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Exit the Czar

Rattner’s group considered and then agreed. Lee persuaded 90 percent of the creditors to sign on, and all of the big ones. But some hedge funds were incensed and accustomed to fighting. At one point, one of the task-force members e-mailed a colleague, “The hedge funds are off the ranch.”

Lee had the right to push the deal through, and he had the votes. But these hedge funds, though they had small stakes, were talking about going to court to break the deal. Lee tried to talk them down. He’d been dealing with this administration through months of bank bailouts. He told the half-dozen holdouts, “This government crowd is very tough-minded.” They thought Lee was chickening out.

One holdout hedge fund was Perella Weinberg Partners’ Xerion Fund. Joe Perella is president of Rattner’s co-op, and for a moment it seemed American capitalism—and the future of the country’s car industry—might come down to a chat between Rattner and his upstairs neighbor.

“Look, you guys do what you have to do,” Rattner told Perella on the day of the deadline, April 30. “I respect your rights as creditors. But if you want to try to resolve this, I’m here.”

Some took that as a veiled threat, which astonished Rattner. Business, though, is often done in the gray area between explicit and implicit—“credible” D.C. friends called to warn of serious consequences—and at the Perella Weinberg offices, the atmosphere hummed with danger and urgency.

In the end, fighting wasn’t Joe Perella’s decision but that of Daniel Arbess, portfolio manager of Xerion. The national interest, so-called, concerned him less than his rights as a creditor, which he thought were being trampled.

That same day, April 30, the day that President Obama had promised to walk away, he again took to the airwaves. The president wielded the big stick; Rattner didn’t have to. Obama was putting Chrysler into bankruptcy. At Perella Weinberg, they watched the speech as if Obama were speaking directly to them. The president, for once almost angry, promised he wasn’t going to bend to “speculators,” as he labeled the troublesome hedge funds. Perella didn’t like being called a speculator. But the part of the speech that scared them was when Obama intimated that, come bankruptcy, the creditors might get little or nothing, a threat reviewed by Rattner’s people.

Arbess had an investment decision to make; he closed his office door, considered his responsibility to his investors. He’d shrewdly picked up some bonds for as low as $.15 on the dollar. If the government paid $2 billion, he’d still make money. Did he want to risk that for the chance of greater returns? Arbess signed on. That same day, Chrysler filed for bankruptcy, with all but one small creditor in agreement, allowing the proceedings, after a brief protest in court, to speed through in an unprecedented 41 days, a record bested only by GM’s trip in and out.

For Rattner, Washington was a new start, a place where people didn’t have the standard hypercareerist view of him. He fought his tendency to be cool and remote.

The auto bailout—with a large assist by front man Barack Obama—was a triumph for Rattner: a glorious, immortalizing public service. But as he prepared for his day in the sun, clouds gathered.

It seems, at first glance, unlikely that a gifted social operator like Rattner would get involved in an imbroglio as grubby and venal—inelegant, if not illegal—as the pension-fund scandal centered around Democratic consultant Hank Morris. But Rattner at the time was building his private-equity business, and to win at that game you have to play the game, and Morris is a person with whom it was played.

By 2004, Rattner, the firm’s effective CEO, was Quadrangle’s public face and its key fund-raiser—he hardly brought deals in anymore. The firm’s first $1 billion fund was fully invested, and if the business was going to grow, it needed more money, and the biggest money is in institutions like pension funds. Also, an investment from a major pension fund like New York State’s signals to other funds that Quadrangle is a good bet.

Soliciting pension funds is not the glamorous part of private equity, the kind of banking done on Park Avenue, where Quadrangle’s offices are located. It’s high-end panhandling, and to a downmarket clientele, politicians in questionable suits in Spokane and Wichita. In 2005, Rattner must have held north of a hundred meetings with potential investors. It wasn’t easy to keep his spirits up, but Quadrangle was his brand, his reputation was on the line, and so he put his mind to it. He thought of Schumer bustling through five-a-day fund-raisers with a smile on his face—Rattner was Schumer’s finance director in 1998. The trick, Rattner explained to a friend, is to keep your enthusiasm up, by force of will if need be, and never ask, What the hell am I doing here?