Confidence Game - Christine Richard [3]
MBIA ultimately decided not to comment for the book or respond to any questions. For the most part, the views of MBIA management, as well as credit-rating company analysts, sell-side analysts, regulators, and MBIA investors, are represented through their public statements. Eric Dinallo, the New York state insurance superintendent who spoke with me about his efforts to stabilize the bond insurers beginning in 2007, was a helpful contributor to the book.
When Ackman bet against MBIA in the summer of 2002, bond insurance and triple-A ratings were unquestioned because they had to be above reproach. Too much depended on the ratings being right. By 2008, MBIA CEO Jay Brown acknowledged that somehow the bond insurer had become “the lynchpin supporting the global financial system.”
“Bond insurance was almost like a religious institution in a kingdom that was totally inscrutable,” said Richard Blumenthal, Connecticut’s attorney general, who launched an investigation of credit ratings and bond insurance in 2008. This was a land in which financial sector debt—at $17 trillion—had grown from about 15 percent of gross domestic product in 1976 to 120 percent in 2008. This explosion of debt transformed Wall Street into a place of extraordinary wealth, where even those far down in the ranks came to expect multimillion-dollar bonuses. Almost no one on Wall Street wanted the music to stop.
Of course, Ackman took on this sacred institution knowing that he stood to make his investors billions of dollars if he was right. That was reason enough for many to view him as a villain. It turns out that Ackman had more than a bearish position on MBIA. He had a stake in the system being wrong. That makes his story an extraordinary vantage point from which to view the approaching credit crisis. As a result, he did something that few people were willing to do as irrationality continued to build in the credit markets: He raised questions and demanded answers in a era when too many people were silent.
So the story begins with the title of Ackman’s controversial 2002 research report and a question that many people found impudent and even dangerous: “Is MBIA Triple-A?”
CHRISTINE S. RICHARD March 2010
Acknowledgments
THIS BOOK WOULD not have been possible without the support of Bloomberg News’s editor-in-chief, Matthew Winkler. Every good story is about conflict, Matt tells reporters. I hope this one doesn’t disappoint.
Mary Ann McGuigan, my editor at Bloomberg Press, provided guidance and encouragement. I also want to thank JoAnne Kanaval and Yvette Romero at Bloomberg Press and Laura Walsh, Todd Tedesco, Sharon Polese, and Adrianna Johnson at John Wiley & Sons, who picked up and ran with the project in its final stages. Anita Kumar, Mike Novatkoski, and Nick Tamasi in Bloomberg’s library helped with the research, tracking down documents with their usual lightning speed. Jennifer Kaufman provided invaluable expertise proofreading the page proofs.
Bloomberg News’s reporters and editors are a continual source of inspiration, and their excellent work on the credit crisis is cited throughout this book. I want to particularly thank Jody Shenn, who added to an already considerable load by taking on the bond insurance beat when I went on leave. My team leader at Bloomberg, Alan Goldstein, was extraordinarily patient with my leave of absence at a time when reporters were much in demand to