Confidence Game - Christine Richard [137]
As Ackman testified, Roy Katzovicz, Pershing Square’s chief legal officer, sat immediately behind him. Katzovicz had noticed this “adviser” position made for a prominent camera shot on C-SPAN. He was doing his best to present an appropriately calm and composed appearance as Ackman hit on all the points they had discussed in their preparation: the futility of a bank bailout of the bond insurers and the need to reform the municipal bond rating scale’s triple-A ratings.
Then Kanjorski posed what Katzovicz saw as clearly rhetorical questions: “How the hell did we get here? How did things get this screwed up?” Ackman’s hand went up. This is not school, Katzovicz thought. He reached over discreetly and tugged at the back of Ackman’s jacket, hoping to apply enough pressure to get him to lower his arm. Ackman resisted and Katzovicz tugged again, meeting with even more resistance. Worried he might detach Ackman’s sleeve live on cable television, he gave up.
“Investors clearly don’t trust the triple-A rating,” Ackman said. “What would create trust would be the transparency of the bond insurers coming clean.” The banks needed to be honest about their exposures, including how much they were relying on the bond insurers to shield them from losses. The bond insurers needed to disclose exactly what they had guaranteed.
So why hadn’t they come clean on all their exposures? asked Kanjorski. Michael Callen, Ambac’s chief executive officer, explained the reaction at Ambac when he suggested listing the names of all the CDO-squareds on the company’s Web site. “People that know this [area] much better than I do came and surrounded me with knives,” Callen explained.
It was a startling statement even when the knives were viewed as an obvious metaphor. Why the urgent need for secrecy?
Katzovicz looked over to see if someone sitting in the adviser seat behind Callen was trying to silence him, but Ambac’s CEO appeared to have free rein.
“They said, ‘Are you crazy?’ If that information was put out there, it could be used very successfully against you.” Such information would “give the short sellers the opportunity to go out and take advantage,” Callen said.
It was well after 6 p.m. when Kanjorski asked if anyone had any final comments. Up went Ackman’s hand again. “With all due respect to Mr. Callen, I think if providing transparency gives a short seller more information to make his argument, then maybe the information isn’t so bullish for the company. And maybe that’s why investors are concerned.”
“I love short sellers,” Callen fired back. “You wouldn’t ask Microsoft to publish all its code. That would be a little silly.”
The problem with Ambac’s portfolio was simple, Callen said. “We made a big mistake, a mistake called correlation,” he told Kanjorski. “We thought if we had mortgages in California and mortgages in Maine, they wouldn’t both go down together. We were wrong.”
By the time the hearings ended, it was nearly 7 p.m. and Kanjorski was the only committee member who hadn’t slipped away. It was, after all, Valentine’s Day. The other side of the room remained packed until the very end with people from the bond insurance companies, the credit-rating companies, the investment banks, and Pershing Square, along with all of their PR representatives and lobbyists. Wall Street knew the stakes were high. Congress seemed less aware, even though 89 percent of all auctions of municipal securities had failed that day.
CAUGHT IN A TRAFFIC JAM on the way to the airport, Ackman and Katzovicz missed their flight. Undeterred, Ackman asked the driver if he would take them back to New York. “It’s going to be expensive,” the driver told them, “but okay.”
They drove in the pouring rain until around 9 p.m., when Ackman suggested they stop to eat. He called Pershing Square’s evening receptionist and asked her to search the Internet for the best restaurant in the next town off the highway. They got lost a few times in the heavy rain and the dark streets—despite the driver’s