Confidence Game - Christine Richard [143]
But was it enough? The Open Source Model said it wasn’t. JPMorgan was also calling for Ambac to take losses of around $11 billion.
Callen, looking exhausted after what had been a sleepless night, wanted to talk about Ackman, not JPMorgan. “There is a gentleman out there who has been given a big microphone a number of times,” Callen said. “I won’t mention his name; he’s known around here as the ax man.” Ambac, Callen said, had “drilled down” and found the underlying assumptions in Ackman’s model to be “outlandish.”
Conditions were not going to “deteriorate to the point where our civilization changes forever. I personally don’t believe that. There are people paid to believe that,” Callen said.
If you believed Ackman was right, Callen added, “you should short Microsoft. You should short everybody. Short Hank Paulson down in Washington.”
LATER THAT DAY, Governor Spitzer appeared on CNBC to assure viewers that Ambac would be able to maintain its triple-A credit rating for the foreseeable future: “A lot of parties helped make this happen, and it was important for the capital markets.”
Although Moody’s and S&P were willing to say—at least for the time being—that the two biggest bond insurers had triple-A ratings, not everyone was on board. Fitch Ratings, the smallest of the three rating companies, had downgraded Ambac several weeks earlier and was actively reviewing MBIA.
On the afternoon of March 7, MBIA issued a press release saying it had asked Fitch to stop rating its insurance company. Brown said he disagreed with the company’s methodology, which required more capital to be held against guarantees on structured finance versus municipal bonds.
Fitch’s model also had proven erratic, he said: “We have very little idea why Fitch’s capital model produces the charges it does, and why it can change so rapidly at any point in time when there is no obvious change in our circumstances or in the credit market at large,” Brown had written in a recent letter to shareholders.
After affirming MBIA’s top rating with a stable outlook in January, Fitch had put MBIA back under review for a possible downgrade, Brown noted. “Did the world really change that much in two weeks?” Brown asked. “The only event of note that I can think of is the fact that the other two agencies put us on review for possible downgrade in the intervening time period.”
Fitch’s chief executive officer, Stephen Joynt, wasn’t so certain about Brown’s motivations. “Is it because you are aware we are continuing our analytical review and may conclude that MBIA’s insurer financial strength is no longer AAA?” Joynt said in an angry letter that Fitch made public. “It would appear that rather than work with Fitch, your intention could be to emasculate our opinion by withholding information and subsequently discrediting our opinion as being uninformed,” Joynt concluded.
MBIA had become very aggressive about discrediting people who were skeptical about it. Shortly after Brown returned to MBIA, the company hired a public relations consultant named Jim McCarthy. After a few weeks on the job, McCarthy e-mailed my editor, telling her that he had compiled a list of people who felt I had harassed them in the course of my reporting or misrepresented their views in articles. I had never received any complaints. “This is egregious conduct,” McCarthy wrote, adding that he would reveal the names of those who had complained, but only if my editor agreed not to share the names with me.
It seemed that the bond insurers tried to wring the skepticism out of the market in any way possible. Over at Ambac, all eyes had been on the share price following the equity sale. But the gains were meager, with the shares up just 4 cents from where the new issue was priced. Then the closing trades came scrolling across broker screens—$7.38, $7.38, $7.39, $7.37—and then the price and the volume surged. At 4:05 p.m., several last-minute trades were reported at $9.50 on huge