“Telling the truth is only possible by accident through a special sort of boastfulness…”
– Fyodor Dostoevsky, “The Idiot”
Regular readers of Deep Capture are aware that we have sought to expose certain journalists who seem to serve the interests of a network of market miscreants, many of whom are tied to the famous criminal Michael Milken or his close associates.
One of these journalists is Roddy Boyd, who worked at the New York Post before moving to Fortune magazine. It has come to our attention that Roddy has left Fortune. The magazine did not return a phone call seeking comments on the circumstances behind his departure, but whatever those circumstances might be, it seems fit to honor his departure by publishing an excerpt from a book called “House of Cards.”
In this book, which is written by a Wall Street insider named William Cohan, Roddy is quoted at length, and one particular passage stands out for being quintessentially Roddy. While you are reading the passage, keep in mind that I spent a number of hours talking to Roddy some years ago, and can report that he has a manner of speaking that is similar to what Dostoevsky called “a special sort of boastfulness” –which is to say that Roddy likes to stroke his own back, and in so doing, he often rambles in such a way as to unintentionally admit to his own buffoonery, or to some form of miscreancy on the part of his favorite Wall Street sources.
In this passage, Roddy tells the story of certain communications he had with Tom Marano, Bear Stearns’s (NYSE:BSC) top mortgage trader, on March 6, 2008 – a few days before false rumors began swirling about Bear Stearns’s access to credit. The following week, the false rumors were rampant, and those rumors, along with naked short selling, quickly brought Bear to its knees.
A couple of weeks after the collapse of Bear Stearns, Marano found a new job – with Cerberus Capital Management. As I have detailed elsewhere, Cerberus is run by Steve Feinberg, who was once one of Michael Milken’s top traders at Drexel Burnham. After working for Milken, Feinberg moved to Gruntal & Co., a criminal-infested brokerage, where he worked closely with Steve Cohen, who was once investigated by the SEC for trading on inside information fed to him by Michael Milken’s staff at Drexel. Cohen now runs SAC Capital, believed to be one of the biggest short sellers of Bear Stearns’s stock.
I am not yet going to state what I think is important about the passage quoted below. But I have other reasons to believe that the facts that Roddy drops in the course of his braggadocio are key to understanding what happened to Bear Stearns. Read the passage yourself, focusing on the facts, not on Roddy’s version of the facts. Consider that Roddy’s conversation with Marano took place on March 6, when there were not yet any rumors in the market, and Bear’s stock was trading above $60. Then, let me know if you spot what’s important.
Here’s the passage:
“…at eleven in the morning on March 6 Marano placed a phone call to Roddy Boyd, then a writer at Fortune. Marano had been a source of Boyd’s for years, when the journalist was covering Wall Street at the New York Post, and had freely offered commentary about his competitors and the markets generally. Boyd had been a trader for eight years before switching careers to journalism, and the two men spoke the same language. ‘I know the mortgage product dead cold,’ Boyd said. Their relationship was a well-defined pas de deux. ‘It was unusually well defined,’ [Boyd] explained. ‘We knew exactly what we were saying. I could have a very long conversation in two minutes. I protected him always. I never BS’d with him. I never got him in hot water. The corollary was he never BS’d with me, and he would give me good stuff.’
