Fixers (5 page)

He let me digest that, then added, “And that doesn’t cover the worst part.”

“Which is?”

“God help us if this credit crisis goes retail.”

“What do you mean, ‘retail’?”

“All the debt individuals have taken on to bridge the gap between the money they make and the cost of what they think
they’re entitled to: more luxurious houses in better neighborhoods, flashier cars, Ivy League educations for the kids, bigger flat screens, vacations in the south of France. How much consumer debt do you think is out there?”

I shook my head. I couldn’t begin to.

“Try fourteen trillion dollars. A lot of it owed by people living pretty close to the bone.”

“Ouch!”

“If there’s a recession, millions of people are going to come up short. There’ll be foreclosures and repossessions, and that’s how revolutions get started.”

“Or movements to penalize foolish lenders.”

He nodded. “Quite right. There’ll be pressure on Washington to force creditors to take haircuts.”

“Makes sense to me.” I instinctively root for the little guy. Mankoff doesn’t. I knew who he was
really
worrying about: creditors’ creditors. I thought about adding something to the effect that with Congress and regulators in the Street’s pocket, there couldn’t be much to worry about—but decided to keep my trap shut.

“Worst case,” Mankoff said, “we could see a repeat of the savings-and-loan mess of the eighties, only carried out to about the tenth power.” He reminded me that when the savings-and-loan industry blew up in the late eighties, just about the time that Mankoff and I were putting the blocks to the Bank of West Congo, the American Taxpayer, who would be obliged to put up $125 bil-lion to ultimately fix the mess, called for the blood of the people responsible and Washington granted his wish. Names were named; the manacles were brought out; federal and state prosecutions succeeded in sending a bunch of big-name S&L executives to jail. You probably remember photos of one Charles Keating, friend of presidents and a man of influence, doing the perp walk. A thousand S&L executives, some say, ended up doing time.

This time could be worse, Mankoff says. A lot of the top executives on the Street have knowingly or unknowingly signed off on various forms of transactions that walk, talk, and smell like fraud, he told me. He’s concerned that he hasn’t been as vigilant as he might have been with respect to what Rosenweis’s regiment of traders may have gotten up to. Worst case, if the Feds get serious and go strictly by the book, they could bring criminal charges against many of the million-dollar earners on the Street.

I thought about asking him about a series of trades that STST’s been doing with a major hedge fund, bespoke transactions that sound distinctly dodgy to my untutored sense of straight and crooked, but I’m not sure I’m supposed to know about them, so I keep silent. I’ll tell you about them in due course.

Anyway, what worries Mankoff is that Washington, which, thanks to the utter corruption of Congress and the regulatory agencies that will have been Wall Street’s equal in precipitating the coming crisis, will try to cover its ass by attacking the Street with new legislation and regulation. Wouldn’t be the first time a guilty party turned on his coconspirators to save his own skin. There will be calls for punitive retribution, and people may go to jail, but what he really fears are reformist policies and programs that widely heeded “progressive” pundits like the Nobel economists Krugman and Stiglitz will have a hand in shaping. The thirst for reform will be sharpened by the massive financial inequality that is now an acknowledged fact of the U.S. economy. There will be calls for legislative reaction that will take Wall Street back to the New Deal regulatory structure that the Street has spent millions to dismantle over the past fifteen years.

“You mean like bringing back Glass-Steagall?” I asked. I swear he paled at my mere mention of the New Deal’s cornerstone bank reform—which separated deposit banking from investment
banking and trading, and has protected the country from highrollers and usurers in marble halls since 1933.

“Precisely. And much worse. If there has to be a government bailout of outfits like Citi—Chuck Prince hasn’t got the slightest idea of what his people have been up to—and I don’t see any way around it, Washington may end up nationalizing a number of the banks. We can’t let that happen. Wall Street is essential to the American way of life.”

I nodded. I was brought up to believe that while freedom is wonderful, one needn’t exploit all its loopholes. “In other words,” I said, “you don’t want another Pecora.”

