Confidence Game - Christine Richard [128]
There had always been that personal element in Ackman’s criticism of MBIA. Ackman had never doubted that MBIA executives wanted to put him in jail over his report questioning the company’s credit rating. In 2009, an individual involved in the 2003 investigation of Gotham agreed that MBIA’s response to Ackman had been unusually aggressive. “This was serious stuff,” the individual said. “They referred him to Spitzer who not only could have put him out of business but could have locked him up and taken him away from his kids.”
Loeb had talked to Ackman for several years about MBIA. He’d also held short positions on the bond insurers. Just now, with Ackman’s campaign against MBIA in overdrive, and confidence in the company crumbling by the day, Loeb couldn’t resist sending Ackman the Dumas novel. “He is not a vengeful person, but he has a keen sense of justice,” Loeb says of Ackman. “It’s an important nuance.” Loeb explains that the book is not just about revenge but also about perseverance. “It’s relevant to Bill because he was so dogged and persistent,” says Loeb. And in the spring of 2008, as in the final chapters of The Count of Monte Cristo, “everything seemed to be falling into place,” Loeb recalls.
AT 2:15 P.M. ON JANUARY 30—the day Gasparino at CNBC broadcast Ackman’s loss estimates—the Federal Open Market Committee announced another rate cut, taking its benchmark rate to 3 percent from 3.5 percent. The magic worked but only briefly. Fears about bond insurance were weighing on stocks and on corporate bonds. Ackman’s startling high loss numbers were not helping matters.
Some people thought Ackman had gone too far. Critics of short selling coined a phrase to describe the very public and unsettling analysis issued by some money managers during the credit crisis: “Short and distort.” The charge was leveled at Ackman and later at David Einhorn, who had begun to point to problems at Lehman Brothers.
As Madame de Villefort, one of the nobles caught up in the Count of Monte Cristo’s acts of revenge, tells her friends, “It’s quite simple. The count is telling us horrible stories with the intention of making us all die of fear.”
“Is your terror real, madame?” Monte Cristo asks the half-fainting Madame Danglars.
“No,” replies Madame Danglars, “but you have a way of supposing things which gives them an illusion of reality.”
Illusion and reality were definitely becoming a bit blurred. Gasparino went back on the air later in the afternoon: “My gut is telling me that the big bond-rating houses are going to downgrade either one or both of the major bond-insurance companies—Ambac and MBIA—and the downgrades will probably come today.” There was speculation in the market, the stock prices were down, and Ackman was saying these companies were going to lose $12 billion, said Gasparino. How could it not happen?
MBIA and Ambac made it through the day with their ratings intact, but shortly before the market closed on January 30, time ran out for Financial Guaranty Insurance Company (FGIC). The company, which hadn’t come up with a plan to raise capital, became the third bond insurer to lose its triple-A rating at Fitch. MBIA’s shares closed down $2.02, or 13 percent, at $13.96. Ambac’s dropped $2.08, or 16 percent, to $10.85. Both companies had lost more than 80 percent of their market value in a year.
After the market closed, Standard & Poor’s (S&P) announced that it was reviewing the ratings on $534 billion of residential-mortgage securities and collateralized-debt obligations, more than 8,000 classes of securities in all, that had been issued between January 2006