Fixers (25 page)

Among the big shots assembled around the table, the consensus was that Bernanke’s going to take the discount rate straight to zero, a course of policy that, “in terms of benefit to Wall Street,” will be like “waking up to find Jennifer Lopez sucking your dick,” as Rosenweis colorfully put it.

At the end of the evening, Rosenweis asked Lucia to stay for a nightcap. No way he’ll get into her pants, or even come close, and they both know it, so this postprandial chat was all business. Apparently, Rosenweis thinks Wall Street is getting a bum rap. Here’s Lucia’s recollection of what he said: “You need to do a better job next year. We all do. I know people are angry. But hey, we just did what Uncle Sam told us to do. No one told us to stop: not in 2004 or in 2006 and 2007, and even in 2008 until the bottom fell out. We’re not the people who are supposed to be looking out for the taxpayer. That’s the government’s job. We need to get that message out.”

I will refrain from editorial comment.

In times like these, that try men’s souls, small rays of sunshine give outsized warmth to the troubled spirit.

Orteig called me at home tonight to give me a heads-up to pass along. It seems that Barney Frank, the Massachusetts congressman whose potential to be a pain in the butt is exceeded only by his talent for hypocrisy, has teamed up with Senator Chris Dodd, a man who (according to Lucia) has never seen a payoff he didn’t like, to write some law—now universally known as “Dodd-Frank”—that will require a certain percentage of future TARP disbursements to be used for mortgage forgiveness.

Normally Dodd-Frank wouldn’t be something Winters and Holloway would be in a position to head off. Technically they’re powerless with respect to legislation until after the inauguration next month, but Orteig reports that Winters has persuaded OG that the mortgage crisis is a policy matter that now belongs to the new administration and must therefore not be allowed to move ahead legislatively without the president-elect’s agreement. OG has bought that argument, and word has been conveyed to Rep. Frank that if he expects as much as a single jeep to be budgeted for military installations in his district, he better table any legislative initiative until after the inauguration. Dodd is less of a problem; with him it’s just a question of how big the check needs to be.

Every day, it seems, there’s new news that paints the mortgage industry as a hotbed not only of reckless lending but also of outright fraud. Apparently Citi has an operation in deepest Missouri in which thousands of worker bees at computers spend their day “kosherizing” bad or defective mortgages. Loans in which the come-on was fraudulent, the terms misrepresented along with the borrowers’ financial position, the paperwork incomplete and
therefore not legally binding. These weren’t loans created to put America’s little people in homes of their own, mind you. These were loans created to generate fees and spreads for Wall Street. Less than 15 percent of subprime mortgages written during the past few years were for first homes; the rest went for flips, second homes, and home equity.

It makes one wonder how many lanterns Diogenes would have gone through searching the dimly lit corridors and corners of Washington for an honest man—but I keep telling myself to stop thinking like this. Become more tough-minded, more the practical man of affairs for whom the bottom line is all. After all, Mankoff says there’s work still to be done, which will doubtless call for yours truly to affect a clear eye and a hard heart.

Nobody can wait for the midnight clear, that’s for sure. Wall Street still resembles Humpty Dumpty: patched up along the fault lines but the cracks still very evident. Here’s hoping Uncle Sam’s fiscal Super Glue holds. Apparently Citi has had to have major additional transfusions of the taxpayers’ money to bail out its “Structured Investment Vehicles,” or SIVs. These are the “let’s pretend” off-balance sheet entities Citi and its lawyers created to stick the big bank’s worst garbage in. I’m told there was a highest-brass meeting with their accountants and lawyers during which they were told either to fix the SIV problem and bail out certain internal hedge funds—including the fund they bought for $900 million from the slick Indian gent who’s now running the bank—or risk a big fat qualification on their audit. Word is that this may result in Citi having to bring as much as $100 billion of toxicity back onto their balance sheet.

