18 | RISK
January 25, 2006
FREDDIE’S IN A PANIC AND TRYING TO FOCUS HIMSELF by memorizing his first few lines. We’re waiting outside the conference room for Dale Brown to admit us so Freddie can deliver his report.
I hear Freddie muttering to himself, “Gentlemen, thank you for coming. This report is a summary review of, a comprehensive analysis of, crap. Gentlemen, thank you . . .” He’s dressed slightly better than normal. Everything’s been pressed but the clothes have the wear and the style of being at least fifteen years old and show the ill-fitting pushes and pulls from the changes in his body over that time so that it looks like he does his shopping at the Salvation Army. His ugly tie is pulled tight and straight around his neck in a knot that looks impossible to undo. He tried hard this morning and I feel sorry for him. He did the best with what he knows.
“Freddie, take it easy. You’re going to work yourself into a lather.”
“I just need to get the introduction down. I’m not a very good public speaker.”
“It’s going to be only a few guys. You know the information cold, just take people through it. You’ll do fine.”
“I know, I know.” He sits down and closes his eyes and seems to be focusing on his breathing.
In a moment the conference room door opens and Preston Palmer steps out into our waiting room. He’s the assistant to the president and I don’t know him but have heard plenty. When he’s not around Dale Brown, he assumes the full authority of the office of the president to throw his weight around and act like a jackass. When he is around Dale Brown, he acts like a manservant. “Okay. Let’s go, guys.” He gives me a curious glance, then gives Freddie a condescending stare.
We follow Preston back into the conference room. Dale Brown is at the head of an empty table. His appearance is the other end of the spectrum from Freddie. His suit looks expensive and fits perfectly, and I see the stitching around the border of the lapel that is a sign of handmade work. His silk tie is in a fat Windsor knot and his hair looks like it was cut just this morning. He’s handsome and young for his position, maybe only ten years older than I am. I imagine he’s had some sharp elbows during his career.
Freddie looks around the room a few times, checking and rechecking for invitees to the meeting. I develop my own conspiracy theory that Dale Brown wants as few people as possible to witness his exposure to this information. Nobody wants a piece of this meeting, and I wonder why the hell I’m here. Dale also gives me just a passing glance, then stares at Freddie. I don’t know Dale very well. We were in a golfing foursome once about five years ago, and we were at a twenty-person dinner once. With a prompt he might remember me. “Take a seat.” Preston points to seats on the opposite side of the table from Dale, then he also sits across from us.
Freddie pulls a stack of copies of his report from his bag and passes one to each of us, and the remaining copies lie in a pile on the table as a reminder of his unmet expectations of attendance. He clears his throat and begins. “Gentlemen, thank you for—”
“Listen, Freddie,” Dale interrupts. “I don’t want a big preamble. Let’s just get started and get through this.” He already knocks Freddie off balance. Dale would have said this no matter how Freddie started.
“Yes. Well, thank you for coming.” Freddie picks up the report and turns back the cover page. I pick it up and fan the pages. It’s seventy pages of charts and graphs and block paragraphs of analysis.
Dale’s arms don’t leave the armrest of the chair. His eyes don’t drop to the report on the table in front of him but stay locked on Freddie.
“As you can see in the executive summary—”
“Freddie, I don’t have time to turn pages on your report with you. Let’s bottom-line this.”
Freddie’s hanging on by a thread. To his credit, as with many analytical minds, his anxiety forces him to slow down rather than speed up. “Okay.” He closes the report and slides it forward a few inches and releases it. “I have developed a framework for analysis.” His words are slow and plodding. “The result is a risk scale from one to ten, one being the least risky and ten being the most risky. The optimal level of risk to return for our firm is five point three.” His words are starting to come faster as he talks about his risk engine, which has become a living and breathing best friend to him.
“Fine.” Dale plays along. Preston is leafing through the pages, stopping at parts and reading closely, not listening to Freddie.
“The only thing I have yet to correct is that the one to ten isn’t exactly to proportion. Meaning that if you move from a six to a seven, that is more than just ten percent additional risk. It’s exponential. Like an earthquake on the Richter scale.”
“Why didn’t you fix it?”
“I just, well, I haven’t gotten that part right yet.”
