Fixers (16 page)

As for the other stuff: like Scarlett O’Hara, I’ll think about it tomorrow.

Did someone say “Game on!”?

Well, you better believe it, because OG has swept the Iowa caucuses. The competition’s putting on a brave face, but based on what Orteig told me last night, this is the beginning of the end. Obviously this kills Hillary’s hopes for a political blitzkrieg. She won’t go easy, of course; there’s no quit in her. Orteig expects her to redouble her efforts, and that she’ll probably do well on Primary Day, when a bunch of states go to the polls, but that’ll be her last hurrah. In other words, the lady is toast.

Naturally, OG’s Iowa victory speech, which I just finished listening to, was a combination cock-of-the-walk and cock-a-hoop. Awfully confident, considering where we are, with a long way to go between now and the convention in Denver in August. There’s no quit in Hillary, and she can be expected to drop the gloves and let it all hang out. Still, I like OG’s chances, especially if the Wall Street apocalypse lighting up Mankoff’s crystal ball comes to pass.

Ooops! The phone’s ringing. It’s Mankoff. This late, he can only be calling about Iowa, and he’s got to be pleased. Gotta take this call. More anon. On to New Hampshire!

The final tally in New Hampshire primary is in. There was a huge turnout. OG came second: 38 percent to Hillary’s 39 percent.

Orteig’s not surprised—or all that disappointed. He tells me it was to be expected that Clinton would win a round or two before OG finally puts her down for the count. Orteig left no doubt that it’s our contribution that’s made the difference, and I must say, to judge by the results, he’s leveraged the money I’ve injected into OG’s campaign—$71 million so far—with an efficiency you have to admire. When Mankoff and I spoke after the final New Hampshire numbers were in, he told me that the investment in OG may ultimately reap returns as great as any in STST’s storied history. From the way he said that, I couldn’t escape the feeling, no more than a glimmer, really, that there’s more at stake here than simply the Winters-Holloway “insurance policy.” He also said that when this is over, he may ask Orteig to come on board to run STST’s wealth-management business.

Enough of politics. According to Lucia, what’s on the mind of everyone on Wall Street right now is, first, the rumor that Bank of America (BofA) is going to acquire Countrywide and, second, that Bear Stearns may finally go bust.

“The unspeakable acquiring the uneatable.” Scaramouche paraphrased Oscar Wilde’s sarcastic definition of foxhunting when I asked him about the rumored BofA-Countrywide deal at lunch today. The San Calisto consensus is that this is the stupidest deal ever. Apart from the fact that its CEO looks and sounds like an extra on
The Sopranos
, Countrywide is apparently a mess of bad assets, crummy governance, hard-sell sales techniques that verge on the criminal, and very suspicious Washington interfaces (especially at Fannie Mae, whose management is well into a second
generation of bonus-seeking corruption): all in all, a recipe for huge financial and regulatory headaches down the road.

As regards Bear Stearns, the consensus seems to be that by Easter Bear will be extinct, either in a bankruptcy chapter, taken over by one of the big banks, or absorbed and dismembered by the dripping jaws of vultures and hyenas: a joint here, a chop or a limb there. Regarding this, one of my clients claims that the New York Fed’s been sounding out the Street to see who might participate in a you-get-this-and-I-get-that breakup of Bear.

The problem is that no one will want to take on the garbage on Bear’s balance sheet with a make-whole from Uncle Sam, and that’s not in the cards. Not yet, at least. People are calling in loans, asking for better collateral, and generally making life miserable for whoever it is—Jimmy Cayne’s apparently indicated—who’s running the show in Bear’s new trophy building at 383 Madison Avenue. So far the consensus favors a “good bank, bad bank” solution. The good stuff stays in “old Bear” and the crap goes into “new Bear,” which then files for bankruptcy, where it can be profitably looted by attorneys, accountants and workout specialists. I hate to sound sacrilegious, but I can’t help being reminded of the Roman soldiers dicing for Christ’s garments at the foot of the cross.

And so it goes. Was it John Donne who said, “The new religion casts all in doubt”? Something like that.

