Even though Andrew Ross Sorkin and his mini-empire, the New York Times DealBook, are reliable defenders of their Big Finance meal tickets, they’ve managed to skim above, if sometimes just barely above, abject intellectual dishonesty. But DealBook has published not one but three pieces in as many weeks in defense of an unacceptably weak Obama Administration nominee for an important Treasury post, the Under Secretary of Domestic Finance.
The candidate is Antonio Weiss, a Lazard mergers and acquisitions professional who was elevated to head of investment banking in 2009. There’s no doubt that Weiss is accomplished. The non-trivial problem, as Elizabeth Warren and others have pointed out, is that Weiss’ experience and skills have absolutely nothing to do with the Treasury role.
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What is striking is the way that Sorkin and his colleagues have launched what amounts to a media war against Warren in defense of Weiss, and have shameless resorted to a drumbeat of Big Lies in the hope that their messaging will stick. The fact that they can’t even mount a proper case on its merits speaks volumes about Weiss’ qualifications for the job.
Even more striking is the contrast between the obsessiveness of DealBook’s campaign for Weiss with the way other media outlets, including finance-oriented ones like Bloomberg and the Financial Times, are sitting out this fight, limiting their coverage to reporting. The exceptions are the right-wing leaning Washington Post and the even more right-leaning Wall Street Journal editorial page. The Post editorial in support of Weiss served to show its ignorance of finance and lack of interest in understanding what the Treasury job entails. The Journal completely ignored the issue that Warren raised about Weiss’ lack of relevant expertise. Merely “knowing something about finance” is the bar they set for this job.
And as we’ll discuss, all this Sturm und Drang conveniently masks another issue: that one of the most important tasks falling to this post is Dodd Frank implementation. Appointing someone with deep connections to the big money side of Wall Street and absolutely no knowledge of the subject matter makes him an easy mark for entreaties of lobbyists, and direct appeals via his contacts at TBTF firms, even if we were to charitably assume that Weiss takes Dodd Frank implementation at face value. In other words, his real job is to be a Trojan horse for Wall Street And since Weiss, like Larry Summers and Tim Geithner, is a card-carrying member of the Bob Rubin cabal, his loyalty to Big Finance is assured.
Finally, Andrew Ross Sorkin’s role in promoting Weiss is unusual and puts the Times in a poor light. Since when does a supposed news section turn itself over to advocacy of a pet candidate, particularly one who isn’t a public figure? Even Gawker reacted to one of the stories in Sorkin’s barrage against Warren over Weiss, pointing out that what Sorkin does cannot be called journalism:
The face of credulity in the media is Andrew Ross Sorkin, hardworking New York Times Wall Street reporter and sometime Wall Street shoeshine boy. You cannot question Sorkin’s work ethic. You cannot question his deep connections on Wall Street. And personally, I don’t even question his sincerity. I do not believe that Andrew Ross Sorkin is a nefarious, scheming, two-faced spy, sent to do the bidding of Wall Street bankers in the halls of the nation’s most important news outlet. I just think he is so dangerously, moronically credulous that his writing constitutes a danger to the public.
Andrew Ross Sorkin sincerely believes that Wall Street banks are full of fundamentally good people doing fundamentally good things. He really believes that Occupy Wall Street was misguided. He really believes that his personal friendships with well-connected Wall Street scions tell him all he needs to know about their merit. He really believes that corporate CEOs should be admired for the deep personal anguish they display while dodging U.S. taxes. And, in today’s column, he really believes that the practice of Wall Street banks paying special financial bonuses to executives who leave to go work for the government has the primary effect of encouraging selfless public service, rather than having the primary effect of ensuring that our government and its regulatory agencies are at all times filled with a large contingent of Wall Street loyalists, who will ultimately serve the interests of Wall Street.
We’ve called the sort of thing Sorkin does dictation. Let’s face it: when a high-profile writer is so deeply invested in promoting his sources/patrons world view that even the freewheeling, sassy, gossipy Gawker says he has become an embarrassment, one has to wonder how the Times manages to deny that Sorkin constitutes a danger to its vaunted image.
