Fixers (35 page)

So there’s that. And now another fresh hell seems to have opened up. By late this morning, the Dow had dropped a thousand points.

A thousand points!

Why?

Some point to the incipient Greek crisis, but economic and credit fundamentals no longer matter to markets the way they used to. Instead, the smart money’s calling it “a flash crash” and is blaming it on HFT—algorithmically generated orders: strictly computer-driven, untouched by human hand or mind—for millions of shares that crashed into each other the way that waves from opposite directions will sometimes collide at a breakwater. I don’t really understand it—apparently most of the orders are phony, what they call “spoofs”—so I’m not going to try to analyze it. By the close the market had cut its losses by two-thirds, with STST closing at $148, so no real damage done. Still, the story has a clear moral: put not your faith in robots.

Yesterday, thanks to Winters—or maybe it was Holloway—the Senate killed off something called the Brown-Kaufman Amendment. Named for the two senators who sponsored it, the amendment was intended to be incorporated into Dodd-Frank; basically it says that if you’re too big to fail, you’re too big to exist, and attacks the moral hazard that got the world into its present mess with a mechanism to break up the big banks.

Another piece of hot news that has the hedge-funders I work with jumping for joy is that Holloway is close to outright victory in a campaign he’s been waging to have the Fed pick up the Street’s absolute worst junk, using a program called Term Asset Lending Facility, or TALF. Meanwhile, Mankoff remains out of pocket. His assistant will only say he’s still out of town. Something’s obviously up, something serious. I’m starting to worry.

I thought the world went topsy-turvy a week ago with the Greek business and the flash crash, but today was worse, for entirely different reasons. It was unsettling and upsetting.

Here’s how it went. Around 7:30 this morning, my apartment phone rang. My regular landline, that is. No one calls me this early except maybe Mankoff, and I knew it wouldn’t be him—I still haven’t gotten through to the man.

To my astonishment, the voice on the other end was Ian Spass. I hadn’t spoken to him for well over a year. Hadn’t thought much about him, either. I guess I assumed that, like most of those who’d had a hand in the Washington side of TARP and other bailout giveaways, Spass had simply ridden off into the sunset and was now pulling down a nice seven figures at some bank or law firm or lobbying shop.

“Ian,” I said, “long time no talk. What’s got you up at this hour?”

“I wanted to make sure I got you. Will you be at home this evening?”

“If there’s a God. Why?”

“I’m in New York. I need to speak with you about something.”

“Sure. I’ll be here after six. Drop on by.”

He showed up a little after seven. I made us a couple of stiff drinks and settled him in my most comfortable chair. “The stage is yours,” I said. “Is this an official or unofficial call? I thought you’d abandoned the marble halls for the dark side.”

“Let’s call it semi-official,” he said. “The SEC wants to get a message to Mankoff. I told them you’re the person to talk to.”

“I’m flattered,” I said. “Fire away.”

“All right: here’s the deal. Are you familiar with this Protractor business?”

“Familiar enough, I suppose.”

“Washington—and not just the Commission—prefers not to go forward with a public prosecution. For obvious reasons, they’d rather it be settled out of the limelight on a basis that will sound reasonable to the public. There are bigger scandals brewing. The Brits have apparently stumbled on a possible manipulation having to do with LIBOR …”

“Everybody knew about LIBOR back in ’08,” I interrupted. “And nobody did fuck-all about it then.”

“That may be,” Spass replied. “We all had a lot on our plate, and at that particular moment, it simply didn’t make sense to throw a huge price-fixing scandal into the mix.”

“Especially when the commodity whose price was being fixed was money.”

He shrugged. “What I’m here to work out with you is a suitable Protractor settlement.”

“What do you have in mind? The usual? A large-sounding fine and a promise not to do it again. That is, a promise not to do again what you never did in the first place?” In most of their settlements with Uncle Sam, STST and other Wall Street houses are permitted not to admit to malfeasances they’re totally guilty of. It’s one of the best legal scams going.