“Precisely.” Even seventy-odd years after the fact, the name “Pecora” still makes Wall Streeters grimace. Ferdinand Pecora was the special prosecutor FDR forced on the Senate Banking Committee in 1933 to go after “the malefactors of great wealth” responsible for the 1929 Crash. When Pecora got through with the big boys—Morgan, Chase, and First City (predecessor of today’s Citi)—a couple of famous bankers were in jail, others had been forced to pay up, and Wall Street was smothered in disgrace and mockery. When my old man went to work at the bank, my grandfather gave him a copy of Pecora’s book,
Wall Street Under Oath
; it’s still on my shelves—though I can’t say I’ve read it.

Mankoff plans to batten down the hatches at STST. “We’re going to put ourselves in position to come out on the other side of the mess in a stronger position than anyone else—except maybe Dimon, who has all those insured deposits to back him up.”

Jamie Dimon is the CEO of JP Morgan Chase (JPMC), regarded in most quarters as the best-run of the big banks and a ferocious rival to STST. The media routinely run his and Mankoff’s photographs side by side, as the two reigning powers in high finance. Dimon is Mankoff’s virtual opposite: youthful and athletic, looks good in a yellow tie, says stuff that the media laps up
but that I know drives Mankoff batshit. When it comes to brains and banking sense, my money’d be on Mankoff, but ours is an era when image is all. Or at least 90 percent. And Dimon’s certainly no lightweight.

The conversation now turned to politics. Mankoff expects the financial crisis—and there’s no other word for it—to erupt sometime next year, probably late next summer. “At that point, the GOP will be dead,” he said. “The Democrats could nominate a cow and the animal would win.”

“Which at the moment looks like a bovine named Hillary, correct?”

“Exactly,” Mankoff replied. “And that we can’t let happen. Which is where you come in.”

Now this surprised me. Up to now, it’s been known that Mankoff has supported the presidential hopes of the junior senator from New York. He’s attended a few dinners and lunches that have gotten into the papers; he’s probably dropped off a couple of decent-sized checks. Apparently he’s had a major rethink.

I’m not so hot on Mrs. Clinton myself; there’s too much steel in her for a gentle soul like me, her ambition’s too transparent and too flagrant. She reminds me of practically every Wellesley girl I’ve ever been involved with: that frightening self-confidence, that certainty of being born to rule. Slam bam, thank you ma’am, and then she’s out of bed to discover radium, run GM, or rewrite the Constitution. She must be a tiger to live with; her husband, even when he was president, has exhibited many of the characteristics I’ve come to associate with truly oppressed “great men”: mainly an inability to keep it in his pants, as if philandering is some kind of proof to his mirror that he’s still the head of his household, no matter what it looks like to the world outside. My old man always said that was the case with JFK.

Mrs. Clinton is way out in front of all the other would-be
Democratic nominees when it comes to war chest, state caucuses, and party delegates locked up, all that goes into winning her party’s nomination.

“I thought you were supporting her,” I said. “I thought she’s supposed to be the Street’s bitch. Weren’t you at that big fundraiser a couple of weeks ago?”

“I was. Strictly to have a look. I kicked in my statutory $3,800 just to stay in the hand. But the closer I listened, the more I had second thoughts. There’s something about her I just don’t trust. She’s almost
too
political.”

I knew what he meant. This is a woman known for, shall we say, a certain moral flexibility. The country’s still trying to figure out where she stands on the mess in Iraq. And like most really ambitious politicians, she has a long memory. A very long memory. No slight, whether intended or unintended, goes unremembered.

What Mankoff’s heard is that she secretly hates Wall Street for persuading her husband to dump her elaborate health-care scheme on the grounds that it would be a budget-killer, an episode that left her looking like a complete fool. On top of that, there’s the obscene wealth garnered by the Street in the wake of the deregulatory bill of goods pushed on her husband by former Treasury Secretary Robert Rubin and his principal stooges, Harley Winters, the big-shot economist, and former Fed Chairman Alan Greenspan. With the rich getting richer while the middle-class goes nowhere (just check out the wage statistics), there’s a political opportunity too juicy to pass up. If there’s a crisis for which Wall Street can be blamed, she’ll blame Wall Street and call out the tumbrels of reregulation. That the bulk of the deregulation occurred on her husband’s watch and with his support won’t affect her campaign rhetoric. Politicians like her live strictly in and of the moment. They put aside their deepest long-range yearnings—with the Clintons that’s obviously money—for near-term tactical advantage.