BofA remains iffy, especially with Merrill included (that merger finally closed last month). Other year-end tidbits gleaned here and there include a Fed program that goes by the code name “ST OMO,” which stands for “single-tranche, open-market operations,” whatever the hell that’s supposed to mean. Apparently the fun and games now in place could cost as much as a trillion dollars. Money is money, but what I find somewhat troubling is that, according to one of Lucia’s sources, Uncle Sam—both past and present administrations—intends to keep this $1 trillion giveaway a secret from the taxpayers.

People are totally puzzled by what the Fed’s up to. One suspicious hedge-funder I spoke with wonders if the Fed might not be engineering “a reverse dump”: lending Wall Street the money to buy back some of the garbage collateral Bernanke and Co. vacuumed up earlier, thereby making the Fed’s own year-end
balance sheet look better. This sounds like “double secret greed” to me.

Another bit of news about our central bankers is that, in uncontrollable save-the-world mode, they’ve thrown $30 billion of the taxpayers’ money at a shadowy Luxembourg outfit called Dexia, which is a major insurer of U.S. municipal debt. In this time of crisis, when hundreds of thousands if not millions of American households are squeezed, losing their jobs, being put out on the street, tens of billions of your full faith and credit and mine are being shipped overseas to foreign banks. Does that make any sense?

Frankly, I’m beat, I’m tired, I’m ground down. The office will stay closed through the long weekend, and on Saturday I’ll head north for my annual New Year’s sojourn in the Berkshires—and that’ll take me into 2009. And STST will be back in sync with the calendar.

One final note. Apparently a couple of weeks ago the president-elect was confronted by an influential senator who begged him to rescind the pending appointments of Winters and Holloway. This is a legislator who thinks Wall Street—especially Citi—is being let off too easy and whose opinion of Holloway, in particular, is not repeatable in polite society. He’s said to have made no bones to OG about his belief that these are the wrong people at the wrong time.

OG told the senator to stuff it—presumably after consulting with Orteig. I can’t help wondering if or how much OG knows about my deal with Orteig, but for some reason I can’t make myself ask. Don’t I remember a novel called
Shall We Tell the President?

So here we are on the brink of 2009. How’ll it turn out? It has to be better than the year we’re leaving, all eleven months of it. Gentle Reader, a very Merry Christmas to you. See you in 2009.

New Year’s Day in the Berkshires.

I had a tough night sleeping. It was late—maybe 1:30 a.m. when the last guests left, and my hosts and I cleaned up and dragged ourselves upstairs to bed. By then, my mood was already dark, although I managed a bright face and a frisky line of chatter right up to the moment I closed my bedroom door behind me and flopped down on the bed.

So, you ask, whence this gloom? I might call it a crisis of conscience.

Ever since I got here, I’ve felt like an alien life-form among people with whom I used to feel real intellectual and moral kinship. I look at them, and listen to them, and then I think they’re no longer (although they don’t know it) “my” people, “my” sort. Or I’m not theirs. Not any longer.

The very first night, my hostess, Millie Hastings, turned to me at dinner and said, “How can you stand to work with those Wall Street people, Chauncey? It’s going to be a pleasure to see those people pay for what they’ve done to us!”

This is a woman for whom, two or three years ago, I went to bat with some of “those people” and secured $1 million in grant funding for a lecture series at her alma mater. It helped, I suppose, that the people I approached had children applying to that college.

I responded with what’s become my stock answer: “The way I see it, Millie, is that I help what some consider bad money find its way to good ends. Besides, 90 percent of the finance types I work with have nothing to do with the kind of stuff that’s caused this crisis.” Already I’d had to spend a certain amount of time establishing that my friend and patron, Leon Mankoff, isn’t the same as one Bernard Madoff, despite the similarity in the spelling of their surnames. It was disclosed
about a month ago that the latter has been running a $60 billion Ponzi scheme, and since then Mankoff has been driven crazy by people confusing him with the swindler and whispering and pointing him out in places like Carnegie Hall.