“We’re thinking of settling for $600 million,” he said. “That’s the word we wish you to pass along to Mankoff. It’s his call. We’re tired of Arnold Braum’s theatrics.”

I let out a low whistle. Still, in terms of the potential aggro, $600 million didn’t sound all that bad. A large fraction, admittedly, but still a fraction of the money they’ve made on those Polton deals. And first out is usually cheapest, as the San Calisto wisdom has it.

“Plus the usual disclaimer?” I asked.

“Not exactly. In this case, we’d like to see some admission of wrongdoing.”

“I’ll pass it along,” I said. “That’s all I can do. On top of the mea culpas, $600 million’s a lot of money. I’m not sure my former client will spring for that.” There was no point to telling him that I didn’t know where Mankoff could be reached.

“Not necessarily,” Spass said. “Not if you look at it on a net basis.”

“What do you mean ‘net’?” I asked.

He grinned. “I don’t suppose you’ve ever read the full SEC complaint on Protractor?” he asked me.

I shook my head. “All I’ve seen is STST’s reply.”

He reached into his briefcase, pulled out a document, a quarter inch’s worth of stapled pages, and tossed it on the table. “I defy you to read through this as often as you want and find Polton’s name in there,” he said.

I said nothing. This was preaching to the converted.

“Have you got a computer here?” he asked. “You must.”

I booted up the Mac Air I use for work (the other one, the one I write this diary on, was tucked away in a wall safe). From his pocket he produced a flash drive and slotted it in.

“I think you’re going to enjoy this,” he said. “And I know Mankoff will. It’s a recording I made privately. The only people who know it exists are you and I.”

The implication was clear. It seems that Spass had worn a wire on his own people. Talk about Washington being a nest of vipers!

He tapped a couple of keys and a recording began to play.

I could hear four voices: two asking questions, a third answering them, with occasional interruptions from a fourth. The only voice I recognized was the third: Polton.

It took me maybe another thirty seconds to figure out what
I was hearing: this was Polton being deposed by the SEC about Protractor.

Or, to put it more precisely, this was Polton ratting out Struthers Strauss about Protractor. Blowing the whistle on his principal coconspirator in return for regulatory immunity, I guessed.

I could see why the SEC thinks its case is a lock. Polton has given them chapter and verse, down to the last penny. And Washington is willing to let Polton go if they can make an example of STST.

After it finished, I unplugged the flash drive and made to return it to Spass, but he waved me off.

“You may not think so, Chauncey, but I still have a vestigial sense of what’s fair, even if it only amounts to honor among thieves. Mankoff and Rosenweis—especially Rosenweis—will be interested in this. It may inspire some thoughts on their part about how to finance the money settlement.”

I took his point. We finished our drinks and he left—but not before leaving a final bonbon on my plate: “One last thing. There’s a rumor that Polton shorted your stock after he made his deal with Washington. I doubt he’s stupid enough to do that. Jimmy Polton may be many things, but stupid he isn’t. Anyway, the Commission’s looking into it.”

This was something Mankoff had to know about—and pronto. I called him on his personal cell phone number, and his wife answered. That had never happened before.

“Is Leon there, Grace? I really need to speak to him.”

“Oh, Chauncey, he went to bed early and I hate to disturb him. He’s had an awful, long day. Can’t it wait?” She sounded tired and sad, almost plaintive.

“Of course,” I replied, “let him sleep. Will he be in the office tomorrow?”

“I expect so. You know Leon. Wild horses …”

“No problem. I’ll call him then.” As I got ready for bed, I found
myself thinking about Spass. He must be like any human being with even a speck of decency in him. Sooner or later, there has to come a time when one can no longer stand another minute of this stuff—the lying, the double-dealing, the sheer rapaciousness. There was a hymn we used to sing several times a year at Groton that seems to capture what Spass must be feeling, and what I myself am starting to feel: “
Once to ev’ry man and nation / Comes the moment to decide / In the strife ’twixt truth and falsehood / For the good or evil side
.”

I thought about that hymn all evening, although when I finally went to bed it was Mankoff I was concerned about. Something’s terribly wrong. I’m sure of it.

