The A-B-Cs Of Crony Capitalism

Alright, children, gather 'round. It's time to practice our ABCs. Those who have been paying attention lately know that "A" is for apple, "B" is, of course, for baby -- and "C" is now for Citigroup and crony capitalism, the subject of today's lesson.

Wall Street's credibility (another "C" word, but not a very popular one these days) was downgraded to junk status last week after it came to light that former superstar telecom analyst Jack Grubman had upgraded his rating of AT&T stock after his boss, Citigroup Chairman Sandy Weill, donated $1 million in company funds to help Grubman get his twins into a very exclusive New York City nursery school. Think of it as a neat little example of corporate Quid Pro Play-Doh. Or, as Grubman's finding out -- "D'oh!"

The headline-grabbing revelation was contained in a Grubman e-mail uncovered by crusading New York Attorney General Eliot Spitzer, who is investigating why Grubman suddenly turned bullish on AT&T after having long treated it like the telecom industry's ugly stepchild, one that had no place at the play table at exclusive nursery schools.

The abrupt about-face is particularly suspect, given that just five months after Grubman raised his rating on the company from "hold" to "buy," his firm was mysteriously picked to help handle the phone giant's $10.6 billion IPO for its wireless division. Another red flag is the fact that soon after the wireless stock went public -- and Weill and Grubman's firm had raked in $45 million -- Grubman once again turned sour on AT&T.

In the same e-mail, Grubman claims that nursery school brown-nosing was not the only reason he boosted his rating of AT&T. Of course, that's not to imply that there were also legitimate reasons for doing it. No, what the email shows is simply that there was one more illegitimate reason: to help Weill win a power struggle at Citigroup by currying the favor of AT&T CEO C. Michael Armstrong, a member of Citigroup's board of directors. According to Jack the Stock Tipper, Weill was hoping Armstrong would help him "nuke" his then co-chairman, John Reed. Making matters all the cozier, Weill was also a member of the AT&T board, proving that old-time Appalachia has nothing on corporate America when it comes to incestuous relationships.

Of course, as soon as the email hit the fan, everyone involved issued the predictable heated and shocked! shocked! denials that anything unseemly had occurred. Grubman even went so far as to commit corporate seppuku by deriding his own cyber-assertions as "inappropriate," "silly," "baseless" and "nothing more than an extended invented story" meant to "inflate my professional importance." A kind of story time, if you will. Though you may also do time for it.

And the moral of the story is how Grubman's missive exposes once again the too-close-for-comfort way that business really gets done in this country. Our fragile economy is in the slippery grip of a crony capitalism practiced by a small group of insiders who sit on each other's boards, join each other's country clubs, help each other's kids get into the best schools, and line each other's pockets, even if that means fleecing America's little-guy investors, pension funds and 401(k)s.

Don't you wonder what Spitzer will uncover next? In my dreams, a source in his office provides me with an exclusive preview of a new collection of damning emails written by Grubman.

In one, Grubman tells a friend that the real reason he tirelessly touted Global Crossing was not because of the company's plan to build a worldwide undersea fiber-optic network but because company Chairman Gary Winnick had helped Grubman land a Saturday night reservation at Nobu, convinced Frederic Fekkai to add some highlights to his wife's hair, and arranged to have the Wiggles perform at the twins' 3rd birthday party.

In another, he owns up to the fact that he urged investors to buy WorldCom because Bernie Ebbers had scored Grubman tickets to Vanity Fair's Oscar party and gotten his twins' beloved nanny a round of injections from Botox queen Pat Wexler. She won't be able to smile at the Wiggles' concert, but she looks ten years younger!

And in a third email, Grubman admits that he gave Verizon a series of glowing stock reports only after company CEO Ivan Seidenberg took a personal interest in the Grubman children's education, persuading Annie Liebovitz to take their class photo, Quincy Jones to write a new school song, and Donatella Versace to design new school uniforms. Seidenberg even used the Verizon corporate jet to fly the entire nursery school to Milan for the fittings.

Getting ahead in the corporate world is as simple as A-B-C. Maybe this time it will result in 1, 2, 3, 4 to 7.

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