Interesting interview with Bethany McLean ‘92.

Great scarf and insightful comments.

McLean notes the responsibility of a journalist to “Say what you think.” Indeed. Same applies to bloggers.

Via Dealbreaker, here is the 3rd quarter letter from Andreas Halvorsen’s ‘86 hedge fund, Viking Global Investors. This confirms our earlier report that Viking was flat for the year through September 30th, a stunning performance in this market. Has anyone seen an investor letter from Chase Coleman’s ‘97 Tiger Global?

Halvorsen’s letter makes for interesting reading. Professionals are welcome to comment and amateurs to ask questions.

Forget about unemployment numbers or new home starts or LIBOR. Henry Blodget (formerly an analyst at Merrill Lynch (formerly an investment bank)), posts some seriously troubling news:

ERIN BURNETT IS CUTTING BACK ON SPENDING 

Okay, now try not to panic. Although this proves that the bailout and the coordinated central bank rate cuts have been abject failures, we may still be able to dig ourselves out of this hole.

The Fed and the Treasury now need to take their monetary and fiscal response to the next level. The Fed needs to immediately start issuing gold credit cards with no spending limit to individuals, starting with Erin Burnett and her friends. We could call it the Temporary Personal Emergency Discretionary Liquidity Plan, or TPEDLP for short. Furthermore, Hank Paulson needs to declare a national state of emergency and make any store closings or stock price declines illegal. Congress needs to come together in a bipartisan fashion to provide an emergency bailout for the handbags and shoes industry. This won’t be popular or easy, but together, we can do it.

Until and unless the Erin Burnett Personal Spending Indicator™ starts to tick upwards again, EphBlog Research recommends a portfolio allocation of 90% cash and 10% soup*.

*Full Disclosure: EphBlog currently holds a long position in soup.

There seems to be stuff going on in the global financial markets. I don’t follow this topic that closely, so who knows? Anyway, Dealbreaker provides some rumors on the performance of the two largest Eph-connected hedge funds: Andreas Halvorsen’s ‘86 Viking and Chase Coleman’s ‘97 Tiger Global.

Viking
Sept 08
-7.90%
YTD
+0.30%

Tiger Global
Sept 08
-14.30%
YTD
-13.70%

Do any of the other funds listed have significant Eph connections?

For Viking to be flat year-to-date is a stunning achievement in this environment, especially after making 40% in 2007. Even Tiger is doing much better than many other large hedge funds. If we combine 2007 and 2008, then both Halvorsen and Coleman have done remarkably well.

But there is a long way to go before December 31 . . .

Does the history of the financial crisis in Argentina hold any lessons for the US today? Probably not, but there is an Eph connection. Consider this from February 2005:
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Vanity Fair has a piece in its October issue looking at Maria Bartiromo and Erin Burnett (cue drooling and panting by geeky econ boys). While I’m glad there is an article about women reporters who actually know something about their subjects (rather than being Fox newsreaders), the tone of the article is rather insulting even as it tries to dispell the myth of the bitchfight. If it were two attractive men, would we have the term “money honey” (which I know Bartiromo has now claimed for the branding) or “street sweetie”? Would there EVER be an entire article discussing who is the “Queen B” and making the whole damn thing seem like a stupid high school catfight? God forbid these just happen to be two intelligent people reporting the news. Yes, all news personalities have to be attractive or they wouldn’t be on tv, but male anchors are not subjected to this kind of inane overlay to stories about them. It is perhaps acknowledged briefly that they are “distinguished” or “handsome” and the article moves on. Nobody assumes that two men are backbiting or threatened by one another - perhaps because nobody questions that there can be several prominent men reporting business whereas women have to fight for the one designated female financial reporter slot? Hmmm…

Example:

With sultry blue eyes, sharp, almost perfect features, dimples, and a lazy, bedroomy smile, Burnett not only was knowledgeable about financial issues but had a knack for translating them into plain English, and in contrast to Maria, who was more singularly focused on corporate news, Burnett was interested in broader policy issues—education, health care, how to pay for the repair of America’s crumbling infrastructure. She had a casual, breezy on-air persona. She was also a bit irreverent—and spontaneous. 

Seriously, a “lazy, bedroomy smile”? Are you f-ing kidding me? The rest of that quote is fine - it talks about her style of reporting, her interests, also known as her qualifications for the job. Don’t even get me started on the photo that is half-way down the page:

Again, Burnett is a savvy woman who knows how to promote herself and she is playing off of it. But male reporters don’t have to go there, no photo shoot would even propose to have a man pose like that. She agreed to it, but why was she even asked?

