‘We can do you a debenture ticket. When do you need it?’ the man from the agency asked.
‘Monday, Wednesday and Friday.’
There was a soft whistle. ‘Blimey, that’ll cost you. I mean, the best price we’ve got for the men’s semis on Friday is, hang on… $6,758. In pounds that’s-’
‘Don’t bother, I’ll take it,’ said Carver. ‘And I’ll take the other two days. And I want Number One and Number Two Courts as well, all three days.’
Now the whistle became a chuckle as the agency man worked out what he was about to sell. ‘You planning to be in three places at once?’
‘I’m planning to be wherever I need to be.’
‘Fair enough, but there’s a problem, yeah? They don’t do debentures for Number Two Court. So there ain’t no tickets on sale for that.’
‘Yes, there are.’
‘No, there’s not. See, that’s not legal.’
‘I’m sure it’s not,’ said Carver. ‘But if I’m willing to pay the same price for Number Two Court tickets as for Centre Court ones, I reckon someone will want to sell me them. I’ll pay cash, if necessary. So, can you help me?’
‘Well, obviously, selling you them tickets is a criminal offence, as such…’ There was a pause and Carver could sense the battle between greed and fear going on in the man’s mind. Eventually, as he thought it would, greed won.
‘I’ll see what I can do.’
It would take Carver most of Saturday night to finish his planning. But first he wanted to know more about the business his target was in. His financial affairs were handled through a private bank in Geneva. It placed customer service at the very top of its priorities. So when Carver called his personal manager, Timo Koenig, and asked him if he could spare an hour or so for a drink, the fact that this was a Saturday evening did not deter Koenig — openly at least — from saying yes.
‘Great, meet me at seven in the bar of the Beau Rivage,’ said Carver.
The Beau Rivage was an old-fashioned grand hotel on the banks of Lake Geneva. It had been quite a while since Carver had visited it. The last time, also, he’d had a meeting with a bank manager, and he’d been with Alix. Things hadn’t worked out too well for them that night. Carver saw no need to tell Koenig about it… let alone how much worse they’d worked out for the banker.
16
Hotel Beau Rivage, Geneva
Carver bought the drinks. A beer for himself and a martini for Koenig, a well-preserved fifty-year-old, kept trim by tennis and skiing, whose idea of casual weekend attire consisted of immaculately pressed jeans, a Ralph Lauren polo shirt, and a cotton jumper so crisp and clean that that it appeared to have only just been unwrapped from the store tissue paper. Carver had not shaved all day, and he’d seen no reason to change before he went out. He felt like a vagabond by comparison, but that didn’t bother him in the slightest. ‘What do you know about a man called Malachi Zorn?’ he asked.
‘Not a great deal,’ said Koenig. ‘I have never had any reason to do business with him. But he made his fortune shorting Lehman’s, no?’
‘You tell me. How does a guy like this work? For example, you say he shorted Lehman’s. I know that means he bet against them. But how?’
‘Mm… good martini,’ said Koenig, savouring his drink before answering the question: ‘CDSs… sorry, credit default swaps…’
‘Which are what, exactly?’ Carver asked.
‘A credit default swap is a way that an investor can make money out of someone else’s loss. You might say it is an insurance policy taken out on something you do not necessarily own.’
Less than a minute into the conversation, and already Carver felt like he’d walked into an alternative universe. ‘That sounds like me taking out insurance on your car. Why would I want to do that?’
Koenig smiled, as though what he was describing was the most normal thing on earth. ‘Well, you might decide that was a good investment if you knew that I was a terrible driver who was almost certain to crash.’
‘Or if I knew I could make you crash…’ Carver said.
Koenig clearly thought he was joking. ‘Ah, well, that would be cheating!’
‘If you say so.’
‘In any case, a default swap is just like a regular insurance policy,’ Koenig continued. ‘You buy a certain amount of cover for a fixed premium, over a given period — usually ten years — and it pays out in the event of loss. The premium is often very low. If you wanted to take out a credit default swap on a very safe, AAA-rated corporate bond, for example, it might only cost you fifteen thousand dollars a year for ten million dollars of coverage. So your downside is fixed: over the course of a decade the maximum you will ever spend is a hundred and fifty thousand dollars. But if the company collapses and its bonds become worthless, then you will make ten million dollars. Those are very good odds. And because the length of the term is so long, a default swap is very useful when you are sure that a collapse of some kind will occur at some point, but you don’t know exactly when.’
‘But what’s in it for the other guy, the one who’s selling?’ Carver asked.
‘Ah, well, he gets a guaranteed income, based purely on a promise,’ said Koenig, to whom this was clearly a perfectly reasonable proposition. ‘He does not have to spend any money of his own. He just collects your premium every year for ten years, and hopes that he never has to pay out. In most cases, he will be right. He will end up with a hundred and fifty thousand dollars for doing absolutely nothing. But sometimes, particularly in times of crisis, an unexpected, apparently impossible, failure occurs and he loses his bet. The market was certain that Lehman’s was safe, because it was too big to fail, and so it was very cheap for Monsieur Zorn to buy billions of dollars of credit default swaps. When Lehman Brothers collapsed, he collected those billions, and, of course, the banks that had sold him those swaps lost the billions they had to pay him.’
‘That wouldn’t make him too popular.’
‘Not if he did it more than once, certainly,’ Koenig agreed. ‘A bank is like a casino. The management do not mind the occasional jackpot. That encourages the other gamblers. But if someone creates a system for winning, and gets the jackpot again and again… well, then they are asked to leave the casino.’
‘Yes… and they aren’t always asked politely,’ said Carver. ‘So these swaps, are they the only way Zorn makes his money?’
‘I had no idea you were taking such an interest in finance, Sam. May I ask why you are so fascinated by Malachi Zorn in particular?’
‘His name came up in conversation.’
Koenig gave Carver the chance to say more, accepted that no further information would be forthcoming, and then smiled as he said, ‘You are very discreet. You would have made an excellent Swiss banker! OK… get me another martini and I will try to explain.’
Carver bought a second round of drinks and settled back for Koenig’s tutorial.
‘So, Zorn… Well, I imagine he’s using a great many different financial vehicles. His aim, though, will always be to leverage his money to the greatest possible extent, so that he gets the maximum possible return.’
‘The impression I got was that he bets on failure most of the time,’ Carver said.
‘In that case, another way to go is “put” options. Basically, that gives him the right to sell a quantity of a stock or a bond at a particular price, on or before a particular date. So, imagine a company that is doing well. Its shares cost ten dollars, and the price is very solid, very steady… But for some reason, Zorn thinks to himself, “These shares are overvalued, they must crash. Soon they will be worth much less.” So he buys the option to sell these shares at eight dollars. Financial institutions will sell Zorn these options, because they see no reason for this price to go down. If they are right, the price holds steady, and Zorn loses all the money he has spent buying the options. But if the share crashes — say to three dollars a share — Zorn exercises his options, sells at eight dollars, and pockets five dollars a share profit.’