Moral Hazard (10 page)

“When Horace talks about honor, do you think he means it?
Really
means it?” I asked Mike.

“Sure he does. Honor among thieves.”

Something
was
happening to Mike. He was almost always caustic, rebarbative, these days. He was becoming warty with bitterness. His nails were chewed ragged, his smoking hungry. The muscles in his jaw twitched. The lessons had stopped, as had his occasional polite inquiries about my well-being. No laughter high up in his nose.

At first I had supposed that worries about contagion from the South-East Asia crisis, now spread to South America, were putting pressure on him. Certainly I was hearing plenty about how derivatives were causing the contagion. “It’s like having open drains running into the water supply,” Mike said. Surprisingly, Horace concurred, although the language he used was less vivid. “Derivatives can magnify the effect of a shock in a geographic area or an asset class,” he had me write in a speech, “and create unintended results where there isn’t a true economic link.” Here agreement between the two stopped. For Horace, the markets, not regulation, would quickly take care of those “unintended results.”

But Chuck had guessed right when he said Mike was going through a midlife crisis. These were endemic among my friends. Some had found satisfying work that advanced their beliefs or at least didn’t compromise them, but they were the exception. The rest were in disarray: consulting psychiatrists, knocking back antidepressants, going on traveling jags, changing careers, divorcing spouses, taking lovers. Among Niedecker executives, the most common symptom was the purchase of a vehicle capable of extremely high speeds, usually motorcycles: beetle-shiny BMWs and wasplike Ducatis that belonged not on the back roads of Westchester but in Formula One races, and ended up gathering dust in their garages. The manufacturers of these machines must have been delighted with this display of vanity. Even the Big Toe, not known for his imagination, now tooled around on weekends in a purple Porsche.

Mike’s midlife crisis was taking a more bizarre form. The arrest of former radical Kathleen Power for her part in the 1970 shooting of a policeman during a Boston bank robbery triggered in him expressions of admiration for sixties terrorist groups like the Black Panthers, the Red Brigade, and the Baader-Meinhof gang. Reports of the dismantling of the Shining Path in Peru by Alberto Fujimori—another hero of Horace—elicited a similar reaction. “Whatever their methods, at least they weren’t passive. They were
trying
,” he said. “What am I doing? Helping ——”—he named the CEO—“get
Midas
rich. He could buy fifty purple Porsches if he wanted.”

“Right. Long live the armed revolution,” I muttered, not believing my ears. Many from the Left who lived through those times follow with interest and curiosity the fates of its outlaws and fugitives, the ones who crossed the line and embraced violence. I certainly do. There but for the grace of God go I, et cetera. But no one could rightly admire them. Understand them, put them in context, yes, but not admire.

Another time, he said, “With computers, you could bring the monetary system down. It would be easy. The whole frigging house of cards. You’d just have to lean on it a little. That’s all it would take. Someone should. If a thick-headed know-nothing like Nick Leeson can bring down Barings, imagine what someone with a
brain
could do.”

“An imperfect system, but we haven’t come up with anything better.” Lame, I know.

“Yeah, yeah. Markets are not efficient, but they are the best method we have for determining price.” Sing-song, quoting himself from one of our waterfront lessons. “That’s beside the point. New York banks suck up money. They
hoover
it up. Determining price! Ha! That’s way down the list of priorities.”

I stood up to stretch, wondering whether I should make tracks. A quartet of bankers, sleek as tomcats, glided across the plaza. Foil-stamped in gray scarves, navy overcoats, black shoes. One said something amusing, the others laughed, exuding smug testosterone jocularity. Stereotypes. Something Bailey used to say to me when I was overly critical, too ready to sneer, surfaced in my mind:
Have compassion, Cath.
Yes. Right.

I looked down at Mike, hunched over his cigarette. To break his mood, I tried Ogden Nash: “‘Consider the banker. / He was once a financial anchor.’” No reaction. Another attempt. “I don’t remember the rest of that piece of verse, except for this: ‘The way some people sing whiskily, / Bankers are singing fiscally.’ Terrible rhyme, no?” Not amused. “Look, if it bothers you so much, go and work for one of those watchdog groups that monitor the markets. Or a left-wing think-tank.”

