Confidence Game - Christine Richard [130]
Four hours into the call, and with just a few questions left unanswered, Diamond wrapped it up. “I will let you know that none of the remaining questions are Bill Ackman’s questions. We have responded to all of those that he has provided.”
Later in the afternoon, despite MBIA’s spirited defense, which boosted not only the company’s stock price but also the entire stock market, S&P announced that it was stripping FGIC of its triple-A rating and considering downgrading MBIA. “Although MBIA has succeeded in accessing $1.5 billion of additional capital, the magnitude of projected losses underscores our view that time is of the essence in the completion of capital-raising efforts,” S&P said.
ACKMAN’S WASN’T THE only letter making the rounds that week. Another, this one circulating on the Internet, was a humorous jab at Ackman’s campaign against the bond insurers. The letter, from the Robert E. Lee Short Fund, was addressed to the president of the United States, Pope Benedict XVI, Oprah Winfrey, and Bono. It was signed Bruce Wayne, “Most Omnipotent Managing Founder” of the fund: “You don’t know me and it is unlikely you would ever seek to, but I am a rich and handsome man and I have made a huge investment whose profit depends on the decline of a stock whose issuing firm is central to the stability of global financial markets,” Wayne began.
“You may have no knowledge of or concern about said company, but the mere inclusion of your illustrious names will add to the credibility that is literally money in my pocket,” the letter continued. “In fact, it is quite possible you have never heard of the subject company and it would require a graduate level course in financial accounting to even begin to understand the complexity of its business.”
Of course, Wayne didn’t expect readers to just accept his conclusions that the company was “doomed,” so he attached a computer model. “This model is very complicated and looks like something a really smart kid at an investment bank would construct on a computer, so it must be right.” It had “a lot of buttons and tabs and lists the names of many evil subprime-related securities.” “We both know you have no intention of or ability regarding the model; just attaching a model means my analysis must be right.
“Anyway, thanks for everything,” Wayne said in closing. “Thanks for just being you. Thanks for being part of a system where I can seek to systematically destroy a decades-old company that is a lynchpin of the entire financing system solely to enrich myself and further my franchise as a ‘shareholder activist.’”
Attempts at ridicule, no matter how cleverly worded, could not deter Ackman. In early February, less than a week after MBIA’s earnings call, he wrote another of his trademark letters, this one to Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Hank Paulson, advising against a bank-led rescue of the bond insurers. Such a rescue would only prolong the credit contraction, limit transparency, and increase the risk in the banking system, Ackman argued. “The bond-insurer industry bailout should fail if legitimate banks come out against the practice of propping up insolvent and falsely rated entities or when you and your international counterparts act to stop it.”
Although it’s not clear what they thought of Ackman over at the Fed, officials there had been pondering the predicament of the bond insurers. Notes from the Federal Reserve’s January 29 and 30 meeting, held in Washington, said that policy makers “perceived a possibility that additional downgrades in these firms’ credit ratings could put increased strains on financial markets.” Though the notes were couched in typical, dulled-down Fed-speak, officials were clearly concerned.
French novelist Dumas would surely have added color to the Fed’s story: