Confidence Game - Christine Richard [160]
In early 2008, according to Silverstein Properties, which purchased the site, the frieze was “recycled,” though no one there could tell me what that meant. I tried Tishman Speyer, the company building the hotel. The project manager told me that he had no idea what became of the frieze. He did tell me that “Man’s Confidence in Man” was not as massive as it appeared. The frieze was, in fact, a very thin piece of metal that had been formed over poured concrete. He suggested I try Waldorf Demolition, the company that took down the old building. At Waldorf, a man named Richard said it might have ended up in the hands of a collector of historical artifacts. Someone like that had come through the building before it was torn down. But Waldorf wasn’t in the business of sorting through what had value and what didn’t, Richard explained. “We just make things disappear,” he added.
“THE BOND-INSURANCE industry was destroyed from within,” says Jack Butler, who helped to found MBIA all those years ago. It was a good business, he insists. There was a role for bond insurance in the financial markets. “Common sense went out the window. This bubble was forecast and known,” he says. “The U.S. went on a credit binge. There was an unsustainable increase in property values as a result of the binge. We pursued a policy to make sure everybody who could scrape together two cents could buy a home.”
Butler has no sympathy for bond insurers who failed to see these glaring risks. The companies who sold triple-A ratings were themselves fooled by triple-A ratings and by something even more absurd—supersenior ratings—on securities that contained stunning amounts of risk. “Here’s the insanity,” says Butler, “the idea that there is no risk so therefore there is no capital requirement, [that] virtually any premium I charge will produce a nearly infinite rate of return.”
Maybe bond insurance was always too good to be true. It would certainly help to explain why the credit-default-swap market—an extension of the bond-insurance business—reached $62 trillion in outstanding contracts in just a little more than a decade. Before the advent of all this risk transfer, there was only one way to bet that a company was creditworthy: Lend it money. CDS contracts allowed investors to bet on the creditworthiness of a company by selling insurance on the company and earning premiums without actually having to put any money down. It was the ultimate leverage. That it ended badly should not be much of a surprise.
“Let’s not have any histrionics,” Monsieur Danglars, one of the Count of Monte Cristo’s foes, tells his wife after their bond-market scheme collapses in angry recriminations. Danglars marvels at the delusional thinking of his wife’s lover, who involved them in this scheme that for a while made them all rich: Imagine, Danglars says to his wife, sneeringly, “telling himself that at last he’s found something the most skillful gamblers have never been able to discover: a game in which you win without putting up any money and lose nothing when you lose.” That game might have been called the “no-loss illusion.”
Notes
PREFACE
“America’s Total Debt Report” (http://mwhodges.home.att.net/nat-debt/debt-nat-a.htm).
ACKNOWLEDGMENTS
Glenda Busick, Brevard Good Ole Boys: A Taxpayer Searches for Truth in the Good Ole Boy Network of County Government, self-published, 1991. Available by request through info@aidomes.com.
CHAPTER 1 THE MEETING
MBIA Inc. 2001 Annual Report, Q&A with MBIA President Gary Dunton, p. 11.
William Ackman and David Berkowitz, letter to Gotham Partners, Oct. 18, 2002.
Continued Examination of William A. Ackman, Gotham Partners Investigation,
New York Attorney General’s Office, 120 Broadway, New York City, June 4, 2003.
Gillian Tett, Fool’s Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe (New York: Free Press, 2009), p. 46.
ISDA Market Survey, http://www.isda.org/statistics/pdf/ISDA-Market-Survey-historical-data.pdf .
Deposition of