Frankly, I think Bartiromo says it best in the article (and note the total LACK of cattiness):

“I think it’s a disservice to us as women and as businesspeople, by the way, to compare what you’re seeing from a handful of situations to women who are really trying to make it in business. You could look at CNBC and see women who are beautiful and smart and they’re not showing all this skin: Becky Quick, Erin Burnett, Michelle Caruso-Cabrera—[all] beautiful successful women doing great,” she says. “It’s more than prancing around the Stock Exchange with little dresses on. We’re covering business and it doesn’t matter what you look like if you don’t know your stuff. If you don’t have the goods, you will not last.” 

And from Burnett at the end of the article:

“I think that when people see strong, successful women, they love to imagine that there is a rivalry,” says Burnett. “Maybe it’s because there are not as many women. And maybe, I don’t know,” she says, rolling her eyes, “it’s a male-fantasy thing.”

I worried about the College’s borrowing two years ago. The College had, at that time, $1.5 billion in the bank. Why would/should it borrow money (by selling bonds) rather than just spend some of the endowment? A commentator responded with:

Because Williams’ cost of equity is higher (i.e. return on the endowment) than its cost of debt. Especially if the interest paid is tax exempt.

Come on Kane, don’t you work in finance?

This is the logic of the condo-flipper in Fort Myers. As long as the endowment keeps on going up by more than the interest we pay on the bonds, Williams has a money machine! Why not just borrow $100 million and invest it in the endowment itself? We pay 3% in interest but make 10% in returns. Presto! The 7% spread means that Williams has made $7 million, and at no risk! Even better would be to borrow $1 billion and invest in the endowment. Then we make $70 million a year, enough extra to make tuition free for all!

The problem, obviously, is that endowment returns aren’t always positive, as folks with more than a year or two in finance realize. Leverage is a dangerous thing, for both hedge funds and small liberal arts colleges.

What impact has this sort of stuff had on our finances? I don’t know. Here is a listing of outstanding bonds and here are recent ones. Would all Williams debt be listed here? Is there an easy way to aggregate the total amount? Consider two bonds (the largest?):

Williams College $36,000,000 Bond Issue 01/04/2007
Williams College $71,160,000 Bond Issue 01/04/2007

How much interest does Williams pay on these bonds? If it is 3%, and the endowment lost 5% in the year through June 30, 2008, then this magical bit of financial engineering has cost the College $8 million. Well played, Collette Chilton!

Now, that is not fair. Williams was borrowing money long before Collette Chilton showed up. She almost certainly does not set policy on her own. The Trustees (along with the Investment Committee) sign off on any new debt. Yet the central fact remains that borrowing money when you have $1+ billion in the bank is a suspect exercise. In a bull market, leverage makes you look like a genius. In a bear market, it blows you up.

So, for starters, how about some transparency from the College? How large is Williams’ debt? What interest rate does it pay? What are the plans for reducing/increasing it?

UPDATE: Thanks to HWC for pointing out that the College’s Form 990 includes relevant (albeit out of date) data. Look at page 14 of this pdf.

It seems that, as of June 30, 2005, the College had $170 million in debt, at various interest rates. Has this debt been (partly) paid off via recent debt issues? Note that 2005 debt includes Series E through I. The two bond issues above are Series L and M. Looking again at the listing of outstanding debt, it looks like some of the previous debt was retired and some new added. Consider:

Williams College E 5/18/1993 22,000 13,800
Williams College G 6/29/1999 9,255 9,255
Williams College H 4/1/2003 42,850 39,630
Williams College J 4/3/2006 33,065 32,783
Williams College K 4/3/2006 39,700 39,700
Williams College M 1/7/2007 36,000 36,000
Williams College L 1/7/2007 71,160 71,160

We have the Series, the issue date, the issued amount and the amount outstanding (both in millions). Call it $240 million in debt. Assume the interest rate is 3%. (Is that reasonable?) Since the endowment lost 5% last year (and is almost certainly down again since June 30), we are looking at a $19 million loss.

Time to pay-off the debt or double down?

UPDATE II: Thanks to HWC for this link to the College’s financial statements.

My opinion on the bailout? What Nouriel Roubini says.

The Treasury plan also does not explicitly include an HOLC-style program to reduce across the board the debt burden of the distressed household sector; without such a component the debt overhang of the household sector will continue to depress consumption spending and will exacerbate the current economic recession.

Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown. It is pathetic that Congress did not consult any of the many professional economists that have presented - many on the RGE Monitor Finance blog forum - alternative plans that were more fair and efficient and less costly ways to resolve this crisis. This is again a case of privatizing the gains and socializing the losses; a bailout and socialism for the rich, the well-connected and Wall Street. And it is a scandal that even Congressional Democrats have fallen for this Treasury scam that does little to resolve the debt burden of millions of distressed home owners.

