There was a knock on the door frame that rattled the glass. Before Eric could ask who it was, the door flew open. Kent Frost burst into the room. Eric’s assistant had him by the arm, having failed to keep him from entering unannounced.
“Eric, I need you right now,” Kent said.
Kent Frost was a few years older than me, but we’d started at the firm around the same time and had competed for Eric’s praise for almost ten years. Each year in December, without fail, Kent made it known throughout the firm that his annual bonus dwarfed mine. Frost ran the Structured Products Division, and his specialty was collaterized debt obligations made with subprime mortgages. He was the shameless recipient of the award given at the banquet I had gladly missed for my surprise birthday party.
“What is it?” asked Eric.
“A new wrinkle,” said Frost.
“Don’t tell me,” I said, trying not to scoff. “You left off a zero in the twenty-two billion?”
Kent glared. Up until six months ago, he had at least tried to hide his contempt for me and anyone else who disagreed with him. That all changed in October, when I aired my view that with one out of every five mortgages in America being “subprime,” the whole market was a ticking time bomb-another one of those “Fonzie schemes,” as Papa called them. Admittedly, criticizing the business activities of a sister division was overstepping my authority, but if the subprime guys refused to rein themselves in, someone had to blow the whistle.
“Eric,” said Frost, “this is private.” He meant it was not for my ears. Eric nodded.
“Holy shit,” said Sonya. She was looking at her BlackBerry.
“What now?” asked Eric.
“Our stock was at ten times normal volume in the first hour of trading. At this pace, we could be looking at seventy million shares by the end of the day.”
Eric massaged the bridge of his nose, as if staving off a migraine. “One thing at a time. Kent, take a seat. Michael, we’ll talk later.”
Frost entered. I started toward the door, then stopped. The firm’s subprime crisis had to be the president’s priority, but I needed someone to focus on a problem we could actually fix-mine.
“One more thing,” I said.
The three of them waited, but I paused. That blowhard Chuck Bell had told the world that the Saxton Silvers’ investment advisor of the year violated every securities regulation imaginable to cash out before our stock went into free fall. The market was now tanking, and, when the dust cleared, it was entirely possible that none of us would have anything left but our reputations. I had the right to clear mine-to tell the truth that my identity was stolen. End of story.
“What is it, Michael?”
Eric was definitely feeling the stress. Now was not the time to ask for permission. Later, I’d ask for forgiveness.
“Nothing,” I said. “We’ll stay in touch on this.”
14
I CAME TO MY SENSES IN THE ELEVATOR. OF COURSE I WANTED TO take my case to the airwaves and give everybody hell, not just Chuck Bell. But I also still wanted to have a job at the end of the day.
Keep your cool, Cantella.
It was the Kent Frost effect. The guy just had a way of setting me off.
Fortunately, our paths didn’t often cross. The subprime alchemists worked in their own building, three modified apartments on Manhattan’s Upper East Side. The official name was the Structured Products Division, but everyone called it the CDO factory-collateralized debt obligations. I’d gone there only once, last October, just to check things out. Luckily, Frost had been out when I arrived. I got thirty minutes alone with his financial engineer-a Twinkie-eating, twentysomething geek named Wayne who spent every waking hour staring at trading screens. It positively thrilled Wayne to find someone willing to listen to him talk about what he did all day long. We went straight to the latest data, and Wayne gave me a primer on the sixteen million subprime mortgages in Frost’s CDO factory.
Frost had his suppliers all over the country: banks and mortgage companies that loaned money to people like that Bahamian taxi driver Ivy and I had met in Miami-borrowers with credit scores under 500 and no money for a down payment, no income to make their mortgage payment, and no business having a credit card, let alone a half-million dollars or more in subprime mortgages. The lenders didn’t worry about it because they immediately sold those toxic mortgages to Frost and others who pooled all of them together into mortgage-backed securities. Frost didn’t worry about it because the theory was that not all the mortgages would fail, and Frost spread the risk even wider, taking little slices from lots of different mortgage-backed securities to create CDOs, which he sold to really smart investors like insurance companies and pension-fund managers. The smart investors didn’t worry about it because they controlled the global pool of money-about seventy trillion dollars-and they were earning 10 percent returns instead of the measly 1 percent that the Fed was offering on T-bills and other safe investments. If the really smart investors wouldn’t buy them, Frost still didn’t worry, because little towns in places like Norway or Iceland would. They were always looking for “safe” investments, and Frost had no trouble getting the Triple-A stamp of approval from the rating agencies, who based their ratings on mathematical formulas that assumed home values would continue to rise 8 percent annually in perpetuity. That was like an insurance company writing life insurance policies based on actuarial tables that assumed the insured would never get sick, never get old, never die. All I could figure was that those rating geniuses had been under the influence of triple shots of tequila.
“I’m getting a little nervous,” Wayne had told me, “because we’re starting to see something we’ve never seen before. Borrowers defaulting on their very first payment. It’s weird.”
It wasn’t weird. It was the burst of the housing bubble. Taxi drivers in Miami who counted on flippin’ one flippin’ condo to pay the flippin’ mortgage on their next flippin’ condo suddenly couldn’t flip a flippin’ thing. I started to explain this to Wayne, but that was the moment Frost returned to the CDO factory, physically pushed me aside, and chewed out Wayne for showing me the data.
“Get the fuck out of here!” Frost had told me.
The “conversation” had gotten much uglier than that, ending with me charging out of the factory and swearing on my mother’s grave that I was “not going to stand by and watch one greedy son of a bitch fly the plane into the side of a mountain.”
It may not have been the perfect metaphor, but with Saxton Silvers stock in the tank this morning on the heels of yet another subprime write-down, it just about summed things up.
“Forty…two,” said the mechanical voice in the elevator.
That was my floor, but I decided to stay in the car and pushed nineteen. Sonya had pulled Cool Cash off the trail of my stolen money, but she’d put no restriction on my using the firm’s internal security force. This was a sensible application of the “Better to ask for forgiveness” rule.
“Going…down,” the elevator voice said.
As the doors were closing, I spotted a familiar old man in the reception area. I couldn’t believe my eyes, but I hit the Open button too late, and the elevator started downward. A flurry of button punching brought the car to a stop. I got off on forty and ran up two flights of stairs, but the reception area was now empty. I hurried down the hall to my office and found him standing at the window, taking in the view of Midtown.
“Papa?”
He turned. “Surprise!”
I went and gave him a hug. “What are you doing here?”
“We’ve come to celebrate your happy birthday, of course.”
Papa never celebrated just birthdays; it was always “happy birthdays,” as if the two words were a single, inseparable noun.