The financial world isn’t a monolith of laissez-faire-ism any more than every Japanese was in favor of entering the Second World War; voices of wisdom and moderation exist, as they do anywhere else. They even exist in the executive suites of banks. Niedecker’s chief economist was well known in the industry for his ideology-free reasoning. Another executive, a former World Bank officer, had no illusions about human nature. Whether they could win the day or be thought of as anything other than Cassandras was another matter. Even Horace, in unguarded moments, admitted the need for checks and balances, amelioration. He also admitted the paradox at the center of it all: To operate at their most efficient, free markets require transparency, but transparency requires regulation. Mike, though, was like a married man who falls in love with another woman and plots to kill his wife to gain his freedom, when the obvious solution is to drive off down the road to another life.

“There’s no point. We’re in a culture of deregulation.
Deep, deep
in a culture of deregulation. Supervisory standards are as weak as warm spit. Banks don’t have enough reserves. It’s a time bomb. Listen, I’m a risk manager.
I
know.” Two thumbs jerking toward his chest. A fulminator gone rancid? Or a truth-teller?

While I thought his rants were a regression, I was not unsympathetic. Okay, a secret. In my wallet, I keep a scrap of disintegrating paper on which is written, “The revolution is magnificent, and everything else is bilge.” Who said this and which revolution I’d forgotten, but I’ve transferred it from wallet to wallet for more than thirty years to remind myself of a time when I was young and silly, but cared. The idealism was magnificent, not the revolution.

Also, you have to understand that Mike and I worked in the modern-day equivalent of the court of Louis XVI. All around us, impossible sums of money were heaped on people who were no more deserving of it than any other kind of professional. Sure, they put in long hours in a Darwinian environment, but the same could be said of New York City public schoolteachers, who are paid a pittance and put harder to the test.

If stocks had stopped roaring upward, Mike would not have been as troubled, his commentary limited to humming Leonard Cohen.
Everybody talking to their pockets / Everybody wants a box of chocolates…
As it was, the longer the bull market trampled proportion in its path, the more Wall Street firms minted money, the angrier Mike became, the more he reached back to the slogans of his youth.

Strangely, for someone alert to irony, Mike never alluded to the fact that he was one of the people on whom gold rained. After nearly two decades of Wall Street bonuses, he could’ve opened a Porsche dealership himself.

A Sunday morning. With the assistance of a male aide, I loaded Bailey into his wheelchair, a model named Everest by its manufacturers.

“How about bagels at that nice café up the street? Best bagels in New York City,” I said, bending to make sure his feet were squarely placed on the fold-down footrests. Excellent bagels
and
wheelchair accessible.

“We haven’t got any money,” Bailey said. Fretful.

“Don’t worry. I have some.” I patted my pocket.

“The keys. Have you got the keys to our apartment?” Querulous.

“Yes, I’ve got them right here.” Patting my pocket again.

Bailey repeated his worries all the way to the café, and I kept reassuring him. Alzheimer’s was surely sent to teach me patience, not one of my virtues. I was getting good at it, though, not even feeling irritation, an imperturbability that served me well with Niedecker’s vexatious executives.

I settled him at a table and went to stand on line. Bailey always had a bagel with cream cheese and lox and a bottle of Nantucket Nectars, a thick, sugary juice drink. For me, fruit salad and black coffee.

Usually, we’d eat in silence. Perhaps I’d make the occasional comment about the customers or the passing parade of joggers in Lycra or sweats, fathers having quality time with small children, single women with streaked hair and small dogs. That day, though, I needed to talk. “Mike once told me that Mussolini admired American corporations,” I began. Utter puzzlement on Bailey’s face. I backed up. “I’ve mentioned Mike to you before.” A moue of jealousy. “Just someone I work with, sweetie. Do you remember where I work?” He stuttered an incoherent answer. “Down on Wall Street. Writing speeches. What Mike said about Mussolini made me realize something. Hardly an original thought, I’m sure. The United States is a democracy, and yet it’s powered by autocratic corporations. Its engines are fascist. Nothing democratic about them. Paradoxical, wouldn’t you say?”

