Fixers (29 page)

Lucia and I had a good laugh over the phone when she read me the assertion by STST’s lawyers that the SEC’s theory of the firm’s misconduct “relates exclusively to the role of Polton Partners, Inc.—now recognized as a heavy bettor against the subprime market but at the time a relatively unknown hedge-fund manager.”

Bullshit.

Toward the end of the response comes something that Lucia says must have sent STST’s founders spinning in their graves: the excuse that the firm was forced to do Protractor as a competitive necessity because others were doing it. Talk to the old boys at San Calisto and they’ll tell you that Messrs. Strauss and Struthers were absolutely opposed to taking on a line of business simply because someone else was. Today, I guess you might say it’s a case of every tub on someone else’s bottom.

I spent a couple of incredibly boring hours last night plowing through a hard copy of STST’s response to the SEC about Protractor. The boilerplate was beyond incomprehensible—but I understood enough to wonder about certain details. For instance, the response claims that in 2007 it wasn’t generally known that Polton was shorting subprime and related securities and options. Well, I already knew about it back when I met Mankoff at Three Guys in February of that year, and if I did, real Street insiders must have known twice as much, twice as early.

None of the documentation I’ve read answers the question that’s bugging me. Why isn’t the SEC coming after Polton as a coconspirator? You’d think that if the regulators would have anyone in their sights, it would be Polton himself, given his centrality to every side of the deal—it’s a trade that he thought up, and from which he made around $1 billion. Yet it appears he’s being given a pass. How come?

I’ve asked Lucia about this, but she has no more knowledge than I do. She has other issues to cope with. For example, will the Protractor litigation have to be included in the STST annual report come next March? How much do stockholders need to know? Worst case, she tells me, they could end up paying $2 billion in penalties, an amount that is peanuts when you have a $900 billion balance sheet, and therefore, in the lawyers’ opinion, probably isn’t “material.”

I went down to Washington last Saturday to see a fantastic exhibition of Venetian Renaissance sculpture, stuff that may not rank with Donatello and the Florentine big boys, but is wonderful nevertheless. It seemed to be a good occasion to catch up with Orteig, so we arranged to take a spy-novel stroll along the Mall.

He fed me some inside poop on how the administration is dealing with Citi. The big bank is no nearer being out of the woods than it was at the worst of last fall’s crisis. The game that’s being played is a high-finance, capital-markets version of “Let’s Pretend.” In this case, “Let’s pretend that our balance sheet is stronger and cleaner than a year ago.” This is probably why Citi stock is up some 50 percent off its lows, but then most finance stocks have had a tremendous rally. Hell, STST has nearly quadrupled off its bottom: it traded yesterday at $190.

If Citi’s situation doesn’t improve in the relatively near future, Orteig told me, the bank could be facing true nationalization along the auto industry model: the equity will be wiped out; the debt will be worked out, with the bank’s creditors taking a massive haircut; and the really bad assets will go to the dumpster. Naturally, all parties want to avoid this, but it’s going to take a great deal of imagination and a great deal of taxpayers’ money.

Orteig says that the man in the Oval Office is all over his aides to come up with some kind of rhetorical ploy that will (a) make it look as though he’s keenly determined to face up to the Citi problem, and thus deflect any charges of Wall Street favoritism; but (b) will simultaneously make clear that his hands are tied legally and so nothing can get done. I guess you’d call this having your cake and throwing it up, too.

If you ask me, reading between Orteig’s lines, the only thing
that’ll be done about Citi will be to feed it more and more money. This hould qualify Holloway for a private-sector paycheck that should run into a neat eight digits per year when the time comes, plus book royalties. He may not equal the $100-plus million payoff from his Washington stint that former Treasury Secretary Robert Rubin has gotten, but he’ll do just fine.

Meanwhile, people like Marina Hochster are loudly complaining that the White House is frittering away its political seed corn on its health-care legislation. The moral standards on which Big Pharma operates are every bit as negligible as Wall Street’s, but are harder for journalists to run down. Keep this up and there may not be much of this great republic left to sell, but every little bit counts, right? That’s how people get to be really rich: watch the pennies, and the billions will take care of themselves.

Today is a green-letter day in American history: it was exactly one year ago that Mankoff, along with Wall Street’s other biggest shots, trooped down to Washington to have $135 billion of the taxpayers’ money forced on them on giveaway terms. A decent portion of that largesse has since been largely repaid on a basis that Washington has persuaded the media to accept as having provided Uncle Sam with an annualized 25 percent return on his citizens’ investment. According to a friend who understands accounting, the word “annualized” is a synonym for “bullshit.” Still, why complain? STST stock is up over 40 percent this year.

Speaking of the TARPworm, I read recently that Marina Hochster is now engaged in background reporting on a long piece that will try to prove that Wall Street has staged nothing less than a coup d’état under the umbrella of the very administration that the voters in 2008 expected to clean up the mess and put the scoundrels in chains. What more proof does any thinking person need?

I’m not exactly in the market for new friends, but yesterday in a bar I met a pretty interesting guy who may become one.

Here’s the backstory. There’s a Spanish movie I’ve had on my must-see list that’s playing at the IFC Center, and as this was a rare free weekend, I arranged my Saturday to catch the midafternoon showing. As is my habit, I got to the box office two hours ahead of time to be sure of getting a ticket, figuring I could get a burger and a drink at the Greenwich Village Bistro around the corner.

I took a place at the bar and ordered a beer and a cheeseburger. As is also my habit, I checked out the guy on the next stool: a fellow about my age—I guessed—with an Asian cast to his features.