“A lot of people wouldn’t mind seeing Bear out of business,” Mankoff mused this afternoon when I was in his office reviewing a list of proposals. “They’ve been tough competitors, although not so much with Cayne running things as when Ace Greenberg was in charge. Jimmy’s taken his eye off the ball every now and then; Ace never did. There’s a lot of fast-and-loose going on over there that Ace would never have tolerated.”

What worries him is that if Bear Stearns tanks, the contagion will spread—and rapidly. The signs are already there. “We’ve reached the point where people are taking a much harder look at each other’s balance sheets and collateral, although so far no one’s pulled the plug. But if one does, the rest of us may.”

Citi has replaced Bear as the epicenter of malicious Street gossip, at least for the time being. Here’s my latest tidbit, gleaned from a MoMA trustee.

It seems that last Friday the big bank announced its preliminary 2007 results. Earnings from operations were lousy, but Citi still contrived to post a modest profit, thanks mainly to a fat tax credit. All blessed with the usual blah blah blah from the bank’s “independent” accountants about how management believes that the bank’s financial controls are effective and the auditors find no cause to differ.

The accountants’ sign-off letter was apparently time-stamped last Friday, February 22. But a week earlier, on February 14 to be precise, Citi had received a harsh letter from the SEC criticizing its accounting, financial modeling, risk management, and valuation procedures and demanding that the bank fix them pronto. But get this:
Citi has elected not to disclose the SEC letter to the public, including its stockholders
.

The question is: did they show the SEC letter to their auditors? What happens if this gets out? If challenged on the SEC letter, will Citi lean on Shearman & Sterling, its main law firm, which probably generates hundreds of millions in annual billings from this particular client, to come up with a Wall Street version of “the dog ate my homework”? The guess up and down Wall Street is: for sure.

Citi and Bear Stearns are today’s bad news, but from what one hears, Lehman is closing fast. The latter is apparently getting by thanks to a really dubious overnight funding scam called Repo 105. It’s getting to be hard not to conclude that Wall Street has been as crooked as it has been reckless in its drive for bonus-generating profit.

The Campaign Finance Institute has released its estimates. To date, OG has raised $184 million, Hillary $129 million. Such is the power of leverage. A year ago, OG was barely a blink on the financial radar. They’re saying that over 40 percent of contributions to the campaign are $200 or less, from small donors. Hilary’s comparable number is under 30 percent. Not bad, eh? A glowing testimonial to my money-moving prowess.

Now I can sit back and gloat, because exactly as anticipated, the big money’s started to flow to OG. Wall Street’s all in on the candidate, falling all over its collective wallet to get on board the bandwagon before it’s too late.

Happy days are here again!

Just kidding.

Yesterday, the European central banks played “Little Dutch Boy at the Dike” and pumped $200 billion into their credit markets with zero effect. This morning, there’s an estimate floating around that as many as a million and a half U.S. subprime mortgages will go into foreclosure. A lawyer I see at Municipal Art Society meetings tells me that he hopes the banks have got their paperwork in order, because otherwise there’ll be an ungodly mess; the scuttlebutt here is that STST outside counsel Corbett & Charles have been ordered to review Samarra/Hatton, the recently acquired redneck mortgage mill that got my San Calisto buddies so exercised. Fingers crossed.

From what I’m hearing, the banks have collectively let more than 40,000 people go. A leading financial newspaper is predicting that global layoffs may exceed 70,000. This estimate includes a large percentage of the 14,000 employees of Bear Stearns, which is said to be on life support. I know from Lucia that STST’s headcount is being cut back, mainly at lower levels—equivalent, say, to furloughing a couple of dishwashers at the Four Seasons, but these waves tend to oscillate upward and people below the rank of vice president are definitely nervous. Another small sign of the times: a couple of my invoices to Wall Street clients are thirty days late.

One last cheerful fact. MSNBC reports that one bank—I forget which—has put out a forecast that subprime losses may exceed $200 billion.
$200 billion
, can you believe that! And since reporting disaster has become a form of media poker, S&P saw that number and raised it, with a forecast that total subprime losses may reach close to
$300 billion
. Either figure is frightening enough, but
what I find ironic is that people are saying that a goodly portion of those losses will be on debt that S&P and its fellow credit-rating whores have rated AAA. Did someone say “fraud”?

