Fixers (24 page)

Yesterday, STST traded at $52, a quarter of what it was selling for when I met Mankoff at Three Guys. Less than half of where it was when Mankoff and Gerrett cut their deal. Ouch! The only bright spot in the slump in the price of stocks is that it has somewhat stilled the chorus of complaint that the taxpayer got a lousy deal in TARP, since Wall Street hasn’t been spared. The financial stocks have taken a real beating, not only because business is
terrible, but because the market figures the Street will be taken to the woodshed next year.

Mankoff views the carnage serenely. Neither he nor (he tells me) Gerrett is sweating STST’s current price. By next spring, he’s certain, once the new administration’s in power and pump-priming with all its might (and the taxpayers’ full faith and credit) and the market sees the kind of money STST is making, the shares will be back well over $100 and probably closer to $150. Let us note that everything he’s predicted so far has come to pass.

This has been a hell of a day. Break out the champagne. Orteig has kept his end of our bargain. The president-elect’s transition team has put the word out that the incoming administration’s economic team will be headed by Harley Winters in the White House and Thomas Holloway at Treasury.

When I heard the good news late this morning, I was a few blocks west of my office conferring with an important new client who’d been sent my way by a friend at Julliard, a hedge-fund guy named Leonard King, who looks like a complete thug, with a shaved skull and a mug that belongs on post-office walls, but who turns out to be an opera fanatic. He gets more of a thrill from what’s in the bars and staves of a Mozart score than in the cells and columns of an Excel spreadsheet. You remember my idea for a series of operas based on Shakespeare? Well, my new client has bought into it, and we’re in the early discussion stages for a series of new productions to be performed around the world:
Macbeth
,
Otello
, and
Falstaff
, by Verdi;
Roméo et Juliette
, by Gounod; and
The Tempest
, by contemporary composer Thomas Adès. This is a huge, costly undertaking that I’ve been thinking through for some time (it’ll cost around $200 million), but its prospective underwriter is a man who earned $1.3 billion last year and whose net worth
Forbes
put at $11 billion. He has what Wall Street types call “three-comma money.”

We were humming along, matching lists of singers’ and conductors’ availabilities and fees, when all of a sudden he got a call that he said he had to take and rushed out of the office. When he returned, he was lit up like a Christmas tree with positive energy, and when he told me the good news about the appointments, I felt like I was having an out-of-body experience.

“You know what this means, don’t you?” he told me. “Half the Street’s been thinking this new guy’s going to do a Pecora rerun and put a bunch of people in the slammer, but with Winters and Holloway calling the shots, that’s not going to happen. Both of them are on record as opposing criminal prosecutions. So it’s hallelujah time! The Dow and the S&P are already through the roof, because you don’t have to be a genius to know what this means. We could have a thousand-point spike in the Dow over the next few days.” Then he sent me on my way, declaring that he and his troops had “to hit the mattresses.”

On the way back to the office, I stopped off at a hamburger joint on Lexington Avenue I like, and while I was eating, finished reading this morning’s
Times
. Today’s op-ed section has a long piece by Marina Hochster, the take-no-prisoners financial reporter who’s a major thorn in Lucia’s side. There are few journalists that Lucia can’t bring around to seeing things the STST way—but this Hochster woman is one of them.

To my surprise, the piece was very hopeful and conciliatory, almost prayerful, not at all in the saber-tongued, slash-and-burn, antagonistic style Hochster’s famous for, which makes her a favored talk-show guest. She’s publicly stated that she models her journalism on the famous muckrakers of Teddy Roosevelt’s time—Ida Tarbell, Lincoln Steffens, and Frank Norris—and ours: Woodward and Bernstein, Matt Taibbi, and Seymour Hersh. I read somewhere that Hochster hopes in her career to do to the pinstriped crooks on Wall Street what Hersh did to the perpetrators of My Lai.

Well, I thought as I read that, lots of luck, dear lady. Muckraking’s not what it used to be. Back in TR’s day, the journalists had the support of TR and his bully pulpit. And right up through Watergate, public indignation could be ignited and rallied. But nowadays, not so much—if at all. People are inured to scandal
in high places—you can thank the Clintons for that—and have the Internet on which to vent their indignation individually. Who needs to join a rally when you have Twitter? Even Hersh gave up trying to rake the corporate muck a long time ago. He once said in an interview that while journalists may relish the thought of going after Big Money, editors and publishers don’t.