“Continue.” Dale looks bored but happy he’s been able to make a criticism already.
“So moving higher than five point three can be significant. To use the analogy of a car, a score of six five would be redlining the engine.”
Freddie stops and looks over at Preston, who is focused on a page of the report. There are crinkles of concern on his forehead. He seems to notice the room has gone silent, and he looks up at Freddie, then over at Dale. Dale looks like he is about to ask Preston a question, then changes his mind. “Continue, Freddie.”
“Last year we were at a nine point one.”
Dale scowls. I think he was ready for a high number but I see real surprise that it is this high. “What the hell does that mean, Freddie?” He likes to say the name Freddie in a mocking tone like it’s a disparaging word. “You tell me nine one and I’m supposed to use that information to manage the firm? You want me to act because we’re a nine one on the Freddie scale?”
“It’s all in the report, Dale.”
“I don’t care about the goddamn report!”
Freddie is silent. We all are and we take turns looking at each other.
“Holy crap. Just keep going, Freddie.”
“Well, this year the scale can’t account for the risk.” He quickly realizes his phrasing will lead only to more criticism of the model itself. “What I mean is, we’re off the scale. We’re higher than ten.”
“What in God’s name does that mean?”
“It means that given external market conditions, the positions of the other firms, and our own positions, we’re leveraged through derivative instruments to such an extent that the scale can’t fully capture the risk. It’s like trying to divide a number by zero.”
“I still don’t know how you expect me to interpret this information.” Dale is staring at Freddie, ready for a duel and positioning for his denial that he learned anything here today. Preston is back to poring over the report and has a concerned look like he is trying to wish away the facts.
“Dale, the conclusion here is that this strategy could wipe out more than just Bear. Other firms are doing this too. Once we have a dip in the market, this will magnify the problem because there isn’t anyone healthy to absorb the mess. There’ll be no place to hide. The whole system is at risk.”
Preston keeps his eyes down on the paper, but he doesn’t seem to be reading anymore. Dale smiles, and this time it’s a friendly smile, as if to a child that doesn’t understand and that he wants to help. “Freddie, that seems a little fantastic. You can’t expect me to react to statements that the sky is falling.”
“It’s not fantastic.”
“We had our best year ever. We’re going to keep it going.”
“You mean your best bonus year ever.” Freddie is like the angry geek who somehow finds the nerve for a moment to stand up to the captain of the football team.
Dale tries to keep his smile, but this time it’s dismissive. “I said we’re going to keep it going.”
“That will risk the firm. Maybe more than that.”
“Don’t be dramatic. You’re here to help us make more money. Not less.”
“I’m here to help us manage risk in the optimal way. Not set us on a suicide course with the market.”
“Listen to me. We’re making money. We’re going to continue making money. We’ll alter course when this cools off.”
“You have to alter course now. Now. We can’t unwind these positions overnight. We have to gently unwind starting now and do it over a period of a year, maybe two, and hope the market doesn’t turn before we’re finished. We have to do it slowly, and even that comes with risk.”
“Risk from where?”
“People are going to start to wake up to how exposed the major banks are. Then they’re going to start to make bets on the correction. The bets on the downfall will accelerate the downfall. That will push assets in the same direction as our unwinding needs to go and make it more difficult to complete. It will become self-fulfilling. We may not be able to get all the way out, even if we start today.”
“Then why try to get out at all? Let’s keep our high earnings. We’ll increase our bets and fight off the correction.”
“Because you will lose the whole company. Everything. The underlying bet isn’t there.”
Dale knows Freddie is brilliant and he also knows that he himself is incapable of grasping the analysis in Freddie’s report. The root of his disdain for Freddie is fear. Dale’s belief system about success is that men get ahead on guts, vision, and persuasion. Freddie doesn’t lead; he’s someone you pay a salary to play a supporting role. If Freddie challenges this belief, Dale will defend himself the way insecure people in authority do.
Dale bangs his pen down and looks at Preston. He gives another friendly smile to Preston, then to me, inviting people to agree with him and condemn Freddie. If his smile could speak, it would say, Can you believe this guy?
“I’ve got to make money with a bunch of little girls around me like this Cook. No balls and weak stomachs.”
