Friday, January 23, 2009

John Thain: Public Relations Genius

Thain believes in copious press coverage

I've been spending the past couple of days trying to figure just exactly what happened to John Thain's cranium. Is he feeling OK? I mean, did he fall down while skiing in Vail (you know, while the fourth quarter's red ink was being poured over Bank of America CEO Ken Lewis)? Did he bump his head during one of his regular swimming pool laps?

No, I have concluded that Thain is a public relations genius. He believes, as Brendan Behan once put it, that "there is no such thing as bad publicity except your own obituary." So he decided to flood the zone with horrible publicity, even an editorial in the New York Times. Congratulations!

I tend to agree with Henry Blodget that there's a bit of diversionary action going on here, and that Ken Lewis is at least as deserving of being kicked out as Thain. After all, he's the one that brought ruin on B of A by buying Merrill. Thain was just doing what was best for Merrill shareholders, which in this case was bringing ruin to B of A shareholders.

At one time, I suggested that he might have been a fairly good choice for Treasury secretary had John McCain won the election. He's certainly one of the brightest men in finance, and having someone like him at Treasury has a kind of Joe Kennedy-at-the-SEC, put-the-wolf-in-charge-of-the-chicken-coop quality to it (assuming he could have been persuaded to push Obama's agenda, which would have been unlikely).

Unfortunately, he's done such a superb job of shredding his reputation that I'm not sure what kind of position he could get in the Obama administration. Interior decorator?

One thing I will say: it makes sense that he spent $35,000 on a commode. I guess he wanted a fancy new home for his reputation.

© 2009 Gary Weiss. All rights reserved.

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Thursday, January 22, 2009

Today's Comic Relief: Harvey Pitt on the SEC

A reader (or was it a publicist?) sent me the following link, showing Bloomberg TV interviewing the last person you'd seek for advice on how to run the SEC: Harvey Pitt.

Nuff said. But I really wonder: does this person really believe that anybody, other than the naked shorting conspiracy theorists who have bought his services, take anything he says seriously after the mess that he made at the SEC a few years back?

© 2009 Gary Weiss. All rights reserved.

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Wednesday, January 21, 2009

Is Tim Geithner Too Close to Goldman Sachs?

That issue was raised in an interesting video today by Chris Whalen, who runs Institutional Risk Analytics and is not a fan of the New York Fed chief.

I think he has a good point, but I view Tim Geithner's appointment pretty much the same as Mary Schapiro's-- as a done deal. The difference between the two is that, while he is definitely closer to Wall Street than he should be, he does not have quite as abysmal a track record as Shapiro. Some will argue with me on that point, I know.

A few weeks ago Tom Friedman suggested that Geithner immediately replace Hank Paulson, and I agreed with him. But that was because pretty much anyone, or no one, would do an improvement over Paulson. But that doesn't make Whalen's concern any less valid, or Geithner's answers to the Senate's questions today any less mealy-mouthed.

Not that it matters, as it is fairly obvious that Geithner is going to be confirmed.

By the way, I see that Chris Cox has resigned from the SEC, as expected. Now he can move into a Washington lobbyist or some other job more suited to his talents and proclivities. He can leave government "service," but he can't escape history (as Abe Lincoln put it), and I believe that history will show him to be one of the worst SEC chairmen in history.

© 2009 Gary Weiss. All rights reserved.

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Thursday, January 15, 2009

Bernie Madoff Has No Enemies. Only His Friends Hate Him

You really have to hand it to this man: at a time when millions of Americans are suffering from the economic collapse, The Shtunk provides much-needed comic relief. The New York Times today has the incredible story of how Bernie Madoff swindled members of his high school graduating class.

What a sweet guy he is. What's next? Robbing a 95-year-old man? Nope, he's done that already. Swindling synagogues? Sorry, taken. I don't know.... pushing kittens into a garbage disposal? Aha! I also think that "robbing the blind" might be something we'll be seeing in the months ahead.

The high school swindling was just a sidelight. The main point of the Times article was to explore whether Madoff confided in his adoring wife. Both are represented by the same lawyer, which ordinarily would signal that that he didn't, but in this case you can't take anything for granted. I hope that prosecutors, who were incredibly naive in agreeing to Bernie's release, will pursue that angle vigorously.

© 2009 Gary Weiss. All rights reserved.

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Wednesday, January 14, 2009

Live From New York, It's Bernie Madoff!

CNBC has live coverage of The Shtunk today

I see that CNBC has a live webcam focused on the front entrance to the U.S. Courthouse in lower Manhattan, where prosecutors are trying to toss The Shtunk, Bernie Madoff, in the can.

The media circus surrounding Madoff is amazing. CNBC actually had a helicopter follow The Shtunk, O.J. Simpson style, as he rode to the courthouse.

I hope these guys realize that the courthouse has two entrances, as well as a Bridge of Sighs to the holding pen next store. There should really be two webcams, at least, if Madoff is to be suitably hounded.

