Fixers

by Michael M. Thomas

  “That’s ridiculous! Our program is specifically designed to unblock the nation’s credit arteries! Are you suggesting that the Treasury is lying?”

  “Oh, bullshit,” I said. “You know and I know and Treasury knows that adding capital to the banks won’t thaw the credit freeze. Besides, who wants to borrow? Buisness is scared shitless, and the consumer’s out of gas.”

  As I watched him chew on that, I had a sudden bit of inspiration, and almost as if some mysterious power was working me like a ventriloquist’s dummy, I heard myself saying: “Oh yes, one more thing. My client has close to $20 billion in underwater swaps and hedges with GIG that are now under your control and therefore in your gift, shall we say. We need to get those made whole. A hundred cents on the dollar, no matter what the market thinks they’re worth. We don’t care how it’s done, and we don’t care how long it takes—as long as it’s by the end of the year. And nobody need be told about it until it’s a done deal.”

  I still don’t have the slightest idea where the thought came from. Perhaps my suppressed investment-banking id.

  Spass seemed genuinely shocked. “This really is blackmail,” he exclaimed.

  “You can call it what you want. No GIG, no bailout.” The moment I said them, I wanted those words back. If Mankoff had heard me, he would’ve had me snuffed. And yet something told me this wouldn’t be a deal-breaker.

  “You know we can’t do that!” Spass insisted. “GIG was never on the table.”

  “Ian, my client’s councel thinks that Treasury can do this. A bunch of overseas banks are locked up in GIG swaps the same way we are; they’re screaming to get paid and the State Department’s all over Treasury to do it. There’s a wrinkle in French law that will give you an out, and we can piggyback on that. Get your own lawyers to check this out.”

  “What I’d said was true—something I’d heard Arnold Braum tell Mankoff when I happened to arrive at the latter’s office just as as Braum was leaving.

  “I don’t know,” Spass muttered. But he was on the hook. This was a guy who had to make a deal. Had to. The GIG swaps were just icing, someone else’s problem. I could see him thinking the same thing. What’s another $20 billion? Especially when it’s not your money.

  In my excitement about GIG, I’d completely forgotten a concession Mankoff was insisting on. I hated to stick it to Spass on top of the GIG ploy, but I had no choice. “One final point: there’s talk this plan of yours may include limits on banker bonuses. That’s a deal-breaker. No limit on bonuses or other compensation. Understood?”

  “You can’t be serious! The Congress—the people, the voters—won’t stand for that! These are the very people who brought this crisis down on the country and you’re insisting they continue to be paid as obscenely as they have been?”

  I understood his reaction. To go on paying tens of millions in annual compensation to people who might have wrecked not only the capital markets but the world economy, as well, would strike most people as a gross miscarriage of justice. Justice is not Wall Street’s objective, however. Money is.

  “The Congress is well paid both above and under the table to keep its mouth shut and vote the way they’ve been told to vote,” I replied. “It’ll be years before the voters and taxpayers figure out what’s been done to them. Besides, Congress has given you people carte blanche on TARP. So what do you say? Deal?”

  He didn’t reply. “Don’t look so gloomy,” I added consolingly. “People are clutching at straws. Down the line, those straws may turn into machetes, and Washington will looklike Hotel Rwanda. You pull this off now, you’ll be heroes.”

  I’ve fished in enough troubled waters to have a good sense of when the monster fish I’m after is on the hook. When Spass finally departed, I was certain we had a deal. I hit my cell phone and gave Mankoff a coded thumbs-up. I said nothing to him about my GIG swaps garnish. Better to wait and see if Spass’s people go for it. Fingers crossed.

  When I left the Embassy Suites, I called a curator at the National Gallery to see a if she was free for a cup of coffee. Might as well turn a few cents of Mankoff’s dime to my own account. On the way over, my cell phone buzzed. It was Mankoff. Bloomberg was reporting that some asshole at Treasury or the Fed leaked the rumor that Wall Street was going to get hammered by Washington and made to pay heavily for its sins. Net result: the market in finance stocks had cratered. STST shares, which stood at $113 this morning, were down to $101 by the close.