Indeed. If I were Obama, I would avoid voting on the bailout or even expressing a strong opinion on the topic. McCain’s best (albeit slim) chance for winning the election is to come out strongly against the bill (whatever his actual opinions on the topic). Previous discussions here and here.

The Record featured an interesting roundtable with three Economics professors on the credit crisis.

What do you think about Henry Paulson’s $700 billion bailout plan? Do you think it will help ease the crisis?

Kuttner: Paulson’s plan is basically a carte blanche: it is basically Paulson saying to Congress, “Look, give me 700 billion dollars and I will just buy up these securities that are backed by the bad debt.”

Will that help? Surely it will. It’ll get all this bad debt off the balance sheets of financial institutions. The question is, are there smarter ways to do it? This is really just throwing money at the problem. A lot of the criticism of Paulson’s plan has come under is those who say, “Well, this is going to have a lot of unintended consequences that may be undesirable.”

Caprio: The plan can be far more expensive because it removes any accountability for the Treasury department so we don’t know how much they’ll really pay for the bad assets they are going to buy.

If you look at other countries that have been through this for good and bad practices, as well as U.S. history and the depression, the programs that were really careful with taxpayer money, that were very transparent, forced very hard conditions on banks. If they were going to get any money from the government, they had to accept a lot of tough conditions – limits on salaries and no dividends for shareholders – until the government got its money out. And the taxpayers got all the upside, and what I think we’re worried about is that American taxpayers may be getting the downside which will then really make the consequences dangerous for the dollar.

…

So last question. Can each of you say how you think the crisis will play out?

Caprio: There are going to be major changes in regulation in the financial sector. That’s a relatively easy forecast. Which way it’s going to go is harder to know. There are a lot of people who are saying that this represents the failure of deregulation, and I just think that’s fundamentally misleading.

Indeed.

A July Bloggingheads.tv interview with Dan Drezner ‘90 on the current financial turmoil.

What’s interesting here is not so much the quality of the discussion as the power of the technology. Students at Tufts pay thousands of dollars to listen to Dan’s thoughts on the financial crisis. We can listen for free. Is that a stable equilibrium?

An Eph connection to the bailout?

Republican Sen. John McCain said he would suspend campaigning to help tackle a $700 billion bailout proposal and called on Democratic rival Sen. Barack Obama to postpone their debate Friday, as the roiling U.S. financial crisis took center stage in the presidential campaign.

…

Another key event that aides said prompted Sen. McCain’s actions: a roundtable Wednesday morning with some of Wall Street’s biggest names, financial titans who told him that the rescue legislation must be passed soon. “We urged John to get all over it, that this is a national-security crisis,” one financial executive said.

The financial executives, who were told on Tuesday that Sen. McCain wanted to meet with them the next day, included Merrill Lynch & Co. CEO John Thain, J.P. Morgan Chase & Co. Vice Chairman James Lee and private-equity fund owner Henry Kravis.

For Sen. McCain, figuring out how to handle the bailout bill presented a particular challenge because much of the resistance to the plan has come from conservatives alarmed at the cost of bailout and the scope of powers that would be granted to the Treasury secretary.

Sen. McCain, who has never been close to conservatives, has worked hard during the election season to earn their trust. But that could be at risk if he were to support a package that former House Speaker Newt Gingrich called “a dead loser on Election Day.”

Why are so many Democrats in favor of this bail out?

1) A “national-security crisis?” Give me a break! We are already in a recession. Obviously, we all hope that the recession will be brief, but there is no good evidence that this particular plan will do any good. All the smartest observers (e.g., here, here and here) are against it. Haven’t Democrats learned that “national-security crisis” is a smokescreen for policies that they ought to oppose? Just because rates on short term commercial paper are high does not mean that alien invasion is nigh.

2) As much as all good Ephs like Jimmy Lee ‘75, don’t Democrats read EphBlog?

Someone at Chase once said, Jimmy is like a crocodile: He sits there with his eyes just a bit above the water saying, “Oh yeah, come just a little bit closer.”

Come a little close John McCain (and the rest of the Washington establishment). Just a little closer.

Jimmy Lee (and John Thain and Henry Kravis and most of Wall Street) have hundreds of billions of dollars of lousy assets, stuff that they value at 50 cents on the dollar but which is actually worth only 25 cents (or whatever). They want the US Government (which means you, future taxpayers) to buy it from them at 50 cents, or even more. I can imagine plutocrat-worshiping Republicans doing that, those shameless lick-spittles, but why would any Democrat be in favor of making Jimmy Lee richer?

Perhaps my Democratic friends can explain this to me. (And don’t even start with “No bailout means financial Armageddon.” That is just bunk, designed to stampede the rubes into action.)