The contretemps started when Elizabeth Warren took aim at the Weiss nomination. She set forth her reasons in a Huffington Post article. First, Weiss is not qualified, and there are plenty of candidates better suited for the job. Second, the Administration opposes tax inversion deals, yet Weiss has been actively involved in and profited from them. In layperson terms, a tax inversion is when a US company acquires a foreign company, then makes its headquarters that of its foreign acquisition’s to lower its taxes. Weiss was the lead banker on the Burger King acquisition of Tim Hortons, a high-profile transaction that spurred the Administration to get serious about combating inversions. Lazard had also represented clients in three of the four most recent inversions, as well as having used the strategy itself for its own firm. Finally, Warren argued “enough is enough,” that Obama has appointed far too many people with strong Wall Street connections, particularly ones with ties to Citigroup (ie, Rubin), to important economic positions.
We’ll look at the Andrew Ross Sorkin/DealBook case for Weiss. Sorkin began with Senator Elizabeth Warren’s Misplaced Rage at Obama’s Treasury Nominee on November 24, the second, Encouraging Public Service, Through Wall Street’s ‘Revolving Door,’ on December 1, and a William Cohan piece that, as one New York Times commentor noted, was a virtual replay of the November 24 Sorkin article: Elizabeth Warren Misfires in Latest Wall St. Salvo.
The hyperventilation to substance ratio is remarkably high in these stories. But in the interest of space, we’ll have to skip over shellacking most of the cheap rhetorical tricks, such as the headline depicting Warren as being in a rage (ie, a hysterical and therefore unreliable woman) or straw manning her remarks (for instance, insinuating that she didn’t know that Weiss was from Lazard when she discussed a series of senior appointees from Citigroup and Bank of America as showing too much influence by Big Finance on policy). We’ll look at the substance of the thin, and for the most part, flat-out inaccurate, arguments.
Howler Defense #1: Weiss Is a Progressive
You have to love how Sorkin starts his description of Weiss in his first piece:
Before getting into the details of the deal, let’s start with Mr. Weiss. He is hardly the prototypical banker. He is a protégé of the writer and editor George Plimpton and is the publisher of The Paris Review, the literary magazine, giving it financial support it for years to keep it alive.
This is the best he can muster? Weiss is a litterateur? So what? Ezra Pound was a brilliant poet. He was also a fascist.
Two paragraphs later, we get something slightly more germane:
He has been a staunch supporter — and campaign donation bundler — for President Obama and is considered relatively progressive, especially by Wall Street standards.
So what Sorkin is trying to spin as a plus is something we warned about earlier: that the Obama Administration is now making important policy roles into patronage positions, to be handed out as prizes to important fundraisers. Before, that sort of thing used to be limited to ambassadorships and secondary posts like head of the Export-Import Bank. Now it’s going to unquestionably important roles.
We are supposed to applaud that Weiss is kinda, sorta “progressive,” when “progressive” has been so badly abused by Obama supporters as to stand for Democrat centrism. And if Sorkin had actually bothered to look at Weiss’ record of donations, he’d see that Weiss is a bog standard Obama Democrat. Lots of donations to state Democratic party organizations: Florida, Illinois, Colorado, among others. In terms of donations to individuals, Maria Cantwell is as far left as it goes.
But there’s even more reason to be skeptical of the effort at “progressive” branding. Mergers and acquisitions is a highly elitist, isolated profession. Top players like Weiss spend their time with CEOs, CFOs, private equity partners, law firm partners, sometimes top accountants, select members of the media, and members of their own firms. The job is extremely demanding and most incumbents have very little in the way of outside interests. Weiss’ Democratic party fundraising and his patronage of the Paris Review look to be his main extracurricular activities. Weiss as Obama bundler would focus on precisely the same wealthy, influential people that he sees in his day job.