  I assured Mankoff that all is well in hand and that my best judgment is that he shouldn’t worry. Just in case crossed fingers don’t get the job done, let us pray.

  OCTOBER 13, 2008

  What a day!

  As you by now may have guessed, Gentle Reader, every so often I feel twinges of revulsion at the big-swinging-dick braggadocio exhibited by a lot of the people I have to be involved with professionally. This evening, however, I felt some of that myself. Real “King of the World” shit. I doubt that I’ll experience this big a kick even if OG wins the election three weeks from now, as the smart money is saying he will, and big.

  It seems that everything has gone pretty much exactly the way I put it to Spass—including the GIG lagniappe. The payoff has been immediate. STST, which finished last week at $88 after trading as low as $74, closed today at $111, up 25 percent. But that’s not the principal reason for my exhilaration.

  As you know, Mankoff had been told to hold himself free for a meeting this afternoon at Treasury. He did so, and was en route back to New York by early evening. He called me from Reagan National (he had the brains to fly commercial to Washington, unlike certain assholes who’ve become media jokes) and told me to meet him at the Bemelmans Bar at the Carlyle for a drink and a heads-up. From Three Guys to the Carlyle, I reflected; the news must be good.

  When I got there, the place was a lot busier and jollier than it had been a couple of weeks ago when a friend and I stopped by for an early nightcap. The atmosphere positively dripped testosterone. A good day on Wall Street will do that for New York watering holes. The rats come out of the woodwork, feel their biceps, and start baying for Cristal and fifty-year-old single malt as if it were 2006 all over again.

  When Mankoff arrived, I could see he was a happy camper, and his handshake told me that he was definitely pleased with yours truly.

  Here’s how the meeting went.

  The Treasury Secretary, who handles most negotiations as if he’s rushing the passer, started off by talking tough, making it clear to the assembled big shots, the heads of the nine biggest banks in the country, that what he was about to propose was set in stone.

  “We were being told it was take-it without the leave-it, and the inference was that anyone who even hesitated to go along would suffer the wrath of God,” Mankoff told me.

  When the Secretary spelled out the specifics of the plan, Mankoff says the bankers around the table practically wet themselves with joy and relief. Contrary to being taken to the woodshed, they were being offered the biggest giveaway in U.S. financial history, tricked out to look like a get-tough Federal initiative.

  Bottom line: Wall Street got everything it wanted. Everything I had demanded of Spass, practically word for word, item by item, basis point by basis point, virtually the entire scheme. I can’t help but wonder if future historians will refer to this as the Spass-Suydam Plan, the way they talk about the Treaty of Brest-Litovsk.

  Here’s the deal. Treasury proposes to invest $135 billion in nine firms: $25 billion in each of the three big depositary banks (JPM, Wells, and Citi), $25 billion to BofA in two slices ($15 billion to the bank plus $10 billion to Merrill Lynch), $10 billion each in STST and Morgan Stanley, $3 billion to Bank of New York Mellon, and $2 billion to State Street. This is on top of all the other guarantees, collateral buyouts, and additional relief the Street’s already gotten from Washington, as well as the windfall from Uncle Sam picking up Fannie’s and Freddie’s markers.

  Best of all—and this I can’t believe; even when I proposed it,
I really didn’t think that Treasury would go this far—the firms can do whatever they want with this money and no one is obliged to report to the government concerning how the funds are being used. As Mankoff summarizes the program: federal funding intended for survival will now be available for speculation.

  What about a CNN report earlier in the day that a key point of the program was to flow money through Wall Street to help out distressed homeowners and get credit recirculating?

  “Pure bullshit,” Mankoff told me. “Strictly to shut Congress up.”

