Quelle Surprise! Sorkin Tells Remarkable Whoppers to Defend His Wall Street Sources

Andrew Ross Sorkin has a remarkable piece of hogwash masquerading as a story today. His new piece, “Nowadays, Wall Street Saviors May Wish They Weren’t,” blatantly rewrites crisis history claiming that buyers of failed firms were “pressured” by the government do transactions during the crisis and the Big Bad Government got the better of them.

His article starts with PR from Jamie Dimon on the JP Morgan acquisition of Bear Stearns. Now that JP Morgan is facing a milquetoast suit from the New York attorney general over some particularly heinous conduct by Bear (we’ve argued this suit is sure to be settled for very little down the road), Jamie is shamelessly using the bit of negative media coverage to whine that next time, maybe you won’t have Dick Nixon to kick around he won’t be there to rescue failed banks.

For some context, Dimon is far and away the most experienced dealmaker of any Wall Street CEO. Acting along side Sandy Weill, he built a financial conglomerate based on a series of acquisitions, over 1100. They were such successful buyers that their integration program was envied throughout the industry.

Jamie’s little problem is that he did a sloppy acquisition, period. If you don’t get a waiver of liability that you should have, shame on you. (Update/clarification: When word of the Bear lawsuit broke, many observers assumed that the liability would have been included in the Fed’s $29 billion backstop of the deal and were surprised to find it didn’t). There was already evidence of questionable dealmaking on Bear by JP Morgan. The deal was retraded due to a major error in the contract, leading JP Morgan to have to increase its price for Bear. This isn’t the first time that Sorkin has run the JP Morgan flattering line that it was abused by the Fed; we shredded Sorkin’s claims in March 2008, but he’s back at it again. This part is particularly suspect:

The same Bear Stearns that the United States government practically begged JPMorgan Chase to buy to help avoid a financial panic. The same Bear Stearns in which the initial $2 a share price of the transaction was dictated — literally — by Henry M. Paulson Jr., then the Treasury secretary.

First, there is a school of though that the party that was most at risk to a Bear failure was JP Morgan, since Bear was a major credit default swaps market participant and JP Morgan is a major derivatives clearer. As we’ve pointed our, Bear originally had a loan from the Fed which was 28 days, and would have tided it over to the opening of a new Fed facility on March 17. Bear might or might not have made it, but 28 days would have allowed a lot more parties to see if it was worth buying or investing in. But the Fed mysteriously changed the loan from 28 days to overnight, pretty much assuring that the ONLY party that could buy it was JP Morgan, since it had the best view of its books by being its clearer on many trades. The Fed decision to change the maturity of the loan has never been satisfactorially explained.

Second, there was enormous unhappiness on behalf of the Bear employees with the initial $2 per share payout (Bear had high levels of employee stock ownership). While Paulson wanted to punish Bear with a low share price (why was the price not zero, or $0.01 a share? why was failure rewarded at all?), many commentators at the time, including yours truly, thought Dimon CHOSE to pay more to reduce employee upset at Bear. From our March 2008 post:

Sorkin also makes clear that Dimon was unhappy paying so little for Bear and was concerned about a revolt among those employees he wanted to keep. That then raises the question of whether the supposed fits thrown by Dimon over the trading guarantees really were a bad case of buyer’s regret. After all, at a price of $2, JPM was paying more than a billion less than than it eventually offered. Was that exposure really so awful that the economic value of getting out of it was worth a billion plus?

It thus seems more plausible that the alleged contract defects gave Dimon the excuse to pay the price he wanted to pay to keep peace in the family. And I will go further: knowing a bit about one of the attorneys involved (Rodgin Cohen of Sullivan & Cromwell, who represented Bear), I consider it quite possible that the lawyers contrived to have glitches in the deal to allow it to be reopened. (On a deal I was involved in, Cohen pulled a huge ruse with the Fed that my client to this day is unaware of, according to Gene Ludwig, who was later my attorney). Their loyalties are to the Street, not the Fed or the public at large.

The idea that Dimon was a victim is bollocks. As one of my investor buddies says, “Whenever the government is selling, I want to be on the other side of that trade.” Dimon was the only player in a position to buy Bear on the bizarre timetable the Fed imposed via shortening the term of the loan so the deal had to be done over the weekend. He had all the leverage in the world. And the Bear lawsuit he is complaining about is noise. This public kvetching is merely Dimon shamelessly turning a lemon into lemonade via using media attention to his advantage, and Sorkin happily acting as his mouthpiece.

Sorkin similarly tries to make Wells Fargo sound like a victim of regulatory pressure to make a rescue in its purchase of Wachovia:

Some of the strongest firms during the crisis that acquired failing banks at the behest of the government — JPMorgan Chase, Wells Fargo and Bank of America, among them — have found themselves in the cross hairs of lawsuits brought by the government for activities related to deals they made under pressure from the authorities.