I can understand how my Berkshires bunch feels. They’re basically all of a type: well spoken, candid, cultivated, liberal, humane, old-school; mostly acquaintances of long standing, along with a couple of new additions. They’re people who accept the rules and play by them—and expect the same of others. The problem is they live by premises no longer in force—you simply cannot disdain money in a culture that worships it. And the current crisis has left them in shock. They could pride themselves as being the flower of society, guardians of the minds of our youth and of the great cultural traditions, but what use are those attainments when overnight their 401(k)s have evaporated; the value of their houses has dropped by half; their friends and colleagues suddenly find themselves unemployed; their departmental budgets are slashed; their exhibitions, fellowships, lectureships canceled.

And the worst part, the complaint I’ve heard most often in the five days I’ve been up here? Their children are mainly interested in making money. I know how they feel; I recently read that over 50 percent of this year’s graduating class at Yale signed up to interview on Wall Street, and all I could think was that something has gone terribly wrong somewhere.

So where does that put me? Do the missions I’ve successfully carried out for Mankoff make me a traitor to my class, as FDR was accused of being? You tell me.

I’m glad I won’t be around when my friends up here see the kind of profits STST expects to report. They’ve had to give up vacations, pet projects, and other life enhancers, and there’s more to come, while the people that caused these sacrifices are emerging from the crisis richer than ever. I know Lucia’s concerned about
how to respond if STST shows juicy earnings barely six months after being handed billions in taxpayer money, but that’s just an image nuisance. Mankoff himself is concerned that if STST’s profits get back up to where they were in 2007, his top people are going to want their compensation levels back up to where
they
were in 2007. I can hardly expect that fat Wall Street bonuses are going to sit well with Main Street, where “For Rent” and “Going Out of Business” signs are already sprouting like winter daffodils, but with the crazy way we live today, you never know.

I hear people stirring in the house. I’ll go down to breakfast and make cheerful New Year’s Day noises, then say my goodbyes and head back to the city. Happy New Year.

Orteig called today with two bits of interesting news. Like all good fund-raisers, he likes to keep his patsies warm and toasty for the next time around. Politics is the gift that keeps on wanting, and I can tell he’s already thinking about 2012, even before OG is inaugurated.

It seems there’s this economist close to the president-elect, a woman named Romer, who’s pushing OG to up his stimulus package from $800 billion to $1.9 trillion. She has Main Street in mind as the beneficiary, through massive new federal investment in infrastructure and possibly even direct cash contributions, but Winters has persuaded OG that the most beneficent restorative for the economy will be via the financial/banking system, which will pipe the money to the nation’s farms, small businesses, and distressed homeowners. Romer is understandably very unhappy. Personally, I think she has a point about infrastructure: New York City’s streets look as if they’re maintained by Rwanda’s Department of Transportation.

Orteig also reports that OG summoned Holloway to the White House, along with the woman who heads up the SEC, and the three of them had a session about implementing serious oversight of the financial system, but that Holloway managed to get that can kicked down the road, pleading that the Street needs to concentrate all its energy on the present.

I strolled across the elevator lobby at the end of the day, and found the Nitmeister and Scaramouche engaged in a discussion of a scam in Detroit, a city that was once a bastion of this country’s industrial might but which in recent years has deteriorated into a slough of poverty and criminality, with a good third of its decrepit housing stock either abandoned or in foreclosure. It seems that the city’s credit rating has been downgraded to junk levels, which will trigger $200 to $300 million in penalty payments to the banks that sold Detroit a complicated swaps issue back in 2005. The transaction was designed to protect the city in the event interest rates rose; when they instead declined, thanks to a crisis brought on in large part by the very people who sold the city on swaps “protection,” Detroit was on the hook for huge make-whole payments to Wall Street. The city doesn’t have the money, and has asked for forbearance, but Wall Street is playing hardball, even threatening to seek a lien on the priceless collections of the Detroit Institute of the Arts, one of the great museums of the country. It appears the Street is within its legal rights to do so; as is not the case with other major museums, DIA and its holdings are city property and therefore legally vulnerable.

“It isn’t just towns and cities and water districts that fell for this garbage,” Scaramouche was saying when I sat down. “What about places like Harvard? I hear it’s going to cost them close to half a billion to get out of a deal they let themselves be talked into.”