Bought and Paid For by Charles Gasparino Read Free Book Online Page B

foreign pension funds).
    In the case of Dick Fuld, CEO of Lehman Brothers, it was a search for someone who appeared to believe in the free markets but also understood the need for government to fund projects and initiatives, especially those close to Fuld’s heart, such as the federal housing agencies Fannie Mae and Freddie Mac, whose mission it was to expand homeownership to the masses and, incidentally, keep Lehman’s mortgage bond business alive. But as it turned out, that mission may have been the primary cause of the housing bubble and subsequent collapse. Fuld didn’t seem to mind: When these agencies weren’t guaranteeing loans to people who couldn’t repay them, they were issuing massive amounts of debt to finance these activities, and Lehman Brothers earned huge fees assisting in this effort before it imploded later in 2008 as the third casualty of the financial crisis after Bear Stearns and mortgage lenders Fannie and Freddie.
    And Warren Spector, Bear Stearns’s president, was simply searching for someone whom he could believe in. These were tough times for Spector. Despite a net worth that exceeded $300 million, he was in the crosshairs at Bear Stearns, where he had made his mark as one of the top traders of mortgage bonds, the complicated securities that would lead to Bear’s massive losses and ultimate demise a year later.
    At issue for Spector was how he had managed—or failed to manage—the two large Bear Stearns hedge funds packed with mortgage debt, the High-Grade Structured Credit Fund and High-Grade Structured Credit Enhanced Leverage Fund. They weren’t exactly household names, not even on Wall Street, but that would change as the funds became the first casualties of the declining market. For that reason, Spector’s job was now clearly in jeopardy, and that was a humiliating blow to someone who just months earlier had been seen as the likely successor to Bear’s CEO, James “Jimmy” Cayne. (And indeed, just a couple of months after this June meeting, Spector would be fired from Bear Stearns.)
    With his Wall Street career in decline, Spector now turned to politics. On paper he supported Hillary Clinton, even inviting her for a private meeting with senior executives at Bear Stearns. But based on everything he knew about Obama, he thought the young senator was someone he should be listening to. And like Gallogly, Spector had been impressed immediately after his first meeting with Obama which had occured back in 2004 at a private lunch in Bear’s gleaming Midtown Manhattan headquarters. In fact, he had been so impressed that years later, when Gallogly arranged the Washington dinner, he flew down from New York on a private jet to make sure he could attend.
    Paul Volcker, the former Federal Reserve chairman, thought he should be listening to Obama as well, but for different reasons. He was looking for someone—anyone—who he thought had a clue about the excesses of Wall Street. Despite his long years in the financial markets, and most famously his years as Fed chairman, when he had shown the political will to raise interest rates and put a halt to the massive inflation of the 1970s, Volcker hated what most of the men in the room stood for: making money—sacks of it—simply by trading all sorts of financial products, but most notably the toxic bonds that were at the heart of the then-burgeoning crisis. Volcker had believed that the financial innovations of the past two decades had been setting the stage for a massive implosion—the beginnings of which were already happening. He hated that the men in that room who took all this risk were basically protected by the Federal Reserve and the federal government, and Volcker had watched in dismay as his successors at the Fed, Alan Greenspan and Ben Bernanke, did all they could to preserve that status quo. Knowing that the bankers at the Fed and the politicians on Capitol Hill would backstop