"Everybody Does It"
I PLAYED A LOT OF MONOPOLY GROWING UP. LIKE MOST PLAYERS of the game, I loved drawing a yellow Community Chest card and discovering a "bank error" in my favor-"Collect $200!" It never occurred to me not to take the cash. After all, banks have plenty of money and if one makes an error in your favor, why argue?
I haven't played Monopoly in twenty years, but I'd still take the $200 today. And what if a real bank made an error in my favor? That would be a tougher dilemma.
Such things do happen.
Just to the east of where the Twin Towers once stood is a twenty-six-story office building that houses the Municipal Credit Union of New York City. The credit union has 300,000 members-federal, state, and city government employees-and over $1 billion in assets. Although a number of buildings near Ground Zero sustained serious damage when the towers came down, the MCU's glass-and-steel building on Cortlandt Street survived unscathed. However, the credit union did suffer a major computer failure that severed its link to the New York Cash Exchange (NYCE), the largest network of automatic teller machines in the Northeast.
The network managers at NYCE quickly detected the severed link. The problem meant that while credit union members could withdraw money at cash machines, NYCE couldn't immediately track these transactions or prevent members from overdrawing their accounts. NYCE leaders managed to get through to the credit union staff, even though the organization was in chaos. They posed the following choice: With just a few strokes on a computer keyboard, NYCE could cut off all cash withdrawals until the severed link was restored-which could take several weeks-or NYCE could let the cash keep flowing and sort out the withdrawal records later. Theoretically, anyone with a credit union ATM card could take out as much money as they wanted. The credit union would have to assume that risk. What did it want to do?
The Municipal Credit Union of New York is one of the oldest credit unions in America, founded more than eight decades ago. It is guided by an ethos of self-help and pooled aspirations. Many of its members are firemen and policemen and, in the wake of the attacks, it was widely assumed that some of these people had perished just across the street from the MCU's office. There was no way the credit union would prevent its members and their families from accessing their money at a time of crisis. Thomas Siciliano, the general counsel of the credit union, said later: "We felt it would have hurt them badly and added to the chaos of the city." The MCU trusted them to use their ATM cards responsibly.
Credit union members realized early on that their ATM use wasn't monitored and that there was no limit to how much cash they could take out. As word spread, withdrawals skyrocketed. As many as 4,000 members overdrew their accounts, some by as much as $10,000. One member used his card more than 150 times between late September and mid-October.
In November, the computer link with NYCE was finally restored. As the credit union got back to normal, it pieced together the full record of cash withdrawals after September 11. Those who had overdrawn their accounts had left a substantial electronic trail, and the MCU set about tracking them down. Siciliano led this work. He initially suspected that most of the members' overdrawing had occurred by accident, or maybe was prompted by emergency needs. The MCU assumed the best of its members, even those with average bank balances of less than $100 who had withdrawn thousands of dollars in just a few weeks. "We try to understand people," Siciliano says. "We're not just about the bottom line."
The MCU sent letters to those with overdrawn accounts listing the money that was missing and asking for repayment. While some money was repaid, many letters got no response. More letters were sent-notarized letters with threats. After months of appeals, $15 million was still missing. At that point, the MCU called in the authorities. A criminal investigation, led by Manhattan District Attorney Robert Morgenthau and the New York City Police Department, extended into the following summer. It resulted in scores of arrests.
A FEW BLOCKS AWAY from the credit union's offices, another investigation was reaching its climax in the spring of 2002, this one at Merrill Lynch's newly repaired global headquarters on Vesey Street. After September 11, Merrill Lynch had scattered 9,000 employees around back-office facilities in New Jersey and midtown. Months passed before it was able to move back downtown. When Merrill did return, morale at the company was low. Huge layoffs had depleted its ranks and profits were down in the new bear market. Worse, Merrill found itself cornered in a criminal probe led by New York State Attorney General Eliot Spitzer.
Before his assault on Wall Street made him famous, Spitzer was an obscure state official. Those who did know him were reminded of a character straight out of early-twentieth-century America. Wealthy by birth, with a father who bankrolled his political career, Spitzer is a muckraking crusader for the public interest.
Merrill Lynch had come to Spitzer's attention in a circuitous fashion. In early 2001, a Queens pediatrician named Debases Kanjilal hired a lawyer to pursue a civil suit against Merrill. Kanjilal was among the legions of investors who got burned when the NASDAQ cratered in 2000. Specifically, he had lost $500,000 on a single Internet stock, InfoSpace. Kanjilal's instinct had been to sell InfoSpace when it was trading at $60 a share. But his broker at Merrill Lynch had urged him to hold on to the stock, advice that reflected Merrill's public research reports that recommended InfoSpace as a "buy" stock. Standing behind those research reports, and affirming their recommendations in his TV appearances, was Merrill's star analyst and "Internet stock guru," Henry Blodget.
It is hard today to appreciate the influence once wielded by Blodget. Just over thirty years old in 2000, Blodget was a Yale grad who had never aspired to stardom on Wall Street. He had tried instead to make it as a writer, and when that didn't work out, his father rescued him from unemployment by helping him land a position at Prudential Securities. Blodget's career was unremarkable until he shot to fame in 1998 with his prediction that Amazon's stock would reach the unthinkable price of $400 a share. When the stock did, in fact, hit that level a month later, Blodget was hailed as an oracle. Shortly thereafter he moved to Merrill Lynch with a $3 million contract. There, he reigned as the single most visible adviser to investors hoping to score big in the Internet gold rush. Blond and affable, with telegenic good looks, Blodget was everywhere with his stock predictions as well as broader prognostications about the new economy.
What Blodget didn't mention to CNBC junkies or Merrill Lynch's own clients was that his role at Merrill went far beyond analyzing stocks. Like other star analysts of the time, he also became deeply involved in Merrill's investment banking business, helping to bring Internet companies-and fat underwriting fees-to Merrill. One of the companies Merrill's investment banking division represented was Go2Net, a company that InfoSpace was in the process of purchasing in 2000. Merrill had a financial interest in InfoSpace's stock price staying high so that the deal would go through.
Debases Kanjilal held on to his InfoSpace stock even as it declined steadily. Finally he sold at $11 a share and took a staggering loss. At the time Kanjilal sold, Merrill and Blodget were continuing to recommend InfoSpace to investors. Kanjilal's losses were part of an estimated $4 trillion that investors lost when NASDAQ crashed. Big-name analysts hyped many sinking tech stocks with the same enthusiasm they'd shown