Fixers (26 page)

“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.

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.

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.

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.

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 administration’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

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.

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.

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.

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.

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.