Freddie holds his ground. He sits up a little straighter. I can tell it’s his last shred of courage before he runs home hyperventilating and locks himself in a room with pizza, soda, and computer games. “This is my official report and I’m submitting it for internal publication today.”
“Get out.”
“Then there’s still the issue of the three-strike loans.”
“Shut your mouth right now, Cook, and get the hell out.”
Freddie is up and gone like a swimmer off his block at the sound of a gun. I wait a full three count before getting up, just to make clear that I don’t work for Freddie and any anger or command to get out isn’t meant directly for me.
When I reach the exit, I look back over my shoulder as I close the door behind me, and I see Dale staring down at his pen lying halfway across the table from him. He looks scared.
Freddie is standing on the far end of the waiting room, wanting to leave altogether but waiting for me. He looks like he isn’t yet sure whether or not he should cry.
“Let’s go,” I say. We walk down the hall in silence until we get into the elevator on the way out of the building. I wonder if there’s another Freddie at another firm blowing whistles about the high leverage of bad assets. Nobody wants to talk about this.
“Oh my God, Nick. He’s pissed.”
“Yes.”
“What am I going to do? I think I need to find a new job.”
“You did your job, Freddie. And you stood up to him. You should be proud of that.” I feel I should be fully honest with him. “It wouldn’t be a bad idea to polish up your resume.” I think I may do the same.
“You think they’d fire me for telling the truth?”
“Like you said, he’s pissed off.”
“I was trapped, Nick,” he says, looking dejected. “What else could I report? Damned if I do, damned if I don’t.”
“That’s not true, Freddie. You did the right thing. That took a lot of courage.” I mean that. It’s always easier to see it clearly when it’s someone else.
“I need to go outside and take a walk.”
“Okay. I’m heading back to my desk.”
The elevator stops on seven and I step out and turn back around to Freddie. I hold the elevator door open.
“Freddie, you did fine. Screw him.” He nods and I pull my hand away and let the doors close over him like water over something sinking beneath the surface.
I get a coffee, wishing it could be gin and tonic, and start to my desk. Ron is walking around the area looking excited and sees me coming.
“Jack’s coming by.”
“Wilson?”
“Yeah, he should be here in a few minutes.”
“Why’s he coming here?”
“I think there’s a Knicks game or a Duke game and he’s taking some people.”
“And why’s he coming here?”
He shrugs. “I don’t know. I guess he gets to see more people this way. You know Jack. He’s a politician on the campaign trail.”
“Yeah. Try not to kiss him.”
I get in my chair and check to see where the market has moved on the bonds I’m following.
“Hey, Nick. Can I ask you something?” William walks up to me with a tone of voice that tells me this is something he should have apologized for long ago. This is going to be bad.
“What’s up?”
“You remember the night at the Soho Grand?”
“I do.” His timidity is putting me on edge. It would be much better if he’d blurt it out.
“Something happened that night that I’ve been dealing with. My version is what happened, not her version. But I think I need your help with it.”
“Come to the point, William. Jesus Christ.”
“I’ve been accused of assault. By a stripper. Who was there that night.”
“Rape?”
“Technically, yeah. She agrees we started consensually, but she says I got rough and she wanted to stop and I wouldn’t.”
“And what do you say?”
“It was consensual the whole way. We got into some bondage, it was a little rough but totally consensual.”
“You’re sure?”
“I’m sure.” William doesn’t sound indignant. He sounds nervous. I don’t bother to ask how much coke he did that night.
“Is this the girl who was passed out in the bedroom?”
“No, she’s not one of the girls who spent the night. She left early on during the party, just after we were together.”
“Why do you need my help?”
“She wants to file charges. Criminal charges.” He’s starting to gather some indignation. “I’ve had to get a lawyer and I’ve managed to keep it from my parents and my fiancée so far. It hasn’t gone anywhere yet and my lawyer is talking to the cops and the DA’s office. He’s trying to see if the whole thing can be dropped or at least handled without charges.”
“You mean pay her money to make her go away.”
“Basically. Yes.”
“William, I don’t want any part of this. Why the hell are you talking to me?”
“I have a meeting with the assistant district attorney. He needs to decide whether or not to proceed with a case. It’s me, my lawyer, and the ADA. He’s also going to meet with the girl, but separately.”
