Monday, June 14, 2010

Rattner Still Doesn’t Get It


The “Rattner” of our title is Steven Rattner, whose recent Op-Ed piece in the Wall Street Journal was titled “Wall Street Still Doesn’t Get It.”

His editorial—timed to promote a new book, naturally—offered a blistering critique of Wall Street’s solipsistic mindset through the prism of his appearance at a recent gathering of “turbocharged, chest-thumping hedge fund investors” at the Ira W. Sohn Investment Research Conference:

Drawing on my stint in the Obama administration, I tried to offer a perspective on why the president and his advisers made the policy decisions they did as they battled the worst economic and financial crisis in 70 years.

I flashed slides bubbling with wacky, heat-of-the-moment quotes from sages (including two Nobel Prize winners) [sic] to remind the audience of the administration's wisdom in resisting the many calls for ill-advised, extreme actions such as nationalizing banks. Given my former role as lead adviser on autos, I zeroed in on the rescue of the car companies as an example of sensible policy [sic]. I noted the increasingly optimistic GDP estimates from one representative forecaster. And so on. A chilly breeze from the audience blew toward the podium.

I pivoted to my next point, trying to explain that the current hostility toward Wall Street on the part of the American citizenry was both deep and understandable. But my attempt to award the administration credit for trying to manage the anger by recalling President Obama's remark a year ago to a gathering of bankers—"My administration is the only thing standing between you and the pitchforks"—was met with stony silence. By the time I arrived at a key slide—one that ascribed the current angry mood in part to record levels of income inequality in America—at least one in the crowd could take it no more and booed loudly.

--Steven Rattner, "Wall Street Still Doesn't Get It."

Relying on Nobel Prize winners as “sages” and using the auto bailout to highlight “sensible policy” might well cause a reader to wonder, “Who is Steven Rattner?”


Here’s how the Wall Street Journal identified him in a June 2, 2010 article titled “SEC Wants a 3-Year Ban from Street for Rattner”:

Mr. Rattner, who last year spearheaded the White House's auto-industry restructuring, is among the most prominent figures touched by the case, which is being conducted by both the SEC and New York Attorney General Andrew Cuomo.

The three-year investigation centers on allegations that the New York state pension fund was corrupted by a kickback plot in which money managers made illegal payments to secure business from the fund.

The government's focus on Mr. Rattner involves his activities at Quadrangle Group LLC, a private-equity firm he co-founded. The firm paid a political operative $1.1 million in exchange for helping win a $100 million investment. Mr. Rattner, who is no longer with Quadrangle, also helped arrange to distribute a low-budget film produced by the brother of a pension official.

That’s right. That’s the guy who’s lecturing Wall Street.

Of course, Mr. Rattner makes no mention of this investigation in “Wall Street Still Doesn’t Get It.”

Instead, he describes himself “a long-serving veteran of Wall Street,” before using a standard rhetorical tactic of empathizing with his target before castigating it: “…the financial industry is one of the greatest success stories in U.S. business history,” he declares, then goes on to berate Wall Street for “conveying little sympathy for the many suffering Americans and brushing off responsibility for the excesses of the last bubble.”

Now, there are at least a couple things wrong with this picture.

First, Rattner has staked his view of Wall Street at large through the prism of a relatively small gathering of hedge fund managers. And hedge fund managers, as Rattner surely knows, were not, in fact, responsible for “the excesses of the last bubble.”

They lent no money to home-buyers who couldn’t afford it; they packaged and sold no “liar loans”; and the government bailed out not a single hedge fund during the crisis.

Chrysler, yes. GM, yes. Fannie Mae, yes. Freddie Mac, yes. AIG yes. Citi, yes.
Even, yes, GE, which received a bailout of sorts when the Feds guaranteed the commercial paper market to which Jack Welch’s legacy had sadly become addicted.

Not a hedge fund in the group.

Second, many of the hedge fund managers at that very same gathering had been warning of trouble to come during the bubble, for many years, and to no avail.

Indeed, had Mr. Rattner attended the same conference in May 2008, he would have heard David Einhorn present the scary facts about Lehman Brothers just a few months before that once-mighty firm went, as we say, tapioca, and nearly took down the developed world with it.

For his efforts, of course, Mr. Einhorn was berated by Lehman, by Wall Street’s Finest, and by ignorant politicians who never wanted to hear the bad news about America’s great housing boom in the first place.

And it is that brand of ignorant politicians whose names tend to pop up in news articles relating to Mr. Rattner.

