All the Devils Are Here [144]
The risk of Countrywide’s dependence on the market could be mitigated if it were tightly managed, which explains why Kurland worried so incessantly about the operational aspects of the business. But the more loans and residuals that were put on Countrywide’s balance sheet, the harder the risk was to manage.
In other words, if the market ever got spooked about Countrywide’s health—if, say, investors began to question the value of the residuals or the loans on Countrywide’s balance sheet—and shut off the supply of cash, Countrywide could be in jeopardy.
Says another analyst: “I told Angelo that his Achilles’ heel was funding. In his typical way, Angelo said, ‘You’re all wrong.’”
16
Hank Paulson Takes the Plunge
The head of investment banking at Merrill Lynch for much of the Stan O’Neal era was a charming, gregarious, politically shrewd executive named Greg Fleming. He was only thirty-nine years old when he took charge of Merrill’s investment banking arm—a job he got in the summer of 2003 after O’Neal fired Tom Patrick and then pushed out Arshad Zakaria, who had overseen investment banking. Fleming had a knack for getting powerful men to warm up to him; it was one of the reasons he was a good investment banker. After the 9/11 attacks damaged Merrill’s headquarters, he and about a hundred of his employees camped out on an empty floor provided by BlackRock, according to the Wall Street Journal. BlackRock was the big money management firm Larry Fink had founded in 1989 after leaving First Boston. A friendship soon developed between the two men, which, four and a half years later, helped bring about a $9.8 billion deal in which Merrill took a 49.8 percent stake in BlackRock, while Fink’s firm took control of Merrill’s money management unit.
Fleming had befriended O’Neal in similar fashion. They had known each other since the mid-1990s, when Fleming was a wet-behind-the-ears investment banker and O’Neal was a man on the make. After O’Neal was named president—with the top job all but guaranteed—Fleming made a point of getting together with him. “We’d talk about what was going on, who was doing what. He actually became an adviser,” O’Neal told the Journal. “He helped educate me very quickly.”
Fleming had been a believer in O’Neal early on, agreeing with his assessment that Merrill culture needed toughening up. Over time, however, his relationship with O’Neal got testier, especially as O’Neal became more isolated. After the BlackRock deal, the Journal wrote an article highlighting Fleming’s role; although O’Neal was quoted in it, Fleming got the strong sense that O’Neal resented the fact that he had gotten the publicity. Also, unlike most of the executives O’Neal surrounded himself with after l’affaire Patrick, Fleming was willing to speak his mind. Although Fleming had perfect pitch when it came to knowing just how far he could push O’Neal, unlike his peers in the executive suite, he did push. For instance, O’Neal desperately wanted to buy a mortgage originator, which many of Merrill’s competitors used to supply them with the raw material for mortgage-backed securities and CDOs. Fleming had successfully prevented Merrill from buying New Century, a company that would turn out to be one of the worst of the subprime lenders—and which Merrill had come “within a hair” of buying, according to one former executive. Fleming was the executive O’Neal said he could no longer have dinner with, because it was “too painful” to hear Fleming disagree with him.
And one other thing: Fleming had a close relationship with Jeff Kronthal. As one of O’Neal’s top deputies, Fleming had gotten early word of the firing. He couldn’t believe it. Kronthal wasn’t just a