This is completely and utterly false as far as Wells and Bank of America are concerned. As anyone who read the media at the time knows, the government (as in Treasury) had orchestrated a deal for Citigroup, not Wells, to buy Wachovia, with considerable government subsidies. As we and others wrote, it was clearly a backdoor bailout for Citi.

As Sheila Bair recounts at length in her new book, Bull by the Horns, Wachovia voluntarily made a no-subsidy offer. And the only reason it was able to put its deal together was that Citi was bizarrely slow to consummate the deal that Treasury had cooked up and Bair was not exactly keen to do (but at the time, had no better alternative). Moreover, Geithner was outraged and tried pressuring Bair into sticking with the deal with Citi, even though it was clearly worse for the taxpayer. The idea that there was pressure on Wells to enter when there was already a done deal with Citi is a flat out misrepresentation.

Similarly, Bank of America was not pressured to buy Countrywide. It may seem insane now, but Bank of America had coveted Countrywide for years and as only a mid sized mortgage player, was eager to bulk up. Country (again this sounds astonishing but it was the prevailing view at the time) was considered a prize for its servicing operations. Ken Lewis acquired Countrywide in a two step process, and so had plenty of time to kick the tires. Even so, we were in a minority in flagging the legal liabilities as a reason to hate the deal (see here and here). CEO Ken Lewis not only did the deal eagerly, he paid a hefty premium to the market prices that many observers thought was far too rich. (Lewis might have had some 11th hour regrets, or his due diligence team might have gotten insistent about the warts, but Countrywide was not systemically important. Plus the real tell of how gung ho Lewis was was the failure to adjust the juicy purchase price). Indymac failed and the world did not end, and Countrywide was just a bigger version of Indymac. Lewis has apparently tried arguing that he thought he was owed one for buying Countrywide, but that’s inconsistent with his actions at the time, and his later willingness to threaten to break up a deal that really was systemically important, the Merrill acquisition.

As Sheila Bair has pointed out in her interviews on her book, Sorkin in his supposedly landmark account Too Big to Fail did a one-sided job of reporting on regulatory jousting, savaging Bair without ever contacting her or anyone from the FDIC to see if her detractors were giving the straight scoop. So it should not be surprising to see a more obviously skewed account in today’s article.

While Sorkin’s favored sources no doubt have their own view of reality, the job of a reporter is to at least endeavor to get to the bottom of things, rather than write dictation. Well, except in our best of all possible worlds per the New York Times where bankers are just selfless citizens doing their best to serve communities despite the heartless and short sighted actions of government bullies. But Sorkin manages, despite himself, to signal that we aren’t supposed to take him seriously. He closes the piece:

Fraud isn’t something a company does; it is something people do.

By that logic, Dimon and pretty much every Wall Street CEO, as we’ve recounted, is liable, as in criminally liable, for false Sarbanes Oxley certifications. Charles Ferguson has written an entire book setting forth other legal theories and supporting evidence for criminal prosecutions of top executives of major financial firms. But for Sorkin, use of the “F” word is a mere rhetorical device, something for to pin the blame on Other People (in this case, executives of Bear) rather than the real prime suspects.

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  1. Conscience of a Conservative

    I tend to agree with the p.r. of the Sorkin piece however it’s fairly typical that during a financial crisis the big guy(JP Morgan in the crisis of 1908) or the Treasury Secretary in modern times brings everyone in the big room and tells them how the problem is going to be solved for the good of the system. JP Morgan was the only firm who could make the deal work, so it’s a little bit of both, JP Morgan saving themselves and the gov’t getting the only buyer to commit to a rescue. Of course now with Schneiderman’s JP Morgan suit, the p.r. aspect shouldn’t be dismissed.

  2. jake chase

    This whole story is much ado about nothing. Who really cares who screwed who while the Titanic deck chairs were rearranged? Could JPMC exist for ten minutes without Fed backing? Of course it couldn’t. It is utterly and ridiculously insolvent apart from the accounting fantasies enabled by the Government and the Fed (assuming these are different which is a big assumption). Don’t confuse monopoly with free enterprise. Dimon is just another windbag empty suit abusing a powerful position maintained by legislative bribery. He is lucky to still have his castles and moats.

    1. bmeisen

      It’s important because I and thousands of other suckers, searching for an account of the crisis that would go into more detail than Tom Brokaw’s accolytes delivered, spent more hours than I care to admit reading “Too Big To Fail” – an almost complete waste of time. The book is virtually worthless. Instead of being immediately dismissed as a sycophant the author was praised for breaking the story, for example by Simon JOhnson of all people in the WaPo. I can’t believe that he read the book before writing that review. I read it and go OK, sounds good, go out and buy it and end up throwing it across the room. The antidote: Econned! Thank you Vyes!

