Too Big to Fail [229]
Mack had just gotten off the phone with one of his closest friends, Arthur J. Samberg, the founder of Pequot Capital Management, who had called about withdrawing some money.
“Look, if you want to take some money out, take money out,” Mack told him, frustrated.
“John, I really don’t want to do it, but my fund-to-funds accounts are saying I have too much exposure to Morgan Stanley,” he said, citing the rumors about its health.
“Take your money,” Mack told him, “and you can tell all your peers to take their credit balances out.”
Mack believed negative speculation was purposely being spread by his rivals and repeated uncritically on CNBC. He was so furious with the “bullshit coverage” that he called to complain to Jeff Immelt, the CEO of GE, which owned CNBC as part of its NBC Universal unit.
“There’s not a lot we can do about it,” Immelt could only say apologetically.
Tom Nides, Mack’s chief administrative officer, thought they needed to go on the offensive. Nides, a former CEO of Burson-Marsteller, the public relations giant, had been one of Mack’s closest advisers for several years, his influence so great that he had persuaded the lifelong Republican to support Hillary Clinton. He now encouraged Mack to start working the phones in Washington and impress upon them the need to instate a ban against short selling. “We’ve got to shut down these assholes!” he told Mack.
Gary Lynch, Morgan Stanley’s chief legal officer and a former enforcement chief at the SEC, volunteered to call Richard Ketchum, the head of regulation of the New York Stock Exchange, and put a bug in his ear about suspicious trading. “I’m in favor of free markets—and I’m in favor of free streets too, but when you have people walking down the streets with bats, maybe it’s time for a curfew,” he said.
Nides set up a series of phone calls for Mack, who also contacted Chuck Schumer and Hillary Clinton, pleading with them to call the SEC to press the case on his behalf. “This is about jobs, real people,” he told them.
After speaking with Christopher Cox, the head of the SEC, however, he was in an even fouler mood. Cox, a free-market zealot, seemed to Mack to be almost intentionally ineffectual, as if that were the proper role of government regulators. There was nothing he was going to do about the shorts, or about anything at all, for that matter.
Paulson, who was next on his call list, was clearly sympathetic to Mack’s cause to ban the short-sellers, but it was unclear whether he could do anything to help him. “I know it, John. I know it,” he said, trying to pacify him. “But this is for Cox to decide. I’ll see what I can do.”
Mack then contacted his most serious rival, Lloyd Blankfein of Goldman, desperate for an ally. “These guys are taking a run at my stock, they’re driving my CDS out,” Mack said frantically. “Lloyd, you guys are in the same boat as I am.” He then made a request of Blankfein: to appear on CNBC with him, as a show of force.
While Blankfein kept a television in his office, he was so disgusted with what he called Charlie Gasparino’s “rumormongering” that he turned it off in protest. “That’s not my thing,” he told Mack. “I don’t do TV.”
As Goldman wasn’t in total crisis mode, Blankfein explained, he was disinclined to join Mack in a war on the shorts until he absolutely needed to.
Making little progress, Nides had another, perhaps shrewder, angle to play. He could call Andrew Cuomo, the New York State attorney general, who badly needed a cause to resurrect his political fortunes. Nides had a hunch that he might be willing to put a scare into the shorts. It was an easy populist message to get behind: Rich hedge fund managers were betting against teetering banks amid a financial crisis. Everybody remembered what Eliot Spitzer had managed to do to Wall Street from the same platform.
When Nides reached Cuomo, he pitched on announcing an investigation of the shorts. Cuomo had voiced concerns about short-selling before, but this