Confidence Game - Christine Richard [71]
On August 15, 2005, Ackman pounded out a nine-page e-mail to Mahoney, insisting that the rating company was risking its credibility by continuing to assign a triple-A rating to MBIA. “Every day that Moody’s holds off on acting, its exposure to this situation grows,” Ackman wrote. “I know that you would probably prefer that [the] whole situation just disappear, but I assure you that it will not. I understand the reluctance to react and to wait for a regulator or someone else to go first. I believe that you have all the information you need for MBIA to be downgraded or at a minimum to be on credit watch, yet so far Moody’s has failed to act. As far as the world knows, Moody’s believes MBIA is squeaky clean and rock solid financially.”
On August 19, 2005, MBIA announced that it had received a notice from the SEC that indicated the staff was considering bringing a civil injunction against the company over the AHERF transaction. The following Monday, Moody’s weighed in, saying it didn’t plan to take any rating action on MBIA. The SEC appeared to be interested only in the AHERF transaction and that had occurred under different management, the rating company asserted. MBIA’s stock gained 10 cents to close at $58.55 on the news.
“No big surprise here,” wrote Jim Chanos, who runs the hedge fund Kynikos Associates, in an e-mail that was forwarded to Ackman by a mutual friend. Chanos poked fun at Moody’s complacency with a headline of his own: “MBIA Execs Found Poisoning Nation’s Water Supply—Rating Agencies See No Reason for Downgrade.”
It looked as if regulators might just let the issue of Capital Asset drop, even though they’d been provided with a detailed road map and a videotape. “This example of misconduct is clearer than the others,” one of Ackman’s investors wrote him in an e-mail message after Moody’s affirmed MBIA’s rating. “Seems hard to understand how they can remain uninterested, but I guess the regulators are more interested in stability than controversy when it comes to the biggest insurer of munis.”
Rafael Mayer at Khronos LLC frequently spoke with Ackman about his sleuthing into MBIA. In hindsight, Mayer says, the Capital Asset fiasco was a warning to the capital markets. How could MBIA have assumed responsibility for providing hundreds of millions of dollars of financing without threatening its credit rating? What sense of complete invulnerability allowed a triple-A-rated company to dub an SPV “Black Hole”? How could regulators have shrugged off the potential conflicts behind the deal? Much of the story was actually captured on videotape. But how often did these types of deals go on behind the scenes?
“Many people will say that it was through Bill and MBIA that they started to come face to face with the messes that Wall Street was making,” says Mayer.
Chapter Twelve
The Court of Public Opinion
You’re asking me to speculate on the divinity of the emperor [MBIA]. The emperor is divine.
—JAMES A. LEBENTHAL, CHAIRMAN EMERITUS OF LEBENTHAL & COMPANY, 2005
IN THE FALL OF 2005, Oliver White arrived at Pershing Square. He had spent the summer working as a fishing guide in Jackson Hole, Wyoming, and reading the investment books Bill Ackman had sent him. White had also searched the Internet for information about Ackman. Most of what he found was from the Gotham Partners era: the investigation, the pump-and-dump allegations, the suggestions of market manipulation. “It was all about how bad Gotham was,” White says. “I chose to go anyway. He was different from the person I was reading about.”
The first thing Ackman did after White arrived was drop the report Is MBIA Triple-A? on White