January 16, 2012
January 16, 2012
If there was ever a news story that crystalized the moral dementia of modern Wall Street in one little vignette, this is it.
Newspapers in Colorado today are reporting that the elegant Hotel Jerome in Aspen, Colorado, will be closed to the public from today through Monday at noon.
Why? Because a local squire has apparently decided to rent out all 94 rooms of the hotel for three-plus days for his daughter’s Bat Mitzvah.
The hotel’s general manager, Tony DiLucia, would say only that the party was being thrown by a “nice family,” but newspapers are now reporting that the Daddy of the lucky little gal is one Jeffrey Verschleiser, currently an executive with Goldman, Sachs.
At first, I couldn’t remember how I knew that name. But then I looked it up and saw an explosive Atlantic magazine story, published last year, called, “E-mails Suggest Bear Stearns Cheated Clients Out Of Millions.” And then I remembered that piece, and it hit me: Jeffrey Verschleiser is one of the biggest assholes in the entire world!
The story begins at Bear Stearns, where Verschleiser used to work, up until the company exploded, in large part because of him personally.
Back in the day, you see, Verschleiser headed Bear’s mortgage-backed securities operations. Toward the end of his tenure, his particular specialty began with what at the time was the usual industry-wide practice, putting together gigantic packages of crappy subprime mortgages and dumping them on unsuspecting clients.
But Verschleiser reportedly went beyond that. According to a lawsuit later filed by a bond insurer called Ambac, Verschleiser also masterminded a kind of double-dipping scheme. What he would do is sell a bunch of toxic mortgages into a trust, which like all mortgage trusts had provisions written into their pooling and servicing agreements (PSAs) that required the original lenders to buy the loans back if they went into default.
So Verschleiser would sell bad mortgages back to the banks at a discount, but instead of passing the money back to the trust, he and other Bear execs allegedly pocketed the funds.
From the Atlantic story by reporter Teri Buhl:
The traders were essentially double-dipping — getting paid twice on the deal. How was this possible? Once the security was sold, they didn’t have a legal claim to get cash back from the bad loans — that claim belonged to bond investors — but they did so anyway and kept the money. Thus, Bear was cheating the investors they promised to have sold a safe product out of their cash. According to former Bear Stearns and EMC traders and analysts who spoke with The Atlantic, Nierenberg and Verschleiser were the decision-makers for the double dipping scheme.
Imagine giving someone a hundred bucks to buy a bushel of apples, but making a deal with him that he has to buy back any apples that turn out to have worms in them. That’s what happened here: Bear sold the wormy apples back to the farmer, but instead of taking the money from those sales and passing it on to you, they simply kept the money, according to the suit.
How wormy were those apples? In one infamous email cited in the suit, a Bear exec colorfully described the content of the bonds they were selling:
Bear deal manager Nicolas Smith wrote an e-mail on August 11th, 2006 to Keith Lind, a Managing Director on the trading desk, referring to a particular bond, SACO 2006-8, as “SACK OF SHIT [2006-]8″ and said, “I hope your [sic] making a lot of money off this trade.”
So did Verschleiser himself know the mortgages were bad? Not only did he know it, he went so far as to tell his colleagues in writing that it was a waste of money to even bother performing due diligence on the bad bonds:
Jeffrey Verschleiser even said in an e-mail that he knew this was an issue. He wrote to his peer Mike Nierenberg in March 2006, “[we] are wasting way too much money on Bad Due Diligence.” Yet a year later nothing had changed. In March 2007, Verschleiser wrote to Nierenberg again about the same due diligence firm, “[w]e are just burning money hiring them.”
One of the ways that banks like Bear managed to convince investors to buy these bonds was by wrapping them in bond insurance through companies like Ambac, commonly known as “monoline” insurers. Investors who knew the bonds were insured were less worried about default.
Verschleiser, seeing that Bear had gotten firms like Ambac to insure its “sack of shit” bonds, saw here a new opportunity to make money. He first induced the monolines to insure the worthless bonds, then bet against the insurers! (Is it any wonder this guy ended up hired by Goldman, Sachs?) From the Atlantic story again:
Then in November 2007, Verschleiser wrote to his risk committee that he knew insurers for mortgage securities were going to have big financial problems. He suggested they multiply by ten times the short bet he’d just made against stocks like Ambac. These e-mails show Verschleiser’s trading desk bragging to firm leadership that he made $55 million off shorting insurers’ stock in just three weeks.