  3. Bert_S

    There is this little item:

    On March 17, 2008, JP Morgan Chase offered to acquire Bear Stearns at a price of $2 per share or $236 million. JPMorgan Chase completed its acquisition of Bear Stearns on May 30, 2008 at the renegotiated price of $10 per share. The U.S. Federal Reserve rewarded Bear Stearns’ shareholders in the deal by taking responsibility for $29 billion in toxic assets in Bear Stearns’ portfolio.

    Jamie gets the company for a little over a billion and the Fed takes $29B in toxic assets off the books.

    And I remember reading that Ken Lewis was just ecstatic over the chance to buy Countrywide.

    Remind me to never get around to reading Sorkin’s book.

    BTW: JPM CFO just resigned. Citi CEO and COO just resigned. 3rd quarter reports are good tho.

    1. MRW

      “BTW: JPM CFO just resigned. Citi CEO and COO just resigned”

      Why? Are there criminal referrals against these guys? Finally?

      1. Bert_S

        Not much detail why. Citi was in the news today and JPM a few days ago. Both were announced the day after earnings reports.

  4. Susan the other

    I must read both Econned and Sheila Bair’s book. I keep thinking I can get enough of the true picture by my daily dose of NC articles and comments. I almost can, but now I want the details. IMO, this latest pr from the astroturfing msm is all part of a coverup to feed the Fed a truckload of JPMC MBS as quietly as possible. So now they need some preemptive propaganda for JPMC. I remember reading (2009 on Living Lies I think) research done by an attorney (Nye Lavelle?) which compiled a long list of JPMC’s MBS “assets” with JPM as trust. And page after page of these JPM MBSs came from Bear. So it does seem logical – but it is never mentioned – that JPM would have a serious interest in buying Bear to perhaps hide the evidence. And that’s the next step, sell 40Bn of this stuff a month to the Fed. It’s possibly part of the reason JPMC would voluntarily raise its bid to 10 from 2 per share. In view of the Fed’s announcement last month, Sorkin isn’t just coincidentally writing this up. And I continue to think that Schneiderman also isn’t just coincidentally bringing action either.

  5. Paul Walker

    This Sorkin effort does a marvelously perverse job of identifying the focal points of his sources latest escapades in transference

  6. Robert Asher

    Public documents suggest that Wells’ top brass expected to profit from the Wachovia takeover. They were right. One of the best acquisitions of all time: thousands of buildings, millions of customers. Wells makes money by offering full services to depositors. Really a simple business school exercise. The fact that Sorkin cannot factor this in to his narrative indicates that his views lack credibility.

  7. Hugh

    JPM got a terrific deal on Bear. Dimon is just whingeing because he forgot to dot all the i’s and cross the t’s on it. This and the Fail Whale show how sloppy an exec he is.

    As for Countrywide, we thought at the time Lewis and BoA had to be on drugs to buy it. It was just such a transparently obvious awful deal.

    As for Sorkin, yes, just another Grey Lady propagandist.

  8. arby

    Sorkin is a willing and proud capo in the concentration camp. He likes wearing pajamas but would love to put on the jackboots.

  9. Thorstein

    Bear’s stockholders got $10/share but the “winners” in JPM’s purchase of Bear Stearns were the holders of Bear’s ~$70bb in subordinated debentures — Bear’s bondholders.

  10. Kokuanani

    There are so many instances of “quelle surpise” with these guys; we really ought to commemorate with a t-shirt.

    Y’know how bands have t-shirts with the tour dates & locations on the back? We could do something similar: “Quelle surprise” on the front, and a listing on the back of all those things that have “surprised” us.

  11. Laura Roslin

    fyi – I missed the podcast/mp3 you used to offer but found that I could get it by using the Sound Gecko plug in for chrome browser. It has the same voice your podcasts used before, robotic but saves me from having to read.

    For folks who would rather listen, this is an alternative.

  12. Valissa

    Tall Tales are an American tradition! Financial innovation is the new frontier… so the art of storytelling has evolved into new and more fiendishly complex forms.

    Tall tales, oral and written, and one of America’s oldest and most popular narrative forms, flourished in the nineteenth century, especially on the frontier. A combination of reality and fantasy, usually told in the first person as a true story and frequently disguised as a personal narrative or anecdote, the tall tale typically depends on the storyteller assuming a straight-faced pose, purporting to be relating fact but enlarging the plot with fictive and outlandish details, which cumulatively create an incredible and fanciful yarn.
    Tall Tales http://www.enotes.com/tall-tales-reference/tall-tales

    Storytelling in business is becoming an important skill. Ever more effort goes into presentations and business stories. But how can organisations acquire storytelling expertise? And what does a good story look like, now that interactive media have altered this age-old form of communication for good?
    Tall Tales: The Strength of Storytelling http://rwconnect.esomar.org/2011/03/25/tall-tales-the-strength-of-storytelling/

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