3) And aren’t the politics interesting? Unless something dramatic happens, I don’t see how McCain can beat Obama. But what if McCain demagogued the bailout, as I previously urged Obama to do? Doing so would allow him to be against both Bush and the Washington consensus. He, not Obama, would become the candidate of change. Perhaps such a gambit wouldn’t be enough to win, but it is the only plausible hope as far as I can see.

No hubris here.

Is it time yet to start pulling together books about last week’s catastrophe on Wall Street? Publishers are uneasy about making plans too soon, but the city’s finest financial journalists—and their literary agents—are eager to get moving.

…

“There’s a lot to be said for a timely book, but we don’t know what the book is yet,” said Simon & Schuster publisher David Rosenthal, noting that there are nevertheless writers out there whom he would agree to publish immediately just because he knows they’d do a good job with whatever ends up happening.

At any rate, proposals have started making the rounds.

One comes from Times business columnist Joe Nocera and former Fortune reporter Bethany McLean, who decided to write a book together the day Lehman Brothers declared bankruptcy and Merrill Lynch sold itself to Bank of America. Mr. Nocera was visiting Ms. McLean (co-writer of the Enron book The Smartest Guys in the Room) in Chicago at the time—he was there to attend a science conference, what kind he wouldn’t say—and over some white wine, the two of them decided that a definitive chronicle of the stunning financial crisis was in order, and that they were the team best equipped to produce it.

“We want to write the big book, and I’m not afraid of saying that,” Mr. Nocera said. “It will be a book for the ages and—I know this is going to sound egomaniacal, but—between our contacts and our reporting skills and our writing skills, I think we’ll be pretty tough to beat.”

The agency representing the Nocera-McLean book to publishers, Darhansoff, Verrill and Feldman is said to be asking more than $1 million (No one there picked up the phone when Pub Crawl sought comment).

McLean’s Smartest Guys in the Room is a great read but $1 million seems like a big advance. How many copies would need to be sold for this to make sense to a publisher?

Curious how the Williams endowment is doing? David asked about this earlier, and even came up with a forecast, but now we have some actual numbers. The Record reports, in an annoyingly vague fashion, that the total value of the endowment dropped 5% between June, 2007 and June, 2008. There is no information at all as to how much of this loss can be attributed to increased expenditure, a slowdown in donations, or market losses.

The Record reporter throws in references to general market events that may or may not have had a direct impact on endowment performance. It would be nice to see a little more transparency regarding the actual asset classes the endowment is invested in, and how each segment of the portfolio performed. Also, it would be interesting to see what Collete Chilton might have to say about the College’s investment strategy, lessons learned in the last year, or ongoing hiring/firing of money managers.

Such transparency would be far more helpful than the kind of vague comments we get from Ms. Chilton. I suppose it’s too much to ask reporters to actually dig for answers as opposed to merely taking down dictation from administrators. I mean, yes, I realize that Record writers are basically unpaid volunteers working on tight deadlines, but this article betrays an unbelievable lack of curiosity on the part of the Williams Record. The endowment is incredibly important to the functioning and growth of the college, and yet I have seen press releases that are more incisive than this write up.

That being said, this must rank among the most valuable internship opportunities available to any Williams student - kudos to the investment office for putting it together:

This summer marked the inaugural year of the investment office’s summer internship program. Beginning with a structured training program in June, the interns – Rick Devlin ’09 and Caitlin McGugan ’09 – spent about nine weeks working full-time with the investment office, after which they “spent the summer learning all aspects of endowment investment management,” Chilton said. “The interns had the opportunity to see all parts of the investment program for the College.”

Erin Burnett ‘98 was on Meet The Press today. (Thanks to Soph Mom for the tip.)

(Burnett’s main comments start at 1:15.) Transcript here. Quotes and comments below.
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It is tough, but not impossible, for outsiders to know what is going in the Williams endowment. Start with the basic asset allocation as described on page 3 of this pdf. (Comments welcome on whether or not this is a sensible plan.) Find benchmarks (publicly traded ETFs) for each of the asset classes. We don’t know if the managers picked to run Williams 27% allocation to domestic equities will do better or worse than, say, the Russell 3000 but, as a first pass, we can just assume that all managers meet their benchmarks.

Here is a pdf and xls version. My back-of-the-envelope guess? The Williams endowment was down -2.4% in fiscal year 2008 (ending June 30). Comments:
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Care about my thoughts on current market events? Read below.
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According to my Bloomberg, Mayo Shattuck III ‘76 was paid $13.9 million by Constellation Energy Group (CEG) in 2007. Given all that money, and the credit crunch that started last summer, one would hope that Shattuck had gotten CEG’s finances into line. Alas, maybe not.

Baltimore Gas & Electric Co. parent company Constellation Energy Group Inc. has lost more than half of its market value this week, on concerns about the company’s financial health.

Its stock continued to fall Wednesday after facing a possible credit ratings downgrade.

