Confidence Game - Christine Richard [4]
Emma Moody, my editor at Bloomberg News during long days covering the bond insurance crisis, was a rock of composure and good spirits. Bob Burgess and Jonathan Neumann helped shepherd two award-winning stories on the bond insurers through the editing process. The late Fred Weigold edited a Bloomberg Markets article on the collapse of the bond insurers. His broad smile and booming laugh were a constant reminder that reporting can be the best job in the world. Mark Pittman, a Bloomberg reporter who was battling to make the Federal Reserve more accountable when he died in late 2009, proved to me that reporting can be the most important job in the world.
Bill Ackman’s openness and optimism are key ingredients of this book, and I am grateful to him for sharing both with me over the last few years. He gave me a story to tell amidst all the financial gloom and doom that is in many ways about the importance of free speech, persistence, and staying positive.
Many thanks also are due to the people who agreed to be interviewed for the book, especially those who participated against their better judgment. Roy Katzovicz, Pershing Square’s chief legal officer (and an excellent storyteller), is just one who springs to mind. Joelle Dellis and Bethany Norvell at Pershing Square cheerfully fielded numerous requests to track down documents.
Of the many helpful sources I called on in my reporting on the bond insurers, three stand out for their patience and willingness to share their insights: Ed Grebeck, Dick Larkin, and Matt Fabian.
One of the privileges of being a reporter is to learn from other people every day. Doug Noland, who warned about the problems in the credit markets for more than a decade as an analyst at David W. Tice & Assoc., convinced me that debt was the great, unrecognized story in America. Glenda Busick and Carol Hayes, two women in Brevard County, Florida who took on the formidable combination of Wall Street and the “good old boys” of local government, were an inspiration. Glenda’s book on her experiences, which she wrote and published on her own time and at her own expense, is a testament to the hard work required of citizens in a democracy.
Finally, thanks to my family. My daughter, Sophie, encouraged me countless times with words, notes, and drawings when it felt like I’d taken on an impossible task. My greatest debt is to my husband, Dean Richard, who has cheered me on since I was twenty years old, and without whom nothing would be possible.
Chapter One
The Meeting
In our minds, our franchise is the ultimate money-back guarantee, the “Good Housekeeping Seal of Approval.”
—GARY DUNTON, PRESIDENT OF MBIA, 2001
AS THE TAXI PULLED AWAY from Grand Central Station on a late November afternoon in 2002, Bill Ackman was bracing for a fight. The 36-year-old cofounder of a hedge fund called Gotham Partners had been summoned to a meeting with Jay Brown, the chief executive officer of MBIA Inc. MBIA’s general counsel wouldn’t say what Brown wanted to discuss, but Ackman had a suspicion. Gotham had placed a bet against the company that could make the fund $2 billion if MBIA filed for bankruptcy. The hedge fund planned to issue a critical research report questioning the bond insurer’s triple-A rating.
Ackman had already described the situation in an October 2002 letter to his investors. “Our newest and largest [short] investment is on an extremely highly levered, yet triple-A-rated financial institution, which we believe has inadequate reserves, undisclosed credit-quality problems, aggressive accounting, and substantial unconsolidated indebtedness contained in off-balance-sheet special-purpose vehicles,” he wrote. Ackman explained that the position had the potential to generate a return of approximately five times the fund’s total assets if it was successful.
Though little known outside of Wall Street circles in 2002, MBIA ranked as one of the top five financial institutions in the country, as measured by outstanding credit exposure, along with Citigroup, Bank of