‘But what about the management of Lehman’s?’ she asked. ‘I mean, couldn’t they have done something about the situation earlier, like, before it got totally critical? And if they’d done that, wouldn’t you have lost all your premium?’
Zorn smiled, appreciating the sharp intelligence that the girl had until now kept hidden beneath her professional bimbo mask. ‘Good questions, Misti,’ he said, saying the name in a way that let her know he was well aware that both it and her persona were fake.
‘If those guys had ever been honest about their situation — starting with being honest to themselves — maybe they could have saved the business. They could have resigned their positions, allowing more responsible individuals to take over. They could have drastically controlled the risks their people were taking, and reformed their accounting practices. They could have looked for smart deals based on genuinely undervalued assets — and by the way, they’d have made and kept a lot more money that way. They could have looked for a buyer when they were still in a position to negotiate from strength. They could have done a whole lot of things, and, sure, it would have cost me a heap of dough. But you know what? They were never, ever going to do that, because they were a bunch of arrogant assholes — just like most of the guys in all the other boardrooms on the Street — and they would never, and will never, admit that they were responsible for creating this disaster.’
‘But what about BoA and Barclays? How could you have known they weren’t going to close their deals and buy Lehman’s?’
Zorn reached into his jacket, pulled out his wallet and extracted a thousand dollars. He pushed them across the table to Misti’s companion, a brash young dealer by the name of Luis Ferrone, and said, ‘Buy yourself another friend.’ Then he looked at Misti and gestured at the empty space on the banquette next to him. She was round there in a flash.
‘So,’ Zorn said, ‘you want to know about those other banks? Well, that’s a no-brainer. Those deals were never going to happen. The moment the purchasers looked at Lehman’s books it was obvious that their true assets were nowhere near as big as they claimed. Officially, Lehman Brothers had around forty billion in assets. My understanding is the true figure was closer to twenty-five. That was when Bank of America decided to buy Merrill Lynch instead. Which left Barclays. But they had a problem. Lehman’s was bust. It couldn’t keep trading or even running as a business without fresh cash, and Barclays couldn’t hand over any till the deal was signed and sealed. So come Monday morning, someone was going to have to step in with a bridging loan to cover a deal that could still fall apart. So who could do that?’
‘Uncle Sam?’ Misti suggested.
‘Funny you should say that. Dick Fuld had the same idea, till Paulson told him no way was Washington going to hand over a single taxpayer dollar to bail out his bank. Now they got personal. There was a guy at Lehman’s, George Herbert Walker, who’s a cousin of the President. Word is, they asked him to put in a call to the Oval Office. Well, if he did, Dubya didn’t take it. So then people said, “Well, gee, Barclays is a Brit bank, maybe their government’ll give us the money.” That was when the Brits pointed out that hell would freeze over before their taxpayers were going to risk billions of bucks to support a US bank. Believe me, I didn’t lose a second of sleep over that. And you know what? Nor did Barclays. Yesterday they went picking through the wreckage at Lehman’s and acquired most of its US divisions for less than two billion. I reckon they paid about ten cents on the dollar. Wish I’d seen Fuld’s face when that news came through.’
Misti gave him a warm, genuine smile: one that came from the real woman, not the stripper.
‘You sound so passionate, like this isn’t just about business. It feels much more personal.’
‘Yeah, right again. This was very, very personal.’
‘Well, you put on quite a show.’
Malachi Zorn shook his head with a wry grin. ‘No,’ he replied. ‘That wasn’t the show.’ Then he laughed again so that Misti laughed too, assuming Zorn was just kidding as he said, ‘That was just a rehearsal.’
Washington DC: 17 March 2011
Three years in, and still the repercussions of the banking crash had not even begun to be resolved. At a congressional hearing into the practice and regulation of short-selling, Malachi Zorn effortlessly ran rings around the members of the House Committee on Financial Services, who attempted to portray him as an unscrupulous profiteer. Dressed with uncharacteristic formality, Zorn made his point not with any firecracker display of wit or mockery, but by speaking with a seriousness which suggested that the politicians questioning him were guilty of an improperly frivolous, exploitative attitude to the subject, whereas he was genuinely acting in the public interest.
Zorn was asked whether there was any truth to recent rumours within the financial community that he had taken a number of very significant short positions in leading energy and oil corporations. Zorn replied that, ‘It’s my practice never to disclose any of the positions that I’ve taken while they are still active. There are many reasons for this, commercial confidentiality being the most obvious. But I’m also wary of creating self-fulfilling prophecies. I have, as you have suggested, a certain reputation in my field. I don’t want to sound unduly arrogant, but if my trades became public knowledge, it’s very possible that other traders might wish to copy them, hoping to ride my professional coat-tails, so to speak. This would have two effects. Firstly, it would create exactly the kind of downward pressure on the corporation in question that you, sir, seem so keen to avoid. And second, it would actually destroy the market. After all, someone has to buy my trade. So I can’t go short on a stock unless someone else wants to go long. I depend upon genuine and healthy differences of opinion within the market — a kind of commercial democracy, if you will — to create the margins from which I profit.
‘But I’ll say this about the general subject of the energy industry in all its forms. My personal view is that there are many members of extremist special-interest groups who’ll look at the impact of Islamist terrorism and be tempted to apply it to their own causes. In business terms, terror is a product that works. I therefore anticipate that environmental activists will seek to emulate the activities of groups like al-Qaeda by attacking specific targets related to oil, nuclear generation and power transmission — to take three examples. If by my investments I highlight the current vulnerabilities of a particular sector, I believe I’m not only doing good business, I’m doing my patriotic duty, too.’
More than one reporter present at the hearings picked up on the phrase, ‘Terror is a product that works,’ and contacted their newspaper or TV network, alerting editors to its headline potential. Sadly for them, however, one of Hollywood’s leading action heroes, a tough yet sensitive Australian much loved for his clean-living, family-loving lifestyle, crashed his Ferrari 458 Italia that afternoon in the parking lot of the Hideaway Inn, Malibu while severely intoxicated. With him in the car were a young Asian woman and a small, zip-up leather holdall in which were a number of plastic bags containing cocaine, marijuana and various illegal and prescription pills. On arrival at the Malibu/Lost Hills police station, his ‘female’ companion was discovered to be a nineteen-year-old Thai ladyboy. A recording of the star’s heated but barely coherent insistence that he had no idea of his companion’s true gender was online within the hour. The line, ‘I thought she was a Sheila!’ was a talkshow punchline around the world that night.
No one, anywhere, wanted to hear about terrorists in the subsequent news cycle.
Zorn repeated his warnings about the vulnerability of energy and oil installations in remarks made to a specialist blog aimed at hedge-fund managers and investors, and also in private conversations with a number of extremely wealthy individuals. None of his warnings, however, penetrated the public consciousness or had any immediate political or economic effect. So it seemed that for once in his life, Malachi Zorn had failed to make the impact he desired.