Constellation issued a statement saying its credit lines remain intact, and it confirmed it has hired Morgan Stanley and UBS to evaluate strategic alternatives. It is in active discussions with potential strategic partners, Constellation said in a statement.

Constellation also repeated its limited credit exposure to Wall Street financial firms.

Standard & Poor’s said Wednesday it was reviewing Constellation’s credit ratings for possible downgrade, citing what it called “an acute crisis of confidence.”

Facing what Standard & Poor’s called a broad loss of market confidence, it says Constellation’s strategic alternatives include the outright sale of the company, “which management has informed us is at an advanced stage.”

Constellation is seeking a partner for its wholesale energy trading business, which now accounts for the majority of the company’s $21 billion in annual revenue. Concerns that turmoil at Wall Street’s financial firms may make finding an investor more difficult have triggered this week’s selloff of Constellation shares.

Constellation canceled its $12.4 billion acquisition to FPL Group, Florida Power & Light’s parent company, in 2006 after failing to satisfy state regulators.

I haven’t run the numbers, but the failure of that deal probably cost Shattuck tens of millions of dollars. There is a great story to be written on Shattuck’s career at CEG. He moved from an investment bank to a utility company despite no meaningful experience in the industry, other than having served in the CEG board for several years. At the time he was hired, feelings were good.

“We have selected the absolute best person for the job of leading Constellation Energy Group to success in the energy marketplace,” said Christian H. Poindexter, Chairman and Chief Executive Officer of Constellation Energy Group. “When Mayo Shattuck decided a few weeks ago to leave his position as Chairman and CEO of Deutsche Banc Alex. Brown, I knew immediately that we had to seize this unique opportunity to recruit a person of his quality and stature. Mayo Shattuck has a proven record of success in the world of capital markets, trading, investment banking, and corporate finance - - all fields that are vital to the success of our company.

If CEG does blow up, you can be certain that the problem was not, you know, actually delivering gas to Baltimore households. Instead, the fundamental flaw will have been to try to make money trading.

Does that mean that Shattuck in not intelligent? No! Over the last two years, he has cut the number of shares that he owns in CEG by more than one half. And selling 50,000 shares last February at a price of $93 (current price $21.90) is looking especially smart.

One of the financial services that I subscribe to reports on the holdings of Chase Coleman’s ‘97 Tiger Global Management hedgefund.

Charles Coleman founded Tiger Global with the blessing of [Julian] Robertson in 2001 to focus on Technology stocks. Coleman has stayed true to his roots as Technology stocks make up almost 50% of his $4.7B reported portfolio. Thanks to a new investment in Visa (V) and a modest increase to an existing investment in MasterCard (MA), the firm also has a healthy investment in credit card issuers.

I heard through the finance grapevine that Robertson is Chase’s godfather. True? Below the fold are new (equity) positions as of June 30, 2008. Comments?

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Interesting interview with Bo Peabody ‘94. Here is an overview and some highlights:

“Stock lockup” is a term remembered with horror by many entrepreneurs who weren’t allowed to sell their dot com shares before the bubble burst. Bo Peabody founded Tripod, which was sold to Lycos for $58 million in stock. The terms of the sale forced him to hold onto his stock for two years — while its value happened to increase ten-fold. He also happened to sell his shares just two months before the bubble burst. This lesson in luck was not lost on Bo, who wrote a book titled Lucky or Smart? However, his luck didn’t come out of nowhere. In our interview, he describes the years he spent developing his business even before the Internet was commercially available. He’s now helping entrepreneurs build businesses in parts of the country where venture capitalists typically don’t tread through his venture firm named Village Ventures.

“Business is fundamentally about getting other people to do what you want them to do.”

“When someone wants to put money into your company at a fair price you should take as much as you can get, because you never know when the market is going to turn.”

“If you recognize luck then it humbles you a little bit.”

“Technology does more in 10 years and less in 2 years than we think it’s going to.”

Indeed. Listen to the whole thing.

How does a smart Eph hedge fund manager operate? See below.
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New York Times columnists lists the best business books ever.

“The Smartest Guys in the Room,” by Peter Elkind and Bethany McLean. (O.K., O.K., they are former colleagues of mine, and I was deeply involved in editing this book — but I have to say, I think it turned out pretty well!)

Indeed. Below the fold is my list of the best finance books, given to my 3 Williams interns last week. Comments welcome.
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Interesting Vanity Fair article on the collapse of Bear Stearns includes a single Eph mention.

For the next hour the Bear Stearns rumor became a topic of conversation between CNBC correspondents and various market traders and analysts. At 1:50, Matthew Cheslock remarked, “The sentiment [on Bear] is pretty negative. The general consensus is ‘Where there’s smoke, there’s fire.’ ”

A few minutes later, Griffeth, perhaps sensing the network might have gone a bit too far, asked Dennis Kneale, “What about the jittery nature of this market right now? Are we starting to believe some rumors that may or may not be true?” Kneale agreed. “Someone,” he observed, “is always making money on the other side of that bad news or that rumor.”