So in essence, Verschleiser was triple-dipping. First he was selling worthless “sacks of shit” to investors, representing them as good investments. Then, he kept the money from the return sales of the wormy apples. And then, on top of that, he made money by betting against the insurers he was sticking with these toxic assets.
We all know what happened from there. Bear, Stearns went under, thanks in large part to insane schemes like Verschleiser’s, and all of us were forced to pick up at least part of the tab as the Fed spent billions subsidizing Bear’s emergency takeover by JP Morgan Chase. In subsequent litigation, Chase has steadfastly refused to buy back the bad mortgages dumped on investors by the likes of Verschleiser, and has even fought tooth and nail to prevent the information in the Ambac suit from being made public.
Ambac went into Chapter 11 bankruptcy in 2010 for a variety of reasons, some of which had nothing to do with its losses in deals like these. But certainly Ambac and other monoline insurers like MBIA suffered for having insured worthless mortgage bonds sold onto the market by the Verschleisers of the world. Ambac in its suit asserted that it paid out over $641 million in claims related to the bonds from the Bear deals.
With all of this, though, Verschleiser landed happily on his feet. He reportedly heads Goldman’s mortgage division now. And after cutting a mile-wide swath of losses through the American economy, helping destroy two venerable firms in Bear and Ambac, bilking the taxpayer for untold millions more (he is also named in a lawsuit filed by the Federal Housing Finance Agency for allegedly speeding bad loans onto securitization before they defaulted), Verschleiser is now living the contented life of a proud family man, renting out a 94-room hotel for three days for his daughter’s Bat Mitzvah.
It’s certainly heartening that Verschleiser is spending this money on his daughter instead of, say, hiring a busload of Jamaican hookers to spend the weekend lounging with him in a hot tub full of Beluga caviar. People ought to give their children the best, I guess. But there’s this, too: at a time when one in four Americans has zero or negative net worth, renting a 94-room hotel for three days for a tweenager party might already be pushing the edge of the good taste/tact envelope. Even for the most honest millionaire in Aspen, it would seem a little gauche.
But for this burglarizing dickhead to do it? It’s breathtaking. I hope he at least invited his bankrupted investors to the pool party…
January 16, 2012
Some conservatives have criticized Abraham Maslow — the psychologist known for “self-actualization” and the “hierarchy of needs” — for promoting a cult of the self. This is much too simplistic, argues Algis Valiunas: Maslow, an idealist, had a nobler humanity in mind.
The most important American psychologist since William James, and perhaps the most important psychologist altogether since Carl Jung, was Abraham Maslow (1908-1970). Maslow’s brainchild was the ideal of the “self-actualizing” person, the supreme human type who becomes everything he is capable of becoming. “Everything?,” one may justly ask. That has a Nietzschean ring to it, and leaves a lot of room for moral ugliness and even enormity. Thus self-actualization has drawn heavy fire, principally from conservative intellectuals, as typical Sixties folderol, a bad idea endlessly spreading, infesting the public mind like a colony of poisonous spiders, and contributing to the dangerous stupidity of our culture. Such censure is not entirely misguided. The predominant effect of Maslow’s key idea, at least as it has been transmitted by various acolytes, epigoni, and pseudo-philosophical beachcombers, is far from wholesome. And yet Maslow himself must be distinguished from his following. He was a serious thinker with a vision of human sublimity for a democratic age, revering the extraordinary and sometimes far from democratic minds with whom he consorted, and contended, throughout his life: Aristotle, Nietzsche, Freud. Maslow may indeed have a lot to answer for, even if he did not intend or foresee the worst consequences of his line of thought, but before he is pilloried as a false prophet or worse we need to measure him by his own ideas and not what others have made of them.