Bernie is in court today because prosecutors unwisely agreed to have him freed before trial. Being the shtunk that he is, Bernie used his freedom to transfer assets in defiance of a court order. A U.S. magistrate turned down the U.S. Attorney's effort to reverse its error, and hopefully the appeal today will succeed. But I wouldn't hold my breath.

UPDATE: Surprise surprise, the appeal was denied. CNBC followed Madoff as he climbed into his Shtunkmobile (below) and was driven back to his penthouse.

UPDATE: As of 3:43 p.m., it was apparent that the Shtunkmobile was using the FDR Drive to go back to Bernie's penthouse confinement.

With all his money and influence, Bernie Madoff still hasn't learned that First Avenue is usually better than the FDR Drive. How sad.

UPDATE, 3:50 p.m.: Bernie exits at 42nd Street and turns up First Avenue. See?

UPDATE, 4 p.m. Bernie turns west on 59th Street.

Maybe he should have stayed on the FDR Drive after all. He'd be home by now if he'd taken the subway. But subways are for the masses, not for The Shtunk.

America is all Shtunk-conscious today. But make no mistake about it: in a year or so, nobody will remember what happened.

UPDATE: It's said that the Shtunk was wearing a bulletproof vest today because of death threats, poor dear. I hope it wasn't too uncomfortable. You know, I wonder if the Shtunkmobile was armor-plated, like Hitler's limousine?

It seems to me that if he's worried about being assaulted by one of the hundreds of people he's ruined, perhaps he should voluntarily go to jail?

© 2009 Gary Weiss. All rights reserved.

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Thursday, January 08, 2009

Why is the NYPD at 133 East 64th Street?

The Shtunk being shoved by a photographer a couple of weeks ago, poor dear

I was on the Upper East Side this afternoon, and just for the heck of it I stopped by 133 East 64th Street, the residence of The Shtunk, a/k/a Bernie Madoff. TV trucks with big satellite dishes were lined up around the corner on Lexington Avenue, as you'd expect, and a couple of camera crews were milling around in front of the building.

No problem, to be expected. Public sidewalk, this is a free country, and inside 133 East 64th Street resides The Shtunk, after all. If the residents of that building don't like it, well, that's just tough I guess. But what did surprise me, as a New York City taxpayer, was the sight of two members of New York's Finest standing guard out front.

Why, for heaven's sake? Why is the NYPD providing police protection for a man who shouldn't even be out of jail in the first place?

This is not a polling place, or a business on strike, or a demonstration, or a the Slovak-American Parade, or some other event where the police can be expected to maintain order. Just a few camera crews waiting for a possible appearance by The Shtunk.

Seems like a waste of police resources to me.

I'd sure hate to be on that police detail. Imagine if your job was to keep order at the house of the biggest Shtunk in history.

© 2009 Gary Weiss. All rights reserved.

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My favorite corporate fraud poster child,, is noted mainly for its juvenile, delusional CEO Patrick Byrne, its junk lawsuits against critics and shorts, and its inability to make money. You have to wonder, who would be dumb enough to loan this sleazy company money?

Well, the name of that company is Wells Fargo, but according to a document filed with the SEC yesterday, the bank has taken extraordinary steps to safeguard its money.

Under an amended credit agreement, Overstock is pretty much under the thumb of Wells Fargo:

The Agreement includes affirmative covenants as well as negative covenants that prohibit a variety of actions without the lender's approval, including covenants that limit the Company's ability to (a) incur or guarantee debt, (b) create liens, (c) enter into any merger, recapitalization or similar transaction or purchase all or substantially all of the assets or stock of another person,
(d) sell assets, (e) change its name or the name of any of its subsidiaries,
(f) make certain changes to its business, (g) optionally prepay, acquire or refinance indebtedness, (h) consign inventory, (i) pay dividends on, or purchase, acquire or redeem shares of, its capital stock, (j) change its method of accounting, (k) make investments, (l) enter into transactions with affiliates, or (m) store any of its inventory or equipment with third parties.
Overstock agreed to these humiliating conditions for the obvious reason that it needs cash, lest it slide (as it inevitably will, I suspect) into bankruptcy. These new restrictions prevent Overstock from doing dumb things it has done in the past, such as buy back stock, and also makes an interesting reference to its accounting methods.

But I wonder why Well Fargo didn't include an obvious prohibition: "(n) retain a conspiracy-mongering loon as CEO."

© 2009 Gary Weiss. All rights reserved.

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Wednesday, January 07, 2009

Bernie Madoff and the Russian Mob?

The latest word from the Bernie Madoff front, in the absence of real news (pending word on whether he'll be thrown in the slammer) is not news at all but rather speculation: was Bernie Madoff involved with the Russian mob? See this exchange of guesswork on CNBC.

Is it possible? Sure. I said from the beginning that I thought it possible that Bernie was being shaken down. I wouldn't be at all surprised if that happened. But I don't have the slightest idea and neither does anyone else, outside of the participants.