Yet CNBC’s coverage remained anything but skeptical of the rumor. At two the network’s new “money honey,” Erin Burnett, headlined the hour by announcing “credit issues at Bear,” never mind that there was no such thing. She turned to correspondent David Faber, who observed, “Of course, no firm’s ever going to say that they are having trouble with liquidity, and, in fact, you’ve either got liquidity or you don’t. So if you don’t have it, you’re done. Those are the kinds of concerns in this market, concerns of confidence You can have crises of confidence, causing meltdowns.”

As Dealbreaker notes the claim that there weren’t “credit issues at Bear” on Monday March 10 is absurd.

But, more importantly, can we please think up a better nickname for Burnett ‘98, something that references Williams and, therefore, gets the College some good press? “Money Honey” really belongs to Maria Bartiromo. Both “Street Sweetie” and “Maria 2.0” have been tried for Burnett. Surely, the readers of EphBlog can do better.

Looking for more news about Burnett? Go here.

Looking for 60+ pages of pure lunacy on a long holiday week-end?

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Funny Michael Lewis column on recession advice for financiers includes:

No, if you want to win the recession, you need to find a hole and crawl inside it, until the shooting stops. This hole is called a HEDGE FUND.

Look around. Note how many of the really shrewd people have recently decided to abandon the big firms for which they have happily worked for many years, and sneak off to some small corner of the financial universe.

Last week, the two guys who ran the distressed-debt desk at Citigroup just disappeared inside their own firm. The team doing the same thing at Bear Stearns Cos. vanished inside Tudor Investment Corp. Even the guy who kept Goldman Sachs Group Inc. out of the subprime mess fled, and raised money for his own fund.

Would that guy be Michael Swenson ‘89? Alas, it seems more likely that the reference is to Swenson’s fellow Goldman trader, Josh Birnbaum. So, Birnbaum rather then Swenson is more likely to have been the source for the Wall Street Journal piece. Why would Birnbaum leave and not Swenson? Being married with four kids makes you risk averse, for starters. And, by all accounts, Goldman is a nice place to make a career. With any luck, Goldman will reward Swenson’s loyalty.

I mentioned in the post on my own blog that I enjoyed this interview very much, although I don’t think we ever addressed what is the real strength of his book, which is explaining the crisis in layman’s terms. I know here on Ephblog, SIV’s, laundering tranches of sub-prime mortgages through credit rating agencies and credit-default swaps are old hat, but for those of us who don’t deal with this on a daily basis, The Trillion Dollar Meltdown is a good primer by a bearish market observer. I know he enjoyed the interview, and I am thinking about having him back on later in the year.

I mention in the interview that there were a lot of questions I just never got to. Among those questions were:

 

 Interview with Charles R. Morris [33:48m]: Play Now | Play in Popup | Download

Most amusing article about an Eph in finance in the last ten years? This one from December 2001 about Jimmy Lee ‘75, one of the most important and successful bankers of his generation. Highlights:

“Jimmy is a relationship man” said Kohlberg Kravis Roberts & Co.’s Henry Kravis. “In fact I’m having breakfast with him in a few days. Most relationship bankers are like concierges. Jimmy comes up with solutions: He is a full-fledged investment banker.”

…

Last week, at a leadership conference in midtown, striding back and forth across the stage, Phil Donahue-style, the 49-year-old Mr. Lee, well under 6 feet, seemed much the smaller man than his suspender-snapping, deal maker image. His thinning gray hair was cut short, and he was attired in the most conservative of blue bespoke suits. A chunky gold ring glimmered as he waved his hands under the lights.

“At the time I’d been running our business in Australia,” Mr. Lee said, relating to a new audience that moment when he had stopped being a Wall Street drone and instead started his ascension in the syndicated loan business. ‘I didn’t like my job or my boss. I knew, too, that there was this guy Bill Harrison at the bank who was an up-and-comer. One August morning in 1982, I just walked into his office and said, ‘My name is Jimmy Lee. You don’t know me, I don’t know you very well, but I don’t like my job or my boss and I want to work for you.’”

The story is revealing in a number of ways, as it speaks to Mr. Lee’s notorious infighting skills and his ability to cultivate those mightier than he.

…

Soon after he was appointed managing director at the bank in 1988, he began wearing the famous dollar-sign suspender. For his 40th birthday, he bought himself a Shelby Cobra; he grew his hair long, letting it flair, Michael Douglas-like, over his ears and touching it up with a bit of gel.