“This time, Marano called Boyd to talk about Bear Stearns, and specifically about his concern that the firms he had traded with for years were suddenly asking him whether Bear had enough cash on hand to execute his trades. ‘He called me at 11:00 A.M. that day and we talked about one or two things,’ Boyd continued. ‘It was weird. He knew it was weird. We did small talk in under ten seconds. I said to him, ‘What’s up?’ He said, ‘What are you hearing about Bear?’ I said, ‘You know what I’m hearing and you know what I’m seeing. He said, ‘I know what you’re hearing and you’re seeing. It’s just baffling.’ Now here I’m playing him a little because I’m hearing things and I’m seeing some things, but he’s not saying much more than I am, so I let him walk and talk. He said to me, ‘Roddy, our guys, our senior guys here, are hearing a really strange thing from custies.’ That’s customers. He said, ‘We were not prepared to hear stuff like this. This is baffling. People are quite literally questioning our solvency, questioning our ability to go on. The shorts are having a lot of fun with us today.’…
“‘He’s thinking two things,’ Boyd continued. ‘One, he’s got to stop this whole line of inquiry right here, right now, because if you have to ask the question, oh my God. Second, he’s thinking about the trajectory of rumor and supposition, and that thesis of smoke versus fire….With a question of their ability to act as a counterparty on the table, that’s unimaginable. I mean, this is Bear Stearns….Now they’re being questioned from the standpoint of fundamental liquidity. He [Marano] said that he believed that these short sellers had been speculating in the credit default swap market and telling counterparties at other firms that they had concerns about Bear Stearns’s liquidity and solvency, and that was driving the cost of spreads wider. What that was doing was making their overnight funding more expensive. That was cutting into their profit margin, and in turn was also starting a sort of cottage industry of rumors about Bear Stearns.’
Roddy continued: “‘There’s no need to explain anything between us,’ he [Marano] said. I said, ‘Are you sure you’re seeing this?’ He said, ‘Look at [the credit default] swaps.’ So I looked them up and then I see the hockey sticks’ — a sharp spike up in their cost… ‘He said, ‘It’s unbelievable. It all bullshit.’ At that point—he’s very much a corporate guy—but he had left me [with a clear message]. I’m not stupid. Hedge funds and prime brokerage accounts are unusually skittish about questions of financial health, financial solvency, and he said, ‘I’m hearing there’s questions about our financial health.’ At that point, Marano is telling me he knew he was done, because once that question of credibility goes out there, and serious people say it to you enough, you’re done. It’s all that there is to it. It’s all that there is to it. Where do you go to get your reputation back.’ …
“Boyd worked hard [the following night] and over the weekend trying to figure out which bank—said to be European—had decided it would no longer be a counterparty to Bear Stearns in the overnight financing markets. Obviously, this would be a huge negative development for the firm…‘At that point, I’m pulling my fucking hair out—pardon my language—calling everybody,’ [Boyd] said. ‘I’m calling Deutsche Bank, I’m calling UBS, and I’m very aggressive. Get your senior guys on the phone. Get your financing desk on the phone. I don’t want to talk to some stupid flack. I spent eight years on a desk. I’m smarter than all those flacks. They’re all Kool-Aid drinkers. They don’t honestly know a derivative from a bond from a stock. None of them are going to be able to ask their financing desk. They don’t even know enough to call the repo guys on the financing desk. I told them, Get your financing guys or get your credit guys on the phone with me, or you’re going in Fortune. Here’s the New York Post coming out of me. I said, There’s two ways this is going to work: bad or good. This hand is good; this hand is bad. I shake your hand or I punch you. Let me know…I’m talking to the guys in New York, and they’re saying, We swear to Christ we are not the ones to have done that [cut financing]. If Deutsche Bank had done it, I’m thinking, ‘Okay, that’s the story right there.’ The minute a repo line gets pulled, you die, okay? They die a terrible death.’…
Roddy continued that, after the March 6 call with Marano, ‘“I was thinking, I’m going to poke around in this more…but then I was thinking, This is strange. This is like a situation where you can abuse your position as a reporter. When you’re at Fortune, you have to do stuff right. When you’re at the New York Post, you have to be there first and fastest. At Fortune, you write the first draft of history, and you have to get it right and you have to be consistently right. I’m thinking, I don’t really want to screw with this company – I don’t want to spread rumors. I don’t want to become part of the story. I don’t want to hurt people unnecessarily. I’m an aggressive guy and I’ll pick fights with anyone or anything, but there’s a right way of doing my job and there’s a wrong way. I weighed my duty as an employee here versus the right thing to do.”
Do you see what happened here? Feel free to post your opinion in the comments section. Or contact me privately by email at email@example.com.