  It was agreed by all in the room that Treasury wouldn’t have to make public the specifics of this arrangement until later this month. The more time that’s allowed to pass without full disclosure, the worse economic conditions will get; layoffs will spread, small businesses will shut down, projects will be canceled, infrastructure will be pared. The deeper and more widespread will be gloom and despair. Focusing on their own misery will blind voters and taxpayers to the fact that hundreds of billions of their money has been given to the very people who bear a significant responsibility for the mess the country is in—on terms none of them would ever be offered in a dozen lifetimes.

  I left Mankoff around seven, feeling very upbeat. As I stood on 76th Street, trying to decide whether to go home or walk over to this place on Lexington and commemorate the day with the best pastrami in New York, my cell phone buzzed.

  It was Spass.

  “Just want to tell you, that swaps matter we discussed?” he said. “GIG?”

  “Yes?”

  “Consider it a done deal. A hundred cents on the dollar. We can’t do anything until November, however. We need to let things settle down, get everyone safely on board.”

  “I’m sure that’ll be fine.” We hung up.

  It took a few seconds for the news to sink in. I’d pulled it off, by God! I had fucking pulled it off! Who else at STST has recently hauled a $20-billion deal from out of the toilet into the profit column?

  Then I thought: how am I going to explain this to Mankoff? I decided to tell him the truth—sort of. I said it was strictly improvisation: just came up and I’d gone with it on the off-chance Washington might bite. He sounded very pleased. Very satisfied. Thanked me for a job well done. Even for Mankoff, $20 billion is a meaningful number.

  And there you have it, the way we live now. In one of Fitzgerald’s Jazz Age short stories, he writes, “If you wanted it to snow, you just paid some money.” That about sums it up.

  Is this good? Is it evil? Right or wrong? You tell me. It’s just how it is.

  OCTOBER 24, 2008

  The nation has been treated to the unmistakable sound of a rat scrabbling down the anchor chain of a sinking ship. Alan Greenspan, appearing before a hearing held by the House Committee on Oversight and Government Reform, recanted his previous statements that Wall Street could always be counted on to do the right and proper thing with all the cheap, easy money he’d thrown its way. He didn’t use the popular new catchword “banksters” (as in fraudsters) but he might as well have.

  Here’s the great man’s written testimony:

  Those of us who have looked to the self-interest of lending institutions to protect shareholder’s equity, myself especially, are in a state of shocked disbelief. Such counterparty surveillance is a central pillar of our financial markets’ state of balance. If it fails, as occurred this year, market stability is undermined.

  At this point, committee chairman Henry Waxman, one of those high-IQ homunucli who over a long career make their way to the heights of Capitol Hill, where they spend ever so many enjoyable hours sticking pins in the big boys, asked: “You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. Do you feel that your ideology pushed you to make decisions that you wish you had not made?”

  To which the maestro replied: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

  Of course, one has to ask, what’s a mea culpa worth in an age without shame? Not much, is my guess. My money says that Greenspan, in the wake of possibly the greatest and most damaging financial misjudgment since the South Sea Bubble, will most likely end up getting paid several million bucks a year consulting to hedge funds and banks that are sucking at Washington’s teat.

  One thing is certain: STST is sure to be picked on as a whipping boy, and Mankoff will be called to testify before Congress, along with his peers on the Street. I know Lucia’s already working on a return-fire rhetorical strategy. You can expect mucho antigovernment rhetoric about how Uncle Sam made the Street do it.

  I hadn’t checked in at San Calisto recently, so I dropped by for a drink on my way home, and asked the old boys what they thought about the bailout.

  “A financial trap from which there’s no escape, and morally a disaster.” That was the consensus.

  “But what was the alternative?” I asked. Surely Washington had saved the financial system just in the nick of time, and with it the world economy.

  “You mark my words,” said the Warrior. “The leopard doesn’t change his spots. Ninety-nine cents on the dollar of this bargain-basement finance Washington is handing the banks will go for speculation. I would expect the stock market to double over the next two years. There’s likely to be a sell-off first, while the smart money figures things out, but after that, the sky’s the limit. And meanwhile, the general economy will simply stumble along.”