Abraham Harold Maslow was born on April 1, 1908, in New York City, the first child of Samuel, a Russian Jewish immigrant who worked as a cooper, and Rose, his first cousin. Abe grew up in Brooklyn, fearing his father, a rough-hewn, hard-drinking man, and loathing his mother, whom he later described as “schizophrenogenic” — the type of mother “who makes crazy people, crazy children.” She did her best to terrorize him with promises of divine wrath for conventional childhood misdemeanors; from an early age he would test the efficacy of her admonitions against reality, and when he was not paralyzed or struck blind on the spot for some transgression, his suspicion that she was spouting superstitious malarkey was confirmed. Evidently she was a real horror. When he brought home two stray kittens and she found him feeding them milk from one of her good dishes, she dashed the tiny animals’ brains out against the basement walls. Maslow wondered why he didn’t turn out psychotic. Fortunately, a loving uncle, his mother’s brother, watched over him in adolescence and showed him what normality and decency were.
Maslow attended Boys High School in Bedford-Stuyvesant, where, as the novelist Irwin Shaw declared, you could learn everything you needed to know to get out of Brooklyn. There Maslow’s taste in reading matter would advance, if that is the word, from Tom Swift and Horatio Alger to Upton Sinclair, The Nation, and a series of “socialist classics” that he picked up for a quarter each and read straight through. Socialism and atheism seemed natural as breathing for the youth, but the horrors of Stalinism would put him off his socialist infatuation. Atheism he would cleave to his whole life long, although he would become a peculiar sort of atheist.
Cornell was the university of his dreams — it was the only Ivy League school to take more than a token number of Jews — but his mediocre high school grades meant that the best he could hope for was the City College of New York. After a year there, he also enrolled in night classes at Brooklyn Law School; his father had wanted to be a lawyer, and expected Abe to succeed where he could not. But legal study dealt “only with evil men, and with the sins of mankind,” and a class discussion on spite fences — property fences that neighbors erect to annoy one another — prompted Abe to walk out and never come back. His crestfallen father asked him what he intended to study in that case. Abe answered, “Everything.”
Maslow managed to transfer to Cornell, getting a nearly free state-sponsored ride by applying to the College of Agriculture, with a plan to pick up liberal arts courses on the side. But even the most congenial of the Ivies made him feel unwelcome, as a Jew. Waiting tables at a fraternity house, where none of the brothers deigned to speak to him, filled him with resentment that he held onto for years. He lasted a semester, then fled back to City College.
A single book he was assigned to read there, in a class on philosophy of civilization, directed him to his life’s work: Folkways, by the Social Darwinist William Graham Sumner. Sumner presented the plenum of human cultures in its horripilating variety, lingering over the most savage customs of the most savage peoples — cannibalism, incest, demonolatry — and not exempting our own civilization, with its all too recent history of slavery and religious persecution. Only militant reason, embodied by the few best men, could hope to dislodge the black-hearted masses from their horror-show tastes. In a mood of virtual transport, Maslow vowed to make himself one of those heroes of virtuous rationality…
January 16, 2012
Hearts and minds: The forces of the Afghan National Army may lack technological sophistication but they understand the insurgent networks and local power and patronage systems better than the foreign troops
It was a haunted autumn, filled with the ghosts of past fighting, dead men and uneasy memories. The snow arrived early in the mountains above Kabul, and the night’s chill shrivelled the last leaves in the valleys, casting a drab brown cape across the lowlands and pulling dusk in toward the afternoon’s end. In the south the signs were fainter, but even in Helmand the mounting banks of dark clouds on the horizon and the draw down in the night’s temperature heralded a change that would not be long in coming. The shortest season in the Afghan year, autumn is a walk-on, walk-off hustler for the dark, the rain, the snow and cold. It reminds strangers, too, how uneven can be the ticking of the clock.
I took a drive one November morning on the approach road north of Kabul with an old friend, Gul Haider, a one-legged war captain, veteran of many fights against many foes. We had travelled the same road a decade earlier over a two-day period ending on November 13, 2001, when he had led the Northern Alliance assault through the Taliban defence lines, driving them from the city and ending their four-year tenure of power there. Stopping here and there along the old advance line, we remembered pockets of resistance and the fate of various fighters. The images sparked up again like the stoked embers in an abandoned fire and suddenly the empty skies were buzzing with US F-18s and B-52s, their strikes sending the Talibs reeling back toward the capital in disarray as their rearguard died in groups along their retreat.