Scaramouche advises that anyone looking at Wall Street today will do well to follow the immortal wisdom of Chico Marx: “Who you gonna believe? Me or your own eyes?”

These days Wall Street seizes on any figment of good news to jump for joy, and today the Street was positively hopping.

The reason? One of their principal adversaries has bit the dust. Eliot Spitzer is toast!

That’s right! Eliot Spitzer, governor of New York since January 2007, the self-styled “Scourge of Wall Street”—and easily the person most hated by the financial community—will be resigning the governor’s office effective next Monday. It seems that the about-to-be-former governor suffers from Bill Clinton syndrome: can’t keep it in his pants. In Spitzer’s case it isn’t White House interns in irresistible blue dresses—it’s hot and cold running hookers. Dickheads and their dicks: it never changes.

As regards the larger political canvas, OG had a bad patch back at the beginning of the month when it turned out that the pastor of the Chicago church he attends is some kind of a cut-rate Farrakhan who talks a lot of anti–white trash. You can see the problem this presented: no way do Orteig and his colleagues want OG to seem more than coincidentally black. They don’t dare even breathe the word “race.”

The Hillary people tried to make this a big deal—asked the voters to imagine “gangsta rap” in the Oval Office, etc., etc.—but one thing OG is really peerless at is smothering problems with blah blah blah, and he did. So after a few uneasy moments, the campaign’s back on track. He did well last month on Super Tuesday (won 13 out of 22 states); he won in Mississippi two days ago, and continues to pick up delegates while Clinton’s base is hanging on for dear life. Perhaps he should start working on his acceptance speech for the Democratic Convention in Denver in late August. Mankoff’s looking like a genius.

Another long day. Mankoff called me at 7:00 a.m. to tell me he had a new mission for me and was coming by. This must be a big deal; apart from my Good Friday cocktail party, he’s hardly ever visited me at home.

He was here a bit after eight. He apologized for bothering at home, but he’s wary of people seeing us together too often at his office. I told him it was no problem, made him tea, settled him on the sofa and did the “all ears” bit.

“We need to move quickly,” he told me. “The situation may be worse than even I pictured. To start with, Bear Stearns is in the shit so deep that Uncle Sam is going to have to bail them out with a steam shovel. I hear they’re close to a deal with JP Morgan Chase to provide Bear with interim financing backstopped by Washington.”

“Well, you’ve been predicting this,” I said. “What’s new? If you listen to the gossip on the Street, there isn’t a firm that isn’t on the brink. What kind of shape are you guys in?”

“We’re OK; not great, but definitely nowhere near the trouble others are. JP Morgan Chase: same. So is Wells Fargo and Bank of New York and a few others. But here’s the thing. What Washington ought to do is let the strong survive and the weak perish. But when the weak include systemically connected outfits the size of Citi or Lehman or even Bear, you can’t walk away from them, because you may trigger a domino effect.”

“So what do you do?”

“My guess is that Uncle Sam’s going to have to come up with a ‘one size fits all-let’s pretend’ plan that treats both the weak and the strong the same way. A plan that’ll make it look like they have to bail out the system, and not just a few firms that screwed up. That’ll give us leverage, because Treasury and the Fed will need
us and JPMC and Wells to play along. Otherwise, any plan they come up will be dead on arrival, especially if we and the others turn our lobbyists loose on Capitol Hill to kill it. In other words, I want us to be in position to leverage our situation when the time comes.”

As Mankoff sees it, Treasury wants to set up a bailout template now—and he wants to be sure that this template serves STST’s interests and also wants me to negotiate it. He ran thorough his plan, satisfied himself that I got it, and gave me the number of the relevant woman at the New York Fed.

She was expecting my call. We made a date to meet in Battery Park at 11:30 a.m.

Over my second cup of coffee, I tuned in to MSNBC, just in time to hear the network report that JP Morgan Chase, “in conjunction with the Federal Reserve Bank of New York,” has agreed to provide a credit line to Bear Stearns for twenty-eight days, the financing to be guaranteed by the Federal Reserve. When I left my apartment, Bear shares had opened at around $60; by the time I reached Battery Park an hour or so later, my BlackBerry told me they were under $30.