William Ackman is founder at Pershing Square Capital Management, best known for his longstanding and prescient critique of bond-insurer MBIA, a critique that warned of looming problems in the mortgage market:
I attribute the housing bubble largely to the fact that until 2006 it wasn’t possible to short housing. So the whistleblowers that typically look for overvaluation and fraud weren’t able to play. So there were no short sellers. The most powerful journalist—claimed to be a journalist—that was driving securitization and housing prices, the journalist I refer to was Moody’s and S&P, which claim a First Amendment, journalistic exception for what is effectively part of the underwriting process. And what’s interesting, just to prove Moody’s and S&P are not newspapers, just look at their profitability compared to newspapers’ (laughter)… Moody’s as a stand-alone rating agency was the second-most profitable company in the S&P 500 on a profit-margin basis; the only more profitable company was MBIA, the bond insurer that they helped to create.
Number three, and here’s where I hold the real press accountable: I believe there is a general bias toward management by the press. And management in this case, you’re looking at Wall Street. It’s only after Wall Street falls that the press gives Wall Street a hard time. And while Wall Street is booming there… is the hagiography of the investment banks. And there is a general derision of short sellers. I’m on occasion a short seller. And I actually believe short sellers and the press should be best friends. The best sources talk to some of the best reporters. I won’t mention anybody on this panel… but also I’m good friends with Bethany Mclean, and many of her best ideas that got her where she is, stories on Enron, came from short sellers. Short sellers, scourge of the market, have to do better work, more thorough, because they’re generally taking a very contrarian view…
I look at my experience dealing with MBIA and trying to get the press interested in the story and [seeing it initially] rebound against me.
There’s this huge bias against short sellers and bias in favor of management. Part it comes from the issue Gretchen mentioned is access. If you want to able to write stories about CEOs, you’ve got to stay friends with the company. There’s general bias to take the company’s point of view. Shorts sellers are always viewed as having an agenda, but what journalists miss is that the CEO of Lehman probably has 98% of his net worth in Lehman stock, and so he is enormously biased from a financial point of view. The short seller might have a 7% short position as in the case of David Einhorn. So yes, he had an economic point of view, so yes, but David could choose which stocks to short, and the CEO of Lehman was stuck with one to be long….That’s a very important thing to think about. I would expect everyone you’re talking to when you’re writing story in the business press to have an incentive. The most important thing is to understand what it is, and consider what they have to say. But don’t discard one side of the story because they have an incentive for the stock price to go down and [listen to] the other side—management—because they have an incentive for the stock price to go up.