And then there was the trail of bosses he left in his wake, although his ultimate boss, Mr. Harrison-now J. P. Morgan Chase’s C. E. O.-has always been a fixture in his life. Indeed the joke has always been that the shortest job on Wall Street is being Jimmy Lee’s boss. Mr. Lee just hated to lose. If it meant having to be a bastard every now and then to get there, so be it.

“Jimmy once said to me, ‘It’s not about money, it’s all about power,’” said one former colleague.

…

And last year he was paid more than $30 million in cash and stock to stay put.

Others counter that the leopard does not so easily change his spots. Said one former colleague, “Someone at Chase once said, Jimmy is like a crocodile: He sits there with his eyes just a bit above the water saying, oh yeah, come just a little bit closer .”

Question for our finance professionals: How much money does Jimmy Lee have? Note that, because he is not one of the top five officers of JP Morgan, the bank does not report his income even though he is almost certainly one of the top five money makers. Indeed, during the great credit bubble of the last 5 years, Lee has almost certainly done extremely well, even if doing so required a bit of brown-nosing and conceirging.

I assume that much of Lee’s compensation was in Chase and then JP Morgan stock, but I do not see him listed as a major holder in Bloomberg. Is that because the bank does not need to report his holdings on a Form-4 since he is just an employee and not an officer? My guess would be that his net worth is around $50 million, i.e, about what Chase Coleman ‘97 and Andreas Halvorsen ‘86 earned each month in 2007. Lee’s former boss Williams Harrison currently owns around $75 million in JPM while his current boss, Jamie Dimon, controls about $150 million.

Read the whole thing below.
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Eph alums (and hedge fund superstars) Andreas Halvorsen ‘86 and Chase Coleman ‘97 had pretty decent years in 2007, making $520 million and $400 million respectively. Of course, next to the $3.7 billion John Paulson made, that is mere pocket change.

You would think that someone as Eph-focussed and finance-savvy as me would know about most of the most successful Ephs on Wall Street. You would be wrong! A commentator mentioned that Andreas Halvorsen of Viking Global Investors (love the longboat symbol) is an Eph. Indeed, he is a member of the class of 1986 and the Williams ski team. Comments:

1) Background from 2001.

Fronting the offices of Viking Global Investors high above Park Avenue is a solid, 12-foot-wide wall of clear glass. Still, no matter how you position yourself, the inner workings of the hedge fund are invisible. No chance sightings of Andreas Halvorsen, 39, the chisel-featured Norwegian chief investment officer, or one of the other two partners, David Ott, 37, or Brian Olson, 35–the three former Tiger cubs who run the fund.

There’s considerable buzz within the industry that Viking, cloaked in secrecy, is one of the hottest funds around. But sources say the most auspicious fact about the $2 billion fund is that it was up 89% last year after fees. That’s killer performance in light of 2000’s dismal stock market. Viking, a long-short equity fund that primarily invests in the U.S. and Europe, employs a ”bottom-up” fundamental stock-picking strategy. It focuses on financials, telecommunications, media, technology, and consumer stocks. The fund’s nine analysts meet with some 1,000 companies a year. ”Their core strength is that they’re fantastic business analysts. They can really determine good companies from bad,” says an investor.

Viking’s principals learned their stock-picking skills from Tiger Management Corp., where Halvorsen worked for seven years and was director of global equities his last three. Halvorsen, Ott, and Olson all left Tiger in early 1999, more than a year before the fund imploded. ”They had pretty good timing,” says a source. Each considered starting his own hedge fund until Halvorsen contacted them and suggested they try a team approach. Since Viking was launched in October, 1999, they have recruited 15 of their former Tiger colleagues. Their investors include ”very sophisticated businesspeople who can provide insight in the areas in which they invest,” says an insider.

Making 89% in 2000 is, uh, pretty good. I should spend more time working on my portfolio and less time blogging. You can be sure that the assets flowed in after a year like that.

2) For 2004, Bloomberg reported that

One fund that trailed competitors was Andreas Halvorsen’s Viking Global Equities Fund, which climbed 7.6 percent last year. Halvorsen, who, like Ainslie, came from Julian Robertson’s Tiger Management, founded Greenwich, Connecticut-based Viking Global Investors in 1999 and the firm now manages $3.5 billion. Halvorsen has averaged annual returns of about 25 percent since then.

So, Vikings’ assets did increase from 2000 to 2004 but not by as much as one would have thought. If the fund was up 89% in 2000 and is only up an annualized 25% for the five years from 2000 through 2004, then years 2001 — 2004 were not that good. Exercise for the reader: What were Viking’s returns for those four years and how do they compare to the S&P. (It’s not clear if Viking uses, or should use, the S&P 500 as a benchmark.)