The danger of being in this position isn’t simply being deeply inculcated in the views and values of the 0.1%. It’s also the distorted vantage that incumbents tend to develop over time. Now perhaps Weiss is a rare exception, but the job of a merger professional is to manipulate his client into doing a deal without looking like you are in fact steering him. People I knew at Lazard would joke about how they were experts in CEO abnormal psychology. And the insane hours and time pressure leads to a large sense of personal entitlement, even by Wall Street standards. It’s the ideal breeding ground for acquired situational narcissism, save that merger professionals can never relax their client management/dealmaking skills when working with outside parties.
Mergers and acquisitions is also a socially destructive business. Many deals, particularly consolidation plays, have cost-cutting or getting monopoly/oligopoly advantages as their driver. Both of these enable the merged company to profit even more at the expense of the communities around them. Moreover, every academic study on mergers has found that most deals fail, in the sense that the value of the merged companies winds up being lower than the likely value had they remained separate. The ratio of duds ranges from 60% to 75% depending on study sample and methods.
In our current short-termist style of managing, the prevailing response to a company failing to hit its targets or its stock underperforming is to cut costs, which means firing people. So a significant portion of M&A revenues, and hence bonuses to people like Weiss, come ultimately at the expense of ordinary workers. That means the populist critique is more on target here than anyone on Wall Street would like the great unwashed to know. That may account for the overwrought quality of most of the articles in support of Weiss: they want to discredit critics who take a broader look at Weiss’ career before they’ve even gotten going.
Howler #2: Weiss Is Qualified
Sorkin tap dances around the issue of what the Treasury role actually is and whether Weiss’ background qualifies him to perform it. We get all sorts of harrumphing that Warren ought to like Weiss (“Oddly enough, Mr. Weiss is one of the few people within financial circles who might have been friends with Ms. Warren.”) and a complaint that she’s being churlish in having made up her mind about him before meeting him.
It’s not hard to understand that international mergers and acquisitions does not have anything to do with a domestic finance role unless you are deeply committed to not understanding that. Having been in senior role in M&A myself, I can attest that there is nada that you learn in that job that would be relevant to the Treasury post, save managing big egos and complicated processes with lots of moving parts.
It’s tantamount to asking an electrician to do plumbing because he’s been on construction sites. They’re all construction, um, banking, right? That is pretty much what Sorkin’s and the Washington Post’s arguments amounts to. Sorkin’s is a tad more cogent:
The role Mr. Weiss has been nominated for is largely responsible for managing the country’s $12.9 trillion debt at a time when the Federal Reserve is ending its stimulus. The job requires deep experience in the capital markets and global relationships. This is not a job for a local lawyer or research group executive.
Help me. “Capital markets,” at least until the Obama Administration took to trying to stretch the meaning of the phrase when it needs to talk up a candidate, refers to places where securities and sometimes instruments like derivatives are traded. That means securities and options and futures exchanges, foreign exchange and bond dealing rooms (and swaps and money markets instruments are traded or placed in these venues). It might arguably also include trading loans. Most practitioners would not classify mergers and acquisitions as a “capital markets” activity because the transactions are too illiquid and no one stands in as a principal (as in a market-maker or exchange specialist) to facilitate trades.
Since Lazard is an investment banking boutique, it does not have a meaningful capital markets activity in-house. That means Weiss knows much less about capital markets than investment bankers in fully integrated firms like Goldman or JP Morgan. At those firms, when a client does a deal, they will do the related fund-raisiing (selling bonds or stock, lending money or leading a loan syndication) in house (which includes as the lead manager of an underwriting or syndication) if at all possible. That means the mergers and acquisitions professionals have some contact with people who work on trading floors, and as they become more senior, also will be part of discussions of the risk, performance, and profits of those businesses. Thus while those M&A professionals may not know much about those activities, they aren’t completely clueless.
By contrast, Lazard’s merger bankers will dial for dollars when their clients need to finance an acquisition. They aren’t alone; there’s a group of very successful merger specialists, including Rothschild and Greenhill & Company that operate this way. But that’s not remotely the same as being in a bond or lending or equity underwriting business.