The book he was reading got my attention: John Le Carré’s
The Honourable Schoolboy
. I’m a huge Le Carré fan, and this novel is one I particularly like, although it isn’t as well known as
The Spy Who Came In from the Cold
or
Tinker Tailor
. It’s even more complex and veiled than those novels are, which is probably why I like it.

“That’s a great book,” I said to him. “Too bad the BBC never adapted it.”

Some people resent having their reading concentration broken into. This fellow didn’t. He put the book to one side, took a contemplative sip of his dark beer, and smiled. “You have good taste,” he said.

With that, we got to talking, the way men seated next to one another in bars do, and eventually introduced ourselves. His name is Arthur Han (“everyone calls me Artie”). He’s a professor at John Jay College of Criminal Justice, where he teaches “Financial Forensics” and a seminar on fraud and other capital markets malefactions. He also consults on Wall Street, focusing on the
interaction of politics and markets; it turns out we have a few clients in common.

Somehow we got onto the subject of the corruption that seems to permeate every corner of American public and private life: everyone on the take, nothing that can’t be bent or bought. Corruption in politics—the influence of bigger and bigger money—seems to be an obsession with Professor Han. A number of times, he brought up a lawsuit called
Citizens United
that the Supreme Court is deliberating, and then summarized the pros and cons as if I were a moot court. A decision is expected as early as the first quarter of next year. If the plaintiff is upheld, as Han tells it, corporations will be free to throw unlimited, unregulated amounts of money at political campaigns. And if that happens, he declared, you can write “finis” to representative democracy, which is running on vapors as it is.

“The Court’s as corrupt as the rest of Washington,” he declared. “People talk about ‘regulatory capture’ and ‘legislative capture,’ but they need to add ‘judicial capture’ to the list. It’s the most dangerous of all in terms of what it can do to our democracy.”

Artie doesn’t think much of the present Court. He says that Roberts and Alito are like the Pacino and Duvall characters in
The Godfather
, capo and consigliere; Scalia is clearly certifiable; and the less said about Clarence Thomas, the better.

“What about Kennedy?” I asked. “Everyone says he’s the swing vote, the make-or-break guy. What do you think of him?”

My new friend grinned. “You know what Kennedy is? He’s every high school kid who figured out that the best way to get elected president of the student council is to kiss the ass of both the faculty and the captain of the football team. It’s hard to imagine: that the fate of our system is entrusted to men like these. It’s also interesting, and I think significant, that the troglodyte faction includes none of the women justices.”

We shared a laugh at that. “Of course, nothing ever changes,” he said next. “Corruption’s as American as apple pie. Take a look at this. It dates from 1854.”

He reached into his shoulder bag and pulled out a sheet of computer paper, which he let me keep:

Artie watched while I read it, then said, “what makes this especially fun is that a year or so later, Justice Grier was himself accused of accepting a bribe in a matter that came before the Court. Needless to say, he got off.”

From that point on, until I had to hotfoot it out the door to make my movie, we engaged in a kind of serve-and-volley mutual deploration of the terrible state of affairs that America has become. Disgusting this, horrible that—and why have all these awful people ended up with all the money and most of the power? An obsession with making money must entail certain character flaws, we agreed.

But here’s the problem. The more I found myself nodding in agreement—and I did agree, believe me—and the more vociferously I voiced my own disgust at how low the affairs of the nation had been brought, the more shamingly aware I became of that troubling inner disconnect I’ve spoken of already. There I was, with an absolutely straight face and all the sincerity of which I was capable, condemning corruption—the manipulation and distortion of government for monetary ends—while having been the perpetrator of perhaps the most massive and consequential fix in the whole stinking history of U.S. politics.

These were feelings I wasn’t exactly keen to revisit, feelings I’ve generally managed to suppress. Now, talking to Artie Han, I found them returning more stingingly than ever. Up to now, I’ve sold myself on the proposition that the Wall Street patch I’ve caused to be protected is only a tiny, not very consequential piece of a vast reeking whole, and that I had nothing to do with the GOP in Congress pledging to obstruct
every single
measure that OG may proposed, or with holding health care hostage, or with threats to cut entitlements, or with the making of pointless war.

Anyway, I managed to put these thoughts to one side. When it came time for me to head for my movie, Han and I did the
nice-to-have-met-you bit and agreed to meet again. We exchanged cards and coordinates. He lives in the West Village in a townhouse he shares with a partner—my guess is he’s gay, but who knows?—and a woman named Bianca Longstreth, a TV producer whose name I recognized from the credits at the end of a couple of Sunday night cable shows I regularly watch: spies, mysteries, and political hugger-mugger, interestingly cast, cleverly plotted, the writing sharp, literate, and relevant.

Han seemed to think she and I might hit it off and he said something about fixing us up, but people are always saying that to me. Still, you never know, do you, and he seemed like someone who’s a good reader of people—just as I fancy I am—so I said I’d be delighted to meet her.

This will have to wait until next year, as Han’s off to China this coming Wednesday to teach a course at a university in Shanghai. According to him, China is to corruption what Mecca is to Islam. He’ll be back mid-January.

This morning I got an e-mail from him confirming our lunch date and also telling me to keep next March 21 free, because he and his housemates always give a party on the solstice to mark the end of winter. He adds that this would be the right kind of occasion to introduce me to Bianca Longstreth. I e-mailed back to say that I’ve put a hold on March 21, and that I looked forward to meeting Ms. Longstreth. “
Assuming I’m still alive
,” I added. The way life works nowadays, anything further than a week out seems to be tempting fate.