Bailey was having trouble with his bagel. Warming to my subject, I kept on talking while cutting the bagel into smaller pieces, wiping a dob of cream cheese from his collar, giving him a fresh napkin. “There’s a pretense at democracy. Blather about consensus and empowering employees with opinion surveys and minority networks. But it’s a sop. Bogus as costume jewelry. The decisions have already been made. Everything’s hush-hush, on a need-to-know-only basis. Compartmentalized. Paper shredders, e-mail monitoring, taping phone conversations, dossiers. Misinformation, disinformation. Rewriting history. The apparatus of fascism. It’s the kind of environment that can
only
foster extreme caution.
Only
breed base behavior. You know, if I had one word to describe corporate life, it would be ‘craven.’
Unhappy
word.”

Bailey’s attention was elsewhere, on a terrier tied to a parking meter, a cheeky fellow with a grizzled coat. Dogs mesmerized Bailey. He sized them up the way they sized each other up. I plowed on. “Corporations are like fortressed city-states. Or occupied territories. Remember
The Sorrow and the Pity
? Nazi-occupied France, the Vichy government. Remember the way people rationalized their behavior, cheering Pétain at the beginning and then cheering de Gaulle at the end? In corporations, there are out-and-out collaborators. Opportunists. Born that way. But most of the employees are like the French in the forties. Fearful.
Attentiste.
Waiting to see what happens. Hunkering down. Turning a blind eye.”

Bailey was now sucking noisily on his straw. People glanced in our direction. “The bottle’s empty, sweetie. Would you like another?” A wordless no. “You know what cracked me up in
The Sorrow and the Pity
? Never forgotten it. How the society ladies in Paris raised money to plant rose bushes along the Maginot Line so that the soldiers would have something pretty to look at. What were they thinking? Rose bushes!” I speared a chunk of cantaloupe. “American corporations. Invented to provide goods and services, but that’s the least of it now. Which brings me to globalization. Better not get me started.”

Bailey wasn’t about to get me started. Instead, he was examining his plate for morsels. Nothing wrong with his appetite. Should I get him another bagel? No—the line had grown. I stayed where I was. “I know. I’m simplifying. Sure, some corporations are restrained in ambition, truthful. Not all boards have directors who are pompous old boys. And Philip Larkin’s toad squats in all of us. People are people, inside corporations or outside.” Bailey squirmed in his seat. Diaper probably needed changing. “Sorry, darling. Got a bee in my bonnet today. Shall we go?”

“Hedge funds eat like chickens, shit like elephants.” Mike, of course.

“Shit money or trouble?”

“Trouble.” He stamped his feet. “Fuck, it’s cold.” We were huddled in an alcove near the revolving doors of the Winter Garden, smoking with our gloves on, talking in monotones, the frigid air not allowing for emphasis. The plaza was littered with lumps of dirty ice-hard snow. I was nearly six years into the job. Six years into the disease.

Hedge funds were Mike’s latest target for demonization. The term “hedge fund,” I was learning, is a misnomer, implying as it does the safety net of hedging one’s bets. Instead, they are a financial no-man’s-land, completely unregulated, where the “aggressive” money goes to multiply itself. Unregulated because the investors—once wealthy individuals but now increasingly foundations and pension funds—are assumed to be big kids and able to take care of themselves. Hedge-fund managers get a piece of the action as well as a fee, which encourages fiscal daredevilry. At last count, $400 billion was in hedge funds, an unprecedented amount. It’s midnight. Do you know where your retirement money is?

Mike would rattle on about martingale theorems, how models for convergency trading de-emphasized the past, how Schumpeter said risk was not a source of profit, how a lot of hedge-fund speculation was not only opportunistic but antisocial, dependent on bad things happening somewhere or forcing them to happen. To hear him tell it, hedge funds had tails, horns, cloven feet, pitchforks.

Most of what he said I found a slog, but martingales managed to snag my attention because of the etymology. In the part of my brain reserved for trivia, I’d stored the knowledge that a martingale is a forked strap that stops a horse’s head from rearing. Never having played cards or gambled, I didn’t know that it was also a gaming strategy, although the two meanings are connected, if one thinks of the strategy as a method for harnessing luck. It’s when a stake is doubled until the cards or the numbers turn favorable. You can clean up—if your money holds. Martingales are banned in casinos because of the ease with which gamblers can get clobbered, but not in finance.