Amid the smoke and hammering gunfire, the crash of airstrikes and thump of artillery, Gul Haider had commanded the battle with his mujahideen staff clustered around him on the high walls of a frontline compound, where he perched with his prosthetic leg stuck out accusingly before him towards the enemy, a pair of binoculars to his eyes and a Makarov pistol in his belt. Scrutinising the battle’s progress, bawling occasionally at his subordinates, in the early afternoon he had swivelled round to face his commanders, eyes ablaze. “Go, go, go!” he yelled. With that, the mujahideen screamed their war cries, rifles held aloft, and raced forward in the tracks of their advancing tanks through breaches in the minefields to set upon their retreating enemy.
What a moment. More than victory, it smelled like the end of the war. There were caveats. Dressed in clean blue shalwar kameez, his body otherwise unmarked, I came across one Taliban fighter sprawled in the road who had been castrated. He stared sightlessly up at the November sky, an unnerving sentinel to the dawn of their defeat, the blood running from his groin northwards down the tarmac. From the midst of another group of five dead Talibs, a corpse had suddenly come to life and sat up, blood sputtering from his mouth as he tried to speak, before falling back upon one elbow and lying down to die once more.
Yet war is at best a gibbering beauty, and much more than the detail of the fighting and killing that day it was the overarching sense of change, even hope, that sticks foremost in my mind. That autumn of 2001 the Taliban were routed across the compass face of Afghanistan by columns of Afghan irregulars backed by airstrikes and a handful of US special forces. A deadly enemy and their implacable host, well proven to be the legitimate target of vengeful retribution, were driven from power, a move that had the overwhelming support of the Afghan civilian population.
Who could have predicted then that ten years later the war would still be going on, even as the West prepares to leave Afghanistan? What chance now that it will ever end?
It is not the ghosts of 2001, the missed opportunities or the dead soldiers of the subsequent decade that now most trouble Western policy-makers and commanders in Afghanistan. In the wake of Barack Obama’s decision to draw down US troop numbers in Afghanistan and transfer responsibility for the country’s security fully to Afghan forces by 2014, it is the shadows of a departing Russian general and a slain Afghan president that stir greatest unease.
Lieutenant General Boris V. Gromov was 45 when he hopped off his armoured personnel carrier on Friendship Bridge over the Amu Darya river separating Afghanistan from Uzbekistan. He was embraced by his teenage son Maksim, who gave him a bunch of red carnations; father and son walked the last hundred yards of the iron span arm-in-arm to Soviet territory. Gromov never looked back. It was 11.55am, February 15, 1989: nine years and 50 days after Soviet troops had invaded Afghanistan in support of a Marxist coup. Gromov, commander of the Soviet forces in Afghanistan, was the last Soviet soldier to leave the country. Little could he have known that more than 20 years on his arch-enemies in the Cold War would face the same anxieties in walking away from the conflict.
The Communist regime that Gromov had left in Afghanistan collapsed three years later after its funding lines were severed. Fighting broke out between rival mujahideen groups entering Kabul, igniting civil war. President Mohammad Najibullah was detained as he attempted to flee the country. The fate of Najibullah, once the Soviets’ most dynamic ally in Afghanistan and heir to their hopes of continued influence, was to be tortured to death by his captors. He ended his life swinging from a Kabul traffic control post.
Civil war, humiliation, the fall of allies and rise of enemies: as the West looks back on its own decade of intervention in Afghanistan and contemplates its coming withdrawal from the country, the twin images of Gromov’s departure and Najibullah’s downfall dominate the pantheon of its fears. These two moments feed the popular legend that no foreign war in Afghanistan has ever been successful and that the country is “the graveyard of empires”.
History will repeat itself in perfect symmetry, the hand-wringers and naysayers say, glibly ignoring every exception to the rule. Staring back at them through the mirror, Nato commanders advertise tactical success as the template for future hope, smiling on through the shambles, forgetting the maxim that they were so fond of a couple of years ago: “tactics without strategy is the noise before defeat”…