoing.”

  “I’ll pass it along,” I said. “That’s all I can do. On top of the mea culpas, $600 million’s a lot of money. I’m not sure my former client will spring for that.” There was no point to telling him that I didn’t know where Mankoff could be reached.

  “Not necessarily,” Spass said. “Not if you look at it on a net basis.”

  “What do you mean ‘net’?” I asked.

  He grinned. “I don’t suppose you’ve ever read the full SEC complaint on Protractor?” he asked me.

  I shook my head. “All I’ve seen is STST’s reply.”