Marina Hochster has a good strong post on a financial blog today. Hard to disagree with.

She writes:

When I read that, I thought, I really would meet this outspoken lady, “TARPworm” or no. I called B in L.A. and asked her to arrange an introduction.

“Should this make me jealous?” she asked.

“Not at all. I just like people who speak their minds. My heart is pledged to thee.” I spoke lightly, but put just enough feeling in my voice to arouse suspicion that I might be serious.

B promised to cook something up when she returns east.

Mankoff’s secretary called to tell me her boss is in the office and could see me at noon.

I thought he looked bad. Mankoff never radiates rude good health, but he looked especially pale, and he seemed to have shed a few pounds: his shirt looked baggy on him, its collar a half-size too large.

“You all right?” I asked.

He looked at me suspiciously. “Why? Has someone said something?”

I shook my head. “Just thought you looked a touch under the weather.”

“Actually,” he admitted, “I’m having some kind of intestinal blip the doctors are having difficulty getting a handle on. Nothing serious. So what’s on your mind?”

“I had a surprise visitor the other night,” I began. I told him about Spass coming to see me and suggested he get Rosenweis to join us. When Rich came in, I recapitulated my conversation with Spass. Then I played them the flash drive.

“So, bottom line, it looks to me like Polton’s turned state’s evidence,” I said when it finished. “In any case, Spass tells me that Uncle Sam wants an up-or-down answer on Protractor by July 4: $600 million,
service compris
.”

Mankoff nodded absently. “July 4,” he murmured. It was as if he’d lost track of the conversation. Then, like a dog shaking off water, he seemed to refocus and told me: “You’re right, what you just said. We should get more than $600 million …”

He broke off. For just a couple of beats, he looked confused, as if his train of thought had derailed. Rosenweis and I looked at each in wild surmise. This isn’t Leon, we were thinking—this
isn’t the guy whose powers of concentration when attending to business are only equaled by Jack Nicklaus on the eighteenth hole of a major.

Then he recovered. “Let me mull it over.”

“What I should tell Spass?” I asked.

“Tell Spass to tell his people that they’ll have their answer on time. Leave Polton to us.”

I got up and left. I was bothered. This was all been very unlike Mankoff. At least, the Mankoff I’d known all these years. The Mankoff I thought I knew. Of course, the kind of man he is, maybe I know nothing.

It turns out I can’t make it to Maine for the Memorial Day weekend with the Longstreths. An important Silicon Valley client is planning a private museum—a billion-dollar project—and he requires my presence for the long weekend, when he and I are to fly all over Europe to look at recently built museums and meet with their architects. Big names. Zaha Hadid, Jean Nouvel, Foster, Rogers.

B sounded unhappy when I told her, but promises to put me on the list for the Labor Day weekend. I’d be a liar if I didn’t say I’m really disappointed, but what can you do?

The trip to Europe was worthwhile, but hardly pertinent to these notes. My client showed himself to be perspicacious and informed; at the moment I think he’s leaning toward a young, hip firm based in Oslo, which would also be my choice.

Bianca’s gave me a full report about Memorial Day at her family’s place. As predicted, Hardcastle made a complete asshole of himself at lunch, and all were greatly relieved when he chugged off in his $200,000 Rolls.

“At one point, Uncle Wally referred to our president as ‘a house nigger.’ I thought Claudie was going to leap across the table and strangle him!”

“I hardly think of your brother as politically fiery,” I said. “Not as you’ve described him to me.”

“You’d be surprised. In Claudie the revolutionary fires burn deep and hot. You should have seen him at Harvard, especially when he and a bunch of Young Socialists picketed Daddy’s bank.”

“Otherwise, how’d it go?”

“Fair. Daddy was a bit down. He’d just come from his fiftieth reunion at Harvard, which seems to have been a bit of a bummer. Apparently the Class of ’60’s politics have taken a sharp turn to the right. All anyone wanted to talk about was money—even at Porcellian. Daddy feels that he and most of his classmates have spent their lives talking and thinking about money and business and that it’s time now to smell the roses.”