Confidence Game - Christine Richard [84]
The place had become a magnet for neighborhood addicts, who huddled on the porch to smoke crack cocaine. Raccoons were also a big problem. They got inside the house and scratched at the walls, keeping Washington awake at night. Sometimes he took a boom box upstairs in his house, turned it toward the wall, and tried to blast them away. It worked for awhile, but they always came back.
I imagined the value of the property must be meaningfully less than zero.
The next afternoon, with the list of Caulis Negris properties in hand, I went out to see more. I explained to a taxi driver that I was taking a look at a portfolio of properties owned by a New York insurance company. We drove up and down through Pittsburgh’s steep hillside neighborhoods, tracking down addresses. Almost invariably, we stopped at the worst property on the block, though sometimes that was a hard call. Most seemed vacant. Hardly any appeared habitable. Occasionally, one of the properties would have a weathered “For Sale” sign stuck to the door. As we pulled away from one house, the taxi driver asked me, “What did they do, buy them blind?”
Adriane Aul in Pittsburgh, who headed up the Pittsburgh Community Reinvestment Group’s efforts to deal with vacant properties, helped me figure out the full picture: Caulis Negris owned liens on 11,000 properties in Pittsburgh, nearly 10 percent of the entire city. The outlook for those properties was bleak, given that there were 20,000 abandoned houses and vacant lots across the city, almost 20 percent of all residential real estate.
MBIA controlled so much property in the city of Pittsburgh that an unwillingness to recognize losses on the Caulis Negris bonds could hold up the redevelopment of entire neighborhoods. “When they own the liens, it’s easy for them to just do nothing,” Aul said. That was my story.
During the last week of November, Bloomberg News ran the story—“MBIA Debt Backed by Crack Houses Perpetuates Pittsburgh Blight.” I received a flurry of e-mail from readers, much of it critical of MBIA: How could a triple-A-rated company get away with something like this? Why didn’t the city seize the properties if MBIA was unwilling to acknowledge that they were overvaluing the tax liens?
And some of it was critical of my article: How could I so irresponsibly sensationalize the situation? Why point a finger at MBIA when it was the people who weren’t paying their taxes who were to blame? That one was easy. “I think a lot of those people are dead,” I wrote back.
The stock market weighed in with its verdict. MBIA’s shares rose nearly $3, closing up $1.77, their fifth-largest gain in 12 months.
“MBIA gets a bad article and the stock goes up,” Michael Ovitz e-mailed Ackman after the story ran. “Is everything in your world counterintuitive?” he asked.
The stock market reaction was frustrating. Yet a few days later, MBIA and the city of Pittsburgh reached an agreement. Luke Ravensthal, Pittsburgh’s 26-year-old mayor, announced that the city had struck a deal with MBIA to buy back $40 million of Capital Assets liens for just $6.5 million. The next day, MBIA said that it had sold its MuniServices unit, which owned Capital Asset. All traces of Caulis Negris were gone.
And the stock continued to rise. Several days after the lien sale was announced, MBIA’s shares broke through $70. On December 28, the stock hit $73.31, a level that would prove to be a pre-credit crisis high-water mark.
Ackman put his thoughts about the rise in the company’s share price in an e-mail to the SEC. He explained that not only did MBIA’s shares rise on a day when the only news in the public domain was a negative story,