Here’s what Quadrangle itself had to say about the aforementioned New York state pension fund matter in an April 15th press release from the New York Attorney General’s office announcing nearly $12 million in payments related that office’s ongoing investigation:

Quadrangle stated, “We wholly disavow the conduct engaged in by Steve Rattner, who hired the New York State Comptroller’s political consultant, Hank Morris, to arrange an investment from the New York State Common Retirement Fund. That conduct was inappropriate, wrong, and unethical. We embrace the reforms in the Attorney General’s Code of Conduct, including the campaign contribution and placement agent ban, which are vitally necessary to eliminate pay-to-play practices from the public pension fund investment process. We urge others in the industry to follow.”

Quadrangle has agreed to fully cooperate with the Attorney General’s investigation as to Rattner and others.

Hank Morris, for the record, isn’t the kind of guy who comes to mind when you think of what made “the financial industry...one of the greatest success stories in U.S. business history.”

Here’s what the New York Times had to say about Morris:

On March 19, 2009, Mr. Morris and David Loglisci, another advisor, were charged with 123 counts - including bribery, grand larceny, money laundering and fraud - in an indictment that said they had turned New York's $122 billion pension fund into a criminal enterprise. The scheme netted them and other Hevesi associates tens of millions of dollars in kickbacks from firms investing the fund's money, the indictment said.

Mr. Morris and Mr. Loglisci, the top investment officer of the pension fund, were accused of directing half of the $10 billion that the fund invested in so-called alternative investments, like hedge funds and private equity firms, to companies that used Mr. Morris or his associates as paid intermediaries. Firms that were not willing to pay were often turned down, according to the indictment.

On March 10, 2010, Mr. Loglisci pleaded guilty to securities fraud…

Now, we make no claims here. We know none of the figures involved in the “criminal enterprise” as the Attorney General described the New York state pension fund. We hope Mr. Rattner and the book he is promoting as part of his sudden appearance on the Wall Street Journal’s Op-ed page will continue to be successful.

And we agree with him that it may be unseemly for some hedge fund guys—those who made it through the crisis many of them foresaw—to hold a conference at a ritzy hotel in New York City while unemployment rates hover in a range most Americans have never seen and foreclosures continue to take people out of their homes. (We weren’t at the conference and we don’t know how accurately Mr. Rattner’s op-ed piece captured the mood.)

But for the political class, of which Mr. Rattner—late of the Obama administration—has some familiarity, to shift the blame for all that happened to Wall Street is nothing more than a transparent attempt to stay in power and continue to benefit from the type of nonsense that goes on behind the scenes when money moves from the hands of those who earn it to those who spend it, in the name of “good government.”

And by the way, if Mr. Rattner thinks the “average American worker” he so lovingly holds up in his remarks hasn’t figured out all that is wrong in Washington, well, he doesn’t get it.

Those “pitchforks” aren’t all heading to Wall Street...



Jeff Matthews
I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews, who also acts as an advisor: clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

5 comments:

Anonymous said...

I agree on all counts, Jeff, but permit me a quibble. You wrote, with regard to hedge funds, "They lent no money to home-buyers who couldn’t afford it; they packaged and sold no 'liar loans' . . ." I do not believe that to be entirely accurate. There is at least one hedge fund - Carrington Capital, in (where else) Greenwich - which was seeded by the defunct New Century and created for the express purpose of participating in the securitization of toxic sub-prime mortgages.

Thanks for sharing these observations with us.

Anonymous said...

another quibble: citadel got (at least) $200 million from the fed/treasury through the AIG bailout. roughly at the time they got that money they were down roughly 50 percent. (i'm just using their year over year and figuring they got the money around the end of 2008.)

it's kind of a mystery why they didn't blow up -- you'd think someone would have been in a position to make them post significant collateral -- but it didn't happen.

John said...

Does Washington tax Wall Street ? Or does Wall Street tax Washington ? Was Mr. Rattner levying a tax ? I'm lost.

Hayseed said...

well said jethro, really well thought out and written. besides rattner being appropriately named, it is interesting how all of these guys, from rattner, to barney frank to chris dodd to greenspan to raines, are able to get away with this malarkey of how the crisis occurred. it is simple and as you stated - fannie and freddie... it is always government that inadvertently creates extremes which dislocate markets. congress wanted everyone to have a house, whether able to pay or not... and "sophisticated" mortgage and MBS buyers "knew" that mortgages never fail en masse given the implied put offered by the government.

Nick D. said...

Hayseed = 10%