For the last few months I have been wondering why Martin Peretz -- a major supporter of Barack Obama who has used his perch as former editor-in-chief (now contributor) at the influential magazine The New Republic to promote his candidacy -- would be addressing the mortgage meltdown crisis in America with particular attention and ire focused on one company, MBIA.
MBIA is a major bond insurer that has been a favorite of speculators and hedge-fund managers who have taken major trading positions that would benefit them greatly if the company's stock price collapsed. This has indeed happened over the last few months, enriching investors who have profited handsomely. The financial health of these bond insurers -- as reflected in the strength of their stock and debt prices -- is vital to the operation of the mortgage market and thus the housing market. Investors can profit by trading strategies (going "bearish") that makem money when the prices of the company's equity and debt decline. Unfortunately, this has also accelerated and worsened the problems facing our economy.Now we have a possible answer why Peretz has been devoting himself to targeting MBIA for opprobrium. And it is not a pleasant one. Barron's is reporting that Peretz has a vested interest in the collapse of MBIA. He has profited from his investment in the one hedge-fund most associated with its bearish "bets" against MBIA, one run by a former student of Peretz's at Harvard, William Ackman. The New York insurance superintendent, Eric Dinallo, has sternly warned about the appropriateness of this "poison pen" strategy.
Today's Barron's has a revealing article on Marty Peretz's now controversial role in this strategy: Barron's: It was after this epistolary "outburst" that Dinallo delivered his implied warning. Ackman since has acted mainly through surrogates in the media and elsewhere to paint a bleak picture of Ambac's and MBIA's future. Martin Peretz, editor in chief of the New Republic and a onetime academic mentor of Ackman at Harvard, intoned in his April 2 New Republic blog, "I wondered why, when MBIA showed early signs of expiring (which I believe it will still do...) it went back to Brown to dig it out of the muck. One answer is that he knows all the secrets of the rapacious and dirty work it did. It will not help."
The Brown in question, Jay Brown, became CEO of MBIA again in February, after stepping down nearly a year earlier. He gently chided Peretz for failing to mention on Peretz's blog that he was a major investor in Ackman's fund, and therefore had a substantial financial interest in MBIA's demise. According to Brown's posting, there had been a dozen or more other postings by Peretz running down MBIA that lacked any such disclosure.
Marty Peretz as a journalist had an obligation to disclose his conflict of interest. Journalists are supposed to value transparency and are supposed investigate such conflict of interest. He has failed to do so and this reflects poorly on him and his suitability to remain as contributor.
(This writer has no position that would be benefited or harmed by any movement in the securities of MBIA Corporation.)
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