Ordeal by Slander

by | Nov 18, 2002

Wall Street Journal reporter John Gasparino has been on a rampage this week to be the first with every new bit of gossip leaked from NY attorney general Eliot Spitzer’s office trying to connect Salomon Smith Barney telecom analyst Jack Grubman’s upgrade of AT&T with improper influencing from Citigroup chairman Sandy Weill. The story has […]

Wall Street Journal reporter John Gasparino has been on a rampage this week to be the first with every new bit of gossip leaked from NY attorney general Eliot Spitzer’s office trying to connect Salomon Smith Barney telecom analyst Jack Grubman’s upgrade of AT&T with improper influencing from Citigroup chairman Sandy Weill.

The story has moved a long way from where it started in August, when Spitzer’s office began publicly investigating the possibility that Grubman’s 1999 upgrade of AT&T resulted in SSB getting a lucrative lead underwriting assignment for a major AT&T deal. Wednesday Gasparino rushed into print with a jumbled front-pager quoting a Grubman e-mail — quoting it repeatedly throughout the article, each time a little differently — suggesting that Weill had urged the upgrade as part of his power struggle with former Citi chairman John Reed. Lat Friday the story is that Grubman’s upgrade may have been a payback for Weill’s help in getting Grubman’s kids into an exclusive private nursery school.

The final paragraph of Gasparino’s story today, covering the nursery school angle, reprises the original issue of the case in the manner of historical backgrounding, treating it as though it were established fact: “But in late 1999, Mr. Grubman upgraded his rating on AT&T to the equivalent of a ‘strong buy’ from a ‘hold.’ A few months later, Salomon was chosen in early 2000 as one of three underwriters on a massive stock sale by AT&T, receiving nearly $45 million in fees. A few months after the deal, Mr. Grubman downgraded AT&T back to a ‘hold.'”

How different in purpose and meaning this last paragraph is from another last paragraph — one published in a Gretchen Morgenson story in the New York Times on August 24 when the scandal first broke. Back then, when the scandal was new, the last paragraph was used for balance, not for historical backgrounding — it was the place where the Times buried — buried, yes, but at least grudgingly acknowledged — the exculpatory facts that made Sandy Weill seem like less of a crook. And exculpatory it is — it simply blasts away any rational basis for connecting Grubman’s upgrade to AT&T’s selection of SSB — the upgrade, and a subsequent downgrade, seem to have made no difference at all in AT&T’s utilization of SSB as an underwriter!

“…before Mr. Grubman’s positive report, the bank [Salomon] was not shut out of AT&T’s deals. In February 1999, for instance, while Mr. Grubman was still lukewarm on the company, AT&T sold $8 billion in bonds, at the time the largest corporate debt offering in the United States. Salomon was one of that deal’s lead underwriters along with Merrill Lynch. After Mr. Grubman became negative on AT&T in October 2000, AT&T included Salomon in a top role in five of its six subsequent major stock and debt sales.”

Now, two months later, those facts are simply forgotten. As the story has moved on to more personal and more titillating levels, the original charges — charges that were never proven, and against which there were critical exculpatory facts — are now being treated as established facts, as a basis on which to add new, sordid details about the maneuverings of the rich and powerful.

Why else do you think Spitzer leaks all this junk? It’s the classic “trial by slander.” Weill may be able to survive this week’s titillating but fundamentally silly charges — but even when he does, the original and more serious charges will have been magically transformed from mere charges to unquestioned historical facts.

Don Luskin is Chief Investment Officer for Trend Macrolytics, an economics research and consulting service providing exclusive market-focused, real-time analysis to the institutional investment community. You can visit the weblog of his forthcoming book ‘The Conspiracy to Keep You Poor and Stupid’ at www.poorandstupid.com. He is also a contributing writer to SmartMoney.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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