Adam Levitin provided a terse shellacking of the relevance of Weiss’ experience:
The UDF [Undersecretary for Domestic Finance] is a position in charge of (1) Treasury’s regulation and oversight of domestic financial institutions, including consumer policy, (2) Treasury’s oversight and management of US government debt, (3) Treasury’s financial stability oversight role, and (4) the government’s actual fiscal services. Almost none of that relates to the work of an investment banker doing international M&A. A lot of this is regulatory policy work–not part of the i-banking resume. Indeed, most of the regulatory policy is commercial banking regulatory policy, something which isn’t part of the experience of an investment banker at Lazard, a ibank too small to be a SIFI and thus not really in the financial stability mix. Some of the UDP’s work relates to government debt issuance, something that would seem to relate to experience at a bond desk rather than doing deals. And some of the UDP’s portfolio is just cash management services. Again not part of the i-banking job.
The shock of Mr. Weiss’s supporters that anyone would dare question his suitability reflects an unspoken assumption that anyone from Wall Street is of course expert in all things financial. That’s hooey. The finance world is vast and varied. I would not assume as good bond trader would be a good i-banker or a good consumer credit underwriter. And the regulatory side of it is particularly different from the deals side. I don’t see any reason to assume that a good deal-maker makes a good regulator.
But if you want a definitive, blow-by-blow Weiss takedown, see Simon Johnson, former Chief Economist of the IMF, now MIT economics professor. I strongly urge you to read his entire post. Here are the high points:
Mr. Weiss’s “high profile M&A activities” are completely unrelated to the central task of this position: running responsible federal government finances. The Under Secretary for Domestic Finance does not typically buy and sell companies – or engage in any activities remotely related to advising companies on acquisitions. The treasury job requires knowledge of sovereign credit, experience with the practicalities of public debt sustainability, and an understanding of the intricacies of our national budget. From the public record and otherwise available information, Mr. Weiss has no substantial knowledge or expertise on any of these issues…
And there is a legitimate concern about Mr. Weiss’s qualifications which, ironically and perhaps inadvertently, was raised by Mr. Sorkin himself, when he conceded, “that Mr. Weiss doesn’t have a lot of experience in the regulatory arena, and at least part of the role he is nominated for involves carrying out the remaining parts of the Dodd-Frank overhaul law.”
The negative fiscal implications in that statement are potentially first-order. Ineffective financial regulation increases the probability of a serious crisis. And such crises have major negative effects on the public balance sheet – the near-collapse of the financial system in 2007-08 caused a recession that will end up increasing our debt-to-GDP ratio by about 50 percentage points (this is based on the Congressional Budget Office’s analysis.)
It’s hard to think of any senior fiscal official from a serious country with qualifications as weak as those of Mr. Weiss.
If this isn’t bad enough, there’s even more reason to be concerned: not only does Weiss have a yawning lack of any germane skills, he’s never manifested any interest in these subject areas. Weiss hasn’t written a single op-ed or article or any sort, much the less on commercial banking regulatory or fiscal operations. The Washington Post tries to give him policy chops for the lone public policy product with which his name has been associated: a Center for American Progress tax reform paper. Weiss is nominally a co-author, but given that it is a Center for American Progress paper and that the co-authors include Bob Rubin, Larry Summers, Robert Altman, and John Podesta, and that Weiss has no known expertise in either tax policy or fiscal operations, it’s hard to imagine that he did any heavy lifting.
Similarly, William Cohan, in an article that was almost entirely an anti-Warren screed, tries to depict opposition to Weiss as class jealous. You actually need to read this piece. It’s an embarrassing, overwrought lecture from a ally of the Masters of the Universe that we peons don’t know our place and should be really really grateful that one of the Masters might actually take some interest in us.
Cohan finally gets around to admitting that Weiss had worked for him briefly at Lazard. Cohan then tries to offer up a tidbit to support his contention that Weiss really does know something that might be germane to the new role. The wee problem was that the Treasury document on which Cohan relied pumped up even this thin example to the point that the Grey Lady had to issue a correction.