2) After that rough patch, Halvorsen did well for his investors and himself. (If we have any Viking investors among our readers, please give us the details.) In 2006, Halvorsen’s estimated income around $75-100 million.

3) How did Halvorsen do in 2007? Not bad, just #20 on the Trader Monthly 100.

Andreas Halvorsen
City: Greenwich, Connecticut
Firm: Viking Global Investors
Age: 47
Estimated Income: $350–$400 million

Right now, it seems, having once traded at Tiger Management is a license to pillage. The quick rundown on Halvorsen’s Viking quest in 2007: victory! Featuring returns of 40.6 percent in the Viking Global Equities III Ltd. — which was short financials and long India — as well as a pile of 2-and-20 assets now north of $10 billion and a newly launched fund, in 2007 VGI stood for very good indeed.

Love the Entourage reference! Trader Monthly readily admits that they are only estimating annual incomes, but there is no doubt that Halvorsen is one of the richest self-made Ephs of his generation. If he hasn’t already gotten an invitation to be on the Board of Trustees at Williams, he will get one soon. He already serves as an adviser (pdf) to the endowment.

4) Alas, wealth brings problems of its own.

Hedge funds have been producing nasty legal battles for years, and a couple of recent spats seem to be coming to a head. One involves Viking Global, whose lead partners, Andreas Halvorsen and David Ott, are facing a claim from an ex-partner, Brian Olson, that he was wrongfully discharged from the firm three years ago. Halvorsen and Ott say he left on his own.

The trio formed Viking in 1999 after leaving Tiger. Assets are now $10 billion, and majority owner Halvorsen is one of the richest traders in the world. Which is why it made sense for him to try to settle, right? Well, Olson wouldn’t budge, demanding his fair share and laying claim to his stake. He has since filed a new complaint that names all of his former shipmates. A trial could happen later this year, according to a source in the Delaware chancery court clerk’s office.

Perhaps one of our lawyer Eph friends could provide links to the documents for this case.

5) Is it just me or do lots of the richest self-made Ephs of recent years seem to be athletes who played preppy sports at Williams? Besides Halvorsen, we also have Bo Peabody ‘94 of Village Ventures (skiing), Chase Coleman ‘97 of Tiger Global (lacrosse), Mayo Shattuck ‘76 (tennis) and Richard Georgi ‘87 of Grove Investors (skiing). I think that several of these Ephs were captains of their teams.

No such thing as bad press?

They have been lauded as the new masters of the universe, towering over mere mortals at rival banks. Two Goldman Sachs traders, Michael Swenson ['89] and Josh Birnbaum, are hot-shot heroes who made billions out of America’s sub-prime mortgage crisis. Or are they?

In an unusually breathless terms, the financial press this week named “Swenny” and Birnbaum as the key figures responsible for Goldman Sachs’ remarkable leap in profits in a year when just about every rival - including Morgan Stanley, Citigroup, Merrill Lynch and Bear Stearns - took a cold, deep bath.

…

And its success may not last - Goldman’s shares took a walloping this week simply because of a few murmurs about a “cautious” outlook on a conference call with analysts.

So are Swenson and Birnbaum heroes? Not really – just ruthless, clever men who turned a bad situation to their advantage. Goldman is the bank of the year and has out-smarted its competitors. But its sheen of invincibility won’t last forever.

Read the whole thing. Previous coverage here.

Fortune editor Bethany McLean ‘92 writes on Goldman Sachs and CEO Lloyd Blankfein

Over the past few months Fortune had the chance to learn of Blankfein’s worries and visions for Goldman firsthand, giving us an unusually personal view of the man who has the daunting job of sustaining Goldman’s winning streak in an increasingly treacherous market. What we saw was partly what you’d expect - a stunningly smart, demanding, and competitive executive at the top of his game - but also a surprisingly thoughtful, self-reflective leader with a wicked sense of humor. “Anything I haven’t asked about?” I say at one point in our conversations. “Virgo, blue,” he shoots back. (It took me a moment to figure that out, which probably explains why I left Goldman Sachs in 1995, after working as an analyst for three years.) Of course, the joke goes only so far. As a former Goldman executive puts it, Blankfein is “funny and self-deprecating and can reach across the table and rip your throat out when it’s warranted.”

Fun stuff. Alas, no mention of the critical role played by Mike Swenson ‘89 in allowing Goldman to make so much money in 2007. Note the high quality of McLean’s prose and the way she ties the start and finish of the article together so nicely. Associated interview with McLean here.

Ronit wants more Bethany. We give him more Bethany.

Here’s an old Daily Show interview, from 2002, featuring Bethany McLean ‘92, mostly notable for Jon Stewart’s hilariously bad understanding of short-selling.

I hereby nominate Bethany McLean to displace Erin Burnett ‘98 as EphBlog’s favorite financial reporter.