Right now, she’s making nice with the Street, and the Street’s making nice back, but what bothers Mankoff is that her inner circle—the Wall Streeters closest to her, people like Roger Altman, Alan Patricof, and Steven Rattner—aren’t really Wall Street souls. They make it plain that they consider themselves to be of a higher order of moral and intellectual being. They’re the sort “who pound the pulpit with the same hand they use to endorse the check,” as a friend of mine puts it.

Mankoff then got to the crux of the matter. If a crisis comes, Mankoff told me, it’s likely to be so big that only Uncle Sam will have pockets deep enough to stave off total calamity. The Street’s going to want—it’s going to need—a big dollop of the people’s full faith and credit to bail itself out, a process unlikely to win the approval of an electorate howling for Wall Street blood. And there’ll be Mrs. Clinton: Joan of Arc in a pantsuit instead of chain mail.

So Hillary Clinton has got to be headed off. Capitol Hill is pretty well bought and paid for, no worries there, but wherever one turns one sees what some call “regulatory capture,” which is Stockholm Syndrome in reverse—in this case, the captors submit to their victims. The SEC and public-private finance schemes like Fannie Mae and its siblings are run by people who’ve stood by and let Wall Street have its way while they polish their CVs in anticipation of lucrative private-sector employment. Still, the picture isn’t complete without the White House.

Now, you and I might, out of innocence or resignation, argue that those who caused the damage should pay for at least a significant part of it, but that’s not the way the Street thinks. This may not sound fair, but “fair” is one of those words—like “right,” “wrong,” and “conscience”—that are not to be found in the Official Wall Street Lexicon. Say any of those words to your average “big-swinging-dick” trader and they look at you like you’re speaking Swahili. The same goes for certain phrases that were integral
to the moral vocabulary of my father’s generation—notions like “civic responsibility” and “public spirit” that are now as extinct as the passenger pigeon.

When I say this, don’t take me for one of those knee-jerk anti–Wall Street types (
accent aigu
on the “jerk,” as a friend puts it). It’s just the lay of the land. Take Mankoff, for example. You have to admire the guy for his brains and his “Street smarts,” but I’m under no illusions about his overall moral depths. He may know about Bach and Scarlatti, and others may consider this a virtue, but at bottom he’s simply a culturally and intellectually dressed-up version of the Wall Street breed, not a representative of a wholly other philosophical or ethical species who finds himself on an alien planet and must make the best of it.

Pragmatism is his middle name, profit and capital preservation are his vocation. To have risen as high as he has requires a soul and mind attuned to the Street’s values—or lack of them. Does he have a conscience? I couldn’t tell you, not even after thirty years. “Conscience” is about feelings for other people, it’s about God and country and civic duty and the Golden Rule, stuff like that—values and systems of belief in which someone like me was marinated beginning in the cradle and survive even now, when I’m obliged to confront the way the real world works. You should see the looks I get from younger friends who work at STST when I tell them I was educated to be a good loser. In their catechism, losing is a mortal sin.

“OK,” I said, “so you think Mrs. Clinton could be a problem. How do you stop her?”

Mankoff smiled. “What do you think about this guy from Illinois?” he asked me.

The politician to whom Mankoff made reference is an Illinois Democrat who just last week announced a run for the White House in 2008. He did so on the steps of the Illinois state capitol
in Springfield, where Lincoln declared his candidacy in 1860. From now on, I’ll refer to him simply as “OG”: “Our Guy.”

OG vaulted into national prominence at the 2004 Democratic Convention when he gave a real stem-winder of a keynote speech that unleashed a tidal wave of adulatory, rock star-type enthusiasm and springboarded him into the Senate, where he’s a bit over two years into his first term. Now he thinks he’s ready for the White House.

Has he got the chops? His résumé is very impressive, at least on paper. Columbia University, Harvard Law, editor of the
Law Review
. He’s worked for IBM and a couple of think tanks, been a law professor, a community organizer, and an Illinois state senator; seasoned political experts talk about him as if he walks on water, but I’ve been around long enough to know that while a big-deal résumé can help get you the job you’re after, it’s no guarantee of performance. Look at George H. W. Bush or Herbert Hoover.