Let's be clear about our nomenclature. There's talk about the mob "investing" with Madoff. The mob doesn't "invest" with anybody if they can help it. They take. There's a lot of talk about money laundering and such, but my hunch is that if the mob is involved (and there's not a shred of evidence on that so far), it would be old-fashioned extortion. The Russian mob "stars" in a lot of the half-baked conspiracy theories you see floating around the Internet, but in this case it is entirely credible.

But honestly, I don't see how it matters all that much. What he did was so awful that it is kind of in the very cellar of horribleness, and cannot sink any deeper. Word emerged today that Bernie allegedly took a quarter of a billion dollars from a 95-year-old "friend" just ten days before the roof fell in. The mind boggles.

I've been writing about bad people for almost two decades, and if even half of the accusations against "I'm Close to the Regulators" Madoff are true, he would definitely rank as the very worst white collar thief I've ever encountered.

UPDATE: John Carney weighs in at Clusterstock. Incidentally, I wouldn't call Madoff a "victim," even if he was run over by a truck.

Personally I think that this is all a red herring, but you never know. Only the investigators, and of course the Madoff clan itself, would know for sure.

They call him "Bernie Made-Off" but my own name for him is The Shtunk. That's a Yiddish expression that refers to a human being who stinks (morally or physically). After reading about Madoff's scheme to rip off that 95-year-old "friend," I had to conclude that Madoff is the one, and only Shtunk.

At least there is a bright side to the Madoff scandal, as Susan Antilla points out: it's highlighted the ineptitude of the SEC.

© 2009 Gary Weiss. All rights reserved.

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John Paulson: Villian or Genius?

That's the subject of my latest Portfolio article, which is online here.

In the context of an in-depth profile of John Paulson, I discuss the role of short-selling in the recent calamity. Note Jim Chanos's account of a conversation that he had with Alan Schwartz of Bear Stearns just before Bear went belly-up.

According to Chanos, Schwartz tried to get him to go on CNBC to say that "everything's fine."

Schwartz denies the account. Who do you believe?

UPDATE: Portfolio's Felix Salmon follows up and says that he misread the article as an attack on shorting (quite an amusing thing that would be, coming from me). As I told Felix, I don't think Paulson did anything wrong.

© 2009 Gary Weiss. All rights reserved.

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Sunday, January 04, 2009

Fixing the Financial System

Michael Lewis and David Einhorn have an essay in the New York Times today, "The End of the Financial World as We Know It," which is one of the very best I've found on the current financial mess and how not to repeat it.

Actually we already know one way out of the mess, which is already happening because of the change in administrations: get rid of the appalling head of the SEC, Christopher Cox. In recent days, Cox has actually admitted that one of the centerpieces of his agency's reaction to the financial crisis, its assault on short-sellers, was a crummy idea.

His excuse was, in effect, that he was too weak-kneed and cowardly to put up with pressure from the Treasury and Federal Reserve, which in turn were no doubt knuckling under to pressure from Wall Street. Read all about this disgraceful bureaucrat's mea culpa here.

Indeed, Lewis and Einhorn note that "The task [the SEC] has performed most diligently during this crisis has been to question, intimidate and impose rules on short-sellers — the only market players who have a financial incentive to expose fraud and abuse."

The prescriptive part of their piece, broken out separately here, makes several excellent recommendations, among them that the government simply nationalize banks that are otherwise "too big to fail."

Their two final observations are less ambitious:

Close the revolving door between the S.E.C. and Wall Street. At every turn we keep coming back to an enormous barrier to reform: Wall Street’s political influence. Its influence over the S.E.C. is further compromised by its ability to enrich the people who work for it. Realistically, there is only so much that can be done to fix the problem, but one measure is obvious: forbid regulators, for some meaningful amount of time after they have left the S.E.C., from accepting high-paying jobs with Wall Street firms.

[I'd add to that a restriction on jobs with public companies, as they are regulated by an increasingly narcoleptic SEC.]


But keep the door open the other way. If the S.E.C. is to restore its credibility as an investor protection agency, it should have some experienced, respected investors (which is not the same thing as investment bankers) as commissioners. President-elect Barack Obama should nominate at least one with a notable career investing capital, and another with experience uncovering corporate misconduct. As it happens, the most critical job, chief of enforcement, now has a perfect candidate, a civic-minded former investor with firsthand experience of the S.E.C.’s ineptitude: [Bernie Madoff would-be whistleblower] Harry Markopolos.

Sure, but how likely is it that Obama is going to do that? His choice for SEC chairman, FINRA chief Mary Schapiro, was an appalling endorsement of the status quo. That does not bode well for future SEC appointments.

As Susan Antilla pointed out at the time, "Schapiro comes to the job with the mindset that financial industry members should be part of the policing process." Her appearing on the cover of the penny stock-pumping organ "Equities" magazine, which she went out of her way to heartily endorse, indicates to me that she is more part of the problem than the solution.

As the lamentable Schapiro appointment indicates, it appears that Obama has surrounded himself with advisors that makes any significant change in market regulation unlikely. Still, I'd be delighted to be proven wrong.

© 2009 Gary Weiss. All rights reserved.

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