Reading Hochster’s piece made me feel kind of sorry for her. The column was all about how OG’s election a couple of weeks ago will usher in a bright new era, in which justice and brotherhood will prevail and the bad guys will be made to pay for their malefactions. I’d give anything to see her face when she hears the Winters-Holloway news. You don’t have to be a cynic, or to know what I do, to grasp that this just isn’t going to happen, not the way the nation is run today.

You have to admire Orteig’s timing; he’s sprung the trap at just the right moment, with the nation still drunk on expectation and giddy with idealism, and in no frame of mind to sit back, look hard, and ask, “What the hell is
this
about?” The way I think I would, were I not in on the game.

The effect on the markets was just what my client said it would be. By lunchtime, a giant, shimmering spiky shudder of speculative relief had swept Wall Street. The Street works by the theory that disaster deferred is disaster eliminated. Gone were all fears of retribution from a Democratic administration. By the time the last weary trader shut down his Bloomberg terminals, the Dow was up nearly 500 points, and the smart money is looking for another 500 come Monday.

The financial stocks lagged the rally, STST among them. It opened at $47 and change, closed at $53. Still a one-day bump of over 10 percent isn’t to be sneezed at. I reckon it will take time for investors and traders to process the true potential for Wall Street of the appointment of two committed laissez-faire, pro-finance,
anti-regulation types to manage a so-called “liberal” administration’s economic and financial policy. Under OG, the Great Bush Giveaway, as Scaramouche calls the TARP bailout, will continue to roll on like the mighty ocean, splendid and implacable and teeming with sharks.

Anyhow, it’s fair to say that my day passed in a kind of egotistical euphoria, tempered by mild disappointment that there’s nobody out there whom I can tell about the coup I’ve masterminded. Just as I was getting ready to leave the office, Lucia called and we talked briefly about Winters-Holloway and what it meant. Her Washington connections report that some of OG’s inner circle—including, curiously, his wife—are unhappy because they were never really given a chance to participate in the decision.

It was at the end of the day as I made my way downtown to meet a friend for a drink, brimming with pride and self-congratulation, that I recalled the famous passage from
The Great Gatsby
in which a shady type is pointed out to the narrator as “the man who fixed the World’s Series back in 1919.” I wonder if someday people will point me out as “the man who fixed the 2008 presidential election.”

Will I be pleased? Only time will tell.

OG’s transition team has now formally confirmed the leak that drove the market up 1,000-plus points in five days. Harley Winters and Thomas Holloway will head the new administration’s economics team, Winters as chief economic counselor to the White House, Holloway as Secretary of the Treasury. No mention of Brewer and scant mention of Vollmer. I imagine that Winters has already seen to it that the former Fed chief is marginalized.

When I spoke to Orteig this afternoon to wish him a happy Thanksgiving, he told me that the president-elect already seems to be developing a man-crush on Holloway. That doesn’t surprise me. They’re both technocrats with exceptional skills in career advancement. As for Winters, OG totally buys into the He Who Knows Everything image. He’s one himself.

From what I hear, the Street’s celebrating Thanksgiving with caviar and noble vintages. As well it should. Regulatory Armageddon has been postponed, if perhaps canceled. Hedge fund managers can shred their Cayman Islands visa applications.

Last Monday, following Friday’s 500-point spike, the market opened up big and stayed up big, with the Dow gaining another 400 points. STST closed at $67. By the time I landed Wednesday at Montego Bay (I’m staying with friends in a villa with a beautiful, unobstructed view of Ralph Lauren), STST had broken back up through $70, a recovery of over 40 percent in just three sessions; it closed at around $76.

Of course, a decent interval will be required—a new president inaugurated, the Winters-Holloway nominations confirmed by Congress—before the Street can get back to business as usual. I had coffee with Mankoff the day before I left for Jamaica and he’s very bullish. It couldn’t have worked out better for STST: greatly
reduced competition, risible cost of capital, zero transparency, and the prospect of an extra $20 billion to play with, thanks to my GIG prestidigitation. Mankoff thinks the second half of 2009 may be STST’s best and biggest ever.

