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A Lonely Crusader
We’ve all read stories about those rare individuals who saw the financial crisis coming and profited handsomely from their contrarian insights. Add to that list of contrarians hedge fund manager Bill Ackman (MBA ’92), whose six-year crusade to expose the financial weakness of the nation’s leading municipal bond insurer, MBIA, is the subject of a new book, Confidence Game.
MBIA’s stellar financial performance and rock-solid triple-A rating masked the firm’s growing fragility as it ventured deeper and deeper into insuring collateralized debt obligations brimming with subprime mortgages. In 2002, Ackman shorted MBIA’s stock and bought credit default swaps betting that the firm would tank. Then he went public with his bets and a 66-page research report detailing his case. What happened next would have broken a man possessing less confidence and determination.
MBIA accused Ackman of a “short and distort” campaign allegedly motivated by his quest for a big profit if the company faltered. At the firm’s urging, New York attorney general Eliot Spitzer launched an investigation, and the Securities and Exchange Commission followed suit. For his part, Ackman embraced the investigations as an opportunity to make his case, something he never hesitated to do — at length.
Even as the investigations continued, Ackman continued to bet against MBIA. Author Christine Richard’s narrative tracks the twists and turns of Ackman’s relentless quest to convince anyone who would listen that he was right about the bond insurer. By the fall of 2008, as the global financial crisis unfolded, MBIA spiraled downward, Ackman was vindicated, and his bets paid off.
You can’t read a book like this without wondering why almost no one took Ackman, a savvy professional investor, seriously. Credit rating agencies, Wall Street analysts, and even the business press for the most part dismissed Ackman as a self-serving crackpot. His message got lost in the rush to discredit the messenger. There are important lessons to be learned from Ackman’s tale. It remains to be seen whether anyone is paying attention.
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