But Sorkin would have us believe that the heretofore-unknown-outside-of-M&A Weiss is such as astute bond market player that his absence could cost the public a ginormous amount of money. Sorkin quotes an anonymous source via Politico:
if the interest on the securities the Treasury sells was just 20 basis points higher for a year because of uncertainty or mismanagement, it would cost taxpayers $32 billion — more than it would cost to fund the Consumer Financial Protection Bureau for 50 years.
Um, the bulk of Treasuries sold at auction are bought by primary dealers through the New York Fed. It’s the Treasury Secretary, not the Undersecretary, who takes it upon himself to talk to the market when Mr. Market’s nerves are rattled. But if anyone could screw this job up enough to make a difference in financing costs, someone who knows nothing about bond markets like Weiss would be a good candidate.
Keep in mind how ridiculous the scenario posited by the unnamed financier is. A 20 basis point difference? James Hamilton estimated that $400 billion of QE would move Treasuries by all of 17 basis points. But Sorkin and his ilk would have us believe that Weiss is worth even more in market terms than well over $400 billion of bond buying.
Howler #3: Weiss Has Nothing to Do With Tax Inversions
Most of the space in Sorkin’s first article defending Weiss focuses on tax inversions, where he tries to do a “gotcha” and present Warren as wrong for holding Weiss responsible for the Burger King/Hortons inversion. Sorkin not only straw mans Warren, in trying to make her beef about inversions solely about Burger King and Hortons, but then makes a tortuous argument. Sorkin concedes that Hortons was “technically” an inversion, but since Burger King were prepared to go ahead with it even if the law were changed (most inversion deals have an out clause), it wasn’t a “cynically constructed deal.” Oh, and Weiss didn’t do the tax structuring, so he can’t be held responsible. Please. If you think Weiss was unaware of the impact the inversion had on pricing and deal structure, I have a bridge I’d like to sell you.
Even America’s top bank lawyer won’t attempt such a strained argument. Instead, Rodgin Cohen goes for “everyone [who I think is important] tries an “everybody is doing it” defense. From Bloomberg:
H. Rodgin Cohen, senior chairman of New York-based law firm Sullivan & Cromwell LLP, which has done work with Lazard, said it would be absurd for Washington to blacklist bankers who’ve been involved with inversions.
“Why should a banker not work for any one of hundreds of companies that have one sort of tax break or another?” Cohen said. “Inversions are just one. We have a tax code that is just riddled with loopholes and exceptions. So should you never work on any of those? Is there a purity test?”
Cohen unwittingly puts his finger on a much bigger issue: the dependence of the mergers & acquisitions business on private equity bidders, who have brought the aggressive tax reduction strategies that were heretofore the sole province of megacorps like General Electric to a vastly smaller class of company. Private equity accounts for 32% of investment banking revenues overall, and that total is dominated by the large, diversified firms that also do stock and bond offering as well as mergers for public companies. The relative importance of private equity clients is almost certain to be higher at a specialist firm like Lazard. You can see that in Weiss’ own deal history. Weiss’ main client appears to be 3G Capital, the Brazilian private equity firm behind the Burger King/Hortons transaction. He also is close to KKR, having advised on the merger of KKR Private Equity Investors with KKR and the follow-on listing of KKR.
So not only has Weiss profited personally from inversions (remember, merger and acquisition bankers and department heads get substantial bonuses for the deals they’ve gotten done, and inversions both drive deals and increase prices paid even when the inversion was arguably not the prime motivator), he’s also benefitted personally from other aggressive tax avoidance and minimization strategies. It’s worth noting that the US has sought to curb them in the past. Treasury in 1987 planned to reduce the tax deductibility of highly leveraged transactions but got derailed by the stock market crash. Europe has required private equity firms to register and submit to restrictions on borrowings. So it’s hardly unreasonable to seek to restrain this source of harm to companies and lower tax revenues to Treasury, but it’s a safe bet that Weiss, despite his backers’ claim that he is progressive, would never be on board with this idea.