One amusing note. Just before I turned in, I caught an MSNBC rerun of an interview with Marina Hochster. She’s a nice-looking, strong-featured woman, with a marked New England accent. The type people call “handsome.” She wouldn’t look out of place on a Nantucket widow’s walk, scanning the far horizon for her menfolk’s whaler. She was asked about the Winters-Holloway appointments, and responded, “It’s like appointing a couple of Ku Klux Klansmen to run the NAACP.” I thought that was pretty good?

Ah, well, so go the politics of this great corrupted republic. Bring on the turkey and the ackee and jerk sausage stuffing. In other words: Happy Thanksgiving and God bless us, every one!

It’s generally agreed that Mankoff runs one of the tightest ships plowing the mighty seas of global finance. Its balance sheet reflects plausible valuations; the firm takes generous haircuts on illiquid or unmarketable securities and recognizes losses promptly. Relatively speaking, they’re as clean and honest as you’ll find on the Street. They’re in no regulatory difficulties as far as anyone knows: no inside trading, exposure to the Foreign Corrupt Practices Act or RICO, money-laundering, sanctions-busting. In other words, STST isn’t HSBC.

Nevertheless, the financial crisis is so all-enveloping that not even the most risk-averse firms can avoid taking a few hits. Beginning last March with the fall of Bear Stearns, STST began to take write-downs and reserves against its trading book. These have been worsened by a severe falloff in business since Lehman. According to Lucia, Mankoff advised his board that the firm could show a loss for 2008 of almost $1 billion.

Now it appears that won’t happen. The numbers sorcerers have ridden to the rescue.

You remember
Groundhog Day
? Where Bill Murray wakes up every morning to find that it’s always yesterday? This is sort of the scheme STST’s smartest numbers jugglers and its most ethically flexible senior accountants have concocted. It’s a scheme that to my untutored and ethically naïve eye makes Enron’s accounting look like IBM’s, but apparently I’m being naïve again, because it’s perfectly legal. On Wall Street, never forget, legality is the sole animating principle of morality.

Here’s how it’s going to work. For as long as anyone can recall, STST has been on a “November fiscal year.” Each November 30 they close the books on the twelve months past and the next morning,
December 1, they open a fresh set of ledgers for the upcoming twelve months. For fiscal 2009, however, STST is switching to a “December year,” one that will begin on January 1, 2009. The switch will take place after the books are closed on the (present) November 30, 2008, fiscal year. Which leaves the entire month of December 2008 in limbo or, if you prefer, purgatory.

So what will become of the missing month?

It seems that December will just vanish. That’s right. It will be effaced from the face of time with a few clicks of an auditor’s mouse. Those souls who calibrate their working lives to STST’s calendar will go to bed this Sunday and won’t wake up, from an accounting perspective, for thirty-one days, until January 1, 2009. Talk about Rip van Winkle!

The missing thirty-one days will have their earthly uses, be sure of that. They’ll constitute a sort of arithmetical septic tank, into which will be dumped what’s left in the way of loss-making junk on STST’s balance sheet. Write-offs and markdowns that have been postponed will now be taken. December’s shaping up as a lousy month for business, anyway, so this way they’ll kill two birds with one pass at the abacus. And here’s the best part: December 2008 will only have to be shown in next year’s annual report as a footnote. Isn’t it amazing what an accounting firm can do with only a pencil and a set of spreadsheets?

You’ll also be pleased to learn that STST just got a very nice check for $19 billion from the Federal Reserve that closes out the GIG swaps problem. Some of this windfall will be paid out to make certain most favored counterparties whole, but Lucia says about $4 billion will stick to STST’s ribs. According to her, the Bush Treasury insists that no disclosure be made by Washington until next year after the inauguration, when it’ll be the new team’s problem. Seems fair to me.

Last night Lucia attended Rosenweis’s annual Christmas party. I had an important client to entertain and couldn’t go, so she called this morning to report.