  “I agree,” Scaramouche added. “At the very least, the Street should be compelled to use this free money to help individuals and small businesses reduce debt. The amount of usury in this country is disgusting. Look at home equity, credit card rates, student loans, adjustable mortgages, payday loans, and other marginal financing. At the interest rates people are being charged, they’ll never get out of debt. Never in my life did I think anyone would hear me say this, but I think we ought to declare an interest rate holiday. Make people keep up payments, but apply them to principal.”

  That seemed to make sense—but what do I know?

  Orteig called at the end of the day. The election is in less than two weeks. He doesn’t want to sound overconfident, but he told me that Mrs. OG is looking at carpet swatches. In a word, OG looks like a lock.

  NOVEMBER 5, 2008

  VICTORY! OG has won! And won big—just as Orteig has been predicting. Killed the opposition. I’m writing this late—1:12 a.m. by the clock—and a bit woozy. I watched the election at some liberal friends’ big, sprawling Riverside Drive townhouse. If it wasn’t firmly moored to earth by plaster and tie-rods and the weight of its owners’ trust funds, the building would have floated up to the moon, so ebullient, so triumphant and vindicated, did everyone feel.

  Toasts were drunk to the end of the long national nightmare of Bush-Cheney. To TARP being rewritten to ensure Wall Street gets what’s coming to it. To doing something about the income inequality that’s poisoning the lives of the vast majority of the population. I was cool with those, although I did feel a bit of a hypocrite raising my glass to the prospects of Wall Street being given a sound flogging.

  I’ve warmed a bit to OG. He ran such a great campaign that it’s difficult to imagine his presidency not living up to it. At least in great part. When the president-elect came out and made his victory speech in Grant Park, just for a second there, my eyes moistened up. Of course, you’d’ve had to have the emotional metabolism of a snake not to feel the hopefulness of that moment, the thrill of seeing a young, modern, articulate leader strut his stuff.

  Right now, OG has what football players call the Big Mo. As in momentum. A nation at his feet, with the young people and the smart people and the decent people behind him, ready to join him in straightening out the country, and cleaning up Washington and making the Wall Street profiteers and usurers pay for their greed and recklessness. Even if the latter outcome’s not in the cards, thanks to Mankoff’s money and yours truly
’s negotiating skills, a lot can get done. Down the line, when it becomes clear that the banksters have gotten away with it, and that nobody’s going to jail, some of OG’s more rabid constituencies will feel betrayed, but their laments will be stifled by the positive energy unleashed by everything else that’ll be going on.

  For the moment, however, no regrets. We’ll just have to see what the dawn brings.

  NOVEMBER 20, 2008

  Six weeks ago Mankoff and the other bank CEOs trooped down to Washington and were given access to hundreds of billions of TARP and other bailout funding. The Street’s expectation was that this would calm the markets and send the averages soaring.

  Well, someone didn’t get the memo, because this simply hasn’t happened. Quite the contrary. The last six weeks have turned out to be sheer market hell. The Dow closed yesterday off 427 points and followed that up today with another 445-point drop, leaving the average at 7,552. When I began this chronicle back in February 2007, the Dow was at 12,700 and change. That’s a 40 percent drop in eighteen months.

  Bank credit is tighter than ever while the larger economy worsens. It’s a perfect storm of financial self-contradiction. Businesses and households are in deepening trouble, which reduces their creditworthiness, which intensifies the banks’ reluctance to lend. That’s the official excuse. From what I hear, though, Wall Street has other uses in mind for its bailout money, and they don’t include alleviating Joe Sixpack’s misery. One could make the point that if TARP had been fed into the larger economy to save jobs, keep plants and stores open, and forestall foreclosures, the stock market might not have tanked so badly. But who am I to opine? I’m not an economist or a trader.

  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.