What Sorkin’s Obsession with Weiss Reveals
It’s difficult to fathom what Sorkin/DealBook’s remarkably aggressive and persistent support for Weiss’ case is about. Sorkin has regularly, and pretty shamelessly, gone after anyone who dares criticize his meal ticket, namely big financiers. But it may simply be that Gawker is right, that Sorkin believes (as the Obama Administration presumably does) that having American restructured to serve the needs of elite financiers is all for the best. It’s certainly all for the best for Obama personally and his hangers on, and apparently that’s all that really matters. So the nominal job description for the Treasury position is irrelevant. Sorkin understands the real game, that Weiss actually is perfect for the real role. Poor Sorkin has to do through these annoying contortions in his articles because ignorant populists like Warren and the great unwashed she represents don’t understand how things are supposed to work.
But the open question is why the Times give Sorkin so much freedom of operation and why it allows him to run pretty much all of the Grey Lady’s finance-related reporting, when he’s so unabashed about his loyalties.
Earlier this year, Alex Pareene charged the Times of letting Sorkin have what sounds an awful lot like a “firm within a firm” setup with DealBook. These arrangements regularly become management disasters over time. The highest profile examples in modern times are Mike Milken’s junk bond operation at Drexel, which led to the bankruptcy of the firm, and the AIG Financial Products Group, which was directly responsible for the de facto nationalization of the giant insurer. From Pareene in The Baffler:
As Gabriel Sherman reported in a 2009 New York magazine profile,…Sorkin was to receive “a bonus that is based, in part, on the financial performance of the various DealBook properties.” For the deal to stick, Sorkin had to leapfrog into management in order to avoid the Times union salary scale rules.
As many readers likely know, DealBook is funded by advertising from major financial firms (Goldman), vendors to them (law firms) and others who benefit from deal-making (Tata Consulting, a major outsourcing firm). As Pareene notes:
So Sorkin is close to his sources, who are also his sponsors. His compensation is tied to the financial performance of his financial news blog empire, which is underwritten by the finance industry. This is a fine example of exactly the sort of twisted incentive structures that led Wall Street firms to produce and sell a lot of toxic debt. In this one limited sense, you might say, DealBook does shed inadvertent light on the inner workings of finance.
Yet Sorkin’s repeated salvos at Warren at Weiss aren’t going to change anyone’s prior beliefs. The sort of banking fan who’d read his pieces uncritically is almost certainly already a Warren hater; any regular reader of the Times who knows Sorkin’s unabashed and well paid pro-Wall Street boosterism would ignore his piece or regard it as a negative indicator. So why the repeated, sure to be ineffective, ringing of the changes on pretty much the same pro-Weiss message? Is Sorkin just overly antsy for more opportunities to bash Warren as her star is rising in the Democratic party? Is he currying favor with particular advertisers or favored sources? Or is he really anxious to show a good face on the eve of the annual DealBook conference? Or maybe he really is a true believer.
The Times looks to have done a deal with the devil in giving Sorkin such a privileged position. It has allowed Sorkin to sell its most precious asset, its reputation, to advertisers in an exceptionally crass, upfront manner. It has compounded the damage by allowing Sorkin to expand his empire. Yet it appears that ad dollars are falling off as more and more users switch to mobile platforms, where ad volumes and rates are lower than on desktops. Hence the Times’ seriousness about having readers access it on a subscription basis.
Sorkin’s embarrassing fealty to his sponsors might have been as asset once. It’s now looking like it will become more and more of a liability over time as DealBook’s obvious reporting bias is out of line with attracting a broad universe of readers who will pay for content. Who wants to pay for stories flattering to Wall Street when the bulk of the industry is predatory or at best not socially productive? Andrew Ross Sorkin is not capable of adapting. He’s too deeply enmeshed in Big Finance to do that. But the Times, like all media outlets, is having to keep reinventing itself simply to survive. It’s an open question as to how long it takes the publication to recognize that Sorkin’s unabashed bias, overly-large role, and reliance on a destined-to-shrink source of revenues are at odds with the Times’ survival strategy.