“I’m sure he’d love to get a case off his desk. I still don’t know why you’re talking to me.”
He clears his throat. “The ADA would like to speak with you since you were at the party, at least the beginning of it. My lawyer also thinks it will help me to have a character reference.”
“If you want a character reference, try your fiancée.”
“Nick, I can’t. She can’t know about this.” He pauses. “Oh, were you kidding?”
“No.”
“Oh. Well, I can’t. She would kill me. That would end things between us. My lawyer thinks it would be good to have someone who’s known me for years. Ideally my boss.”
I lean back in my chair and break eye contact for a long time. I’m not trying to send him a message. I really don’t know yet how to handle this. “Jesus, William.”
“I’m sorry, Nick.”
We sit in silence together for a while. “Tell you what, William. I’ll talk with your lawyer first. Privately. I’m not going to lie to the DA. I’m not going to tell him you’re a goddamn saint. After I talk with your lawyer, if he still thinks it’s a good idea for me to meet with the DA, I’ll do it.”
“Okay. Thanks, Nick.” He seems just happy the conversation is over rather than truly appreciative.
A few minutes later there’s commotion over by the elevators. I know Jack has arrived on the floor. I can’t see it but I can hear distant rumbling and I know something’s happened, like standing in the stadium parking lot at kickoff. The commotion is moving closer.
“Hey, Jacko!” I hear a few other morons making catcalls.
Jack comes through a ring of people, and when he sees me, he points at me. I’m on the phone and I give him the finger and he does a belly laugh. He walks over and takes the phone out of my hand. “I’ll call you back in five minutes,” he shouts down the phone before slamming it into the cradle.
There’s no point in complaining about this, even in a joking way. “What are you doing here?”
“We’re on our way to a game. Thought I’d stop by. Press the flesh. How are you? What’s going on? Everything good?”
“Great.” I stand up and give him a hearty handshake where we’re wrapped more around the thumbs than the palms. “You look the same. Bloated and happy.”
“Hey. I’m sensitive about that. Don’t make fun.” He laughs and gives me a half hug with his right shoulder lined up with my right shoulder. It’s more of a bump than a hug.
His left hand comes around to pat my back but instead gets a fistful of my shirt and clenches it. His body tips forward and his right shoulder leans into mine and presses. “Hey, Jack. Jesus.” His face lowers so his cheek is resting on top of my shoulder. His full weight is on me so I have to drop step a foot back to hold him up. He’s mumbling words I can’t understand and it sounds like he’s saying “apple.”
“Jack, what are you doing?” It’s a stupid question. I know he’s not choosing to do anything right now. Something’s very wrong.
He lets out a muffled yell of pain and his knees buckle. His grip on my shirt pulls me down too, and I lower him on his back and I’m on top of him.
I look up and see a few dozen people standing around us, open-mouthed. “Call an ambulance!” I look back down and Jack is red-faced, eyes clenched closed and barely breathing. I’m not sure he’s breathing at all and it actually crosses my mind how much I don’t want to give him mouth-to-mouth. It might have to be me. We’re practically spooning and nobody else is within ten feet.
Jesus Christ, I don’t want to be here. “Does anyone know CPR?” I think it’s twenty chest compressions, then a breath. Or fifteen compressions. Maybe I’m supposed to tilt his neck to clear the airway. “Any of you idiots know CPR!”
“Nick, I called an ambulance.” It’s William.
“Good.” I look down at Jack. There’s shallow breathing. His eyes are watery and open in little slits. “Hang in there, buddy.”
He starts to speak. I can’t hear a voice. It’s more like he’s shaping his breath into words. He brings his right hand up to clench my shirt too and brings me closer. We’re nose to nose with about four inches to spare. His breath seems to be coming a little easier. I can tell he’s already had a few drinks.
“Nick. Tell my wife I love her very much. She knows.”
“What?” I have an image of standing over Jack in a casket holding hands with a woman I’ve never laid eyes on before, telling her how much Jack really loved her and how he spoke of her often.
“You’re right. Screw that. She’s a pain in my ass and she’s my ex-wife anyway.”
“What!” He’s clowning around with his last breath.
“Seriously, Nick.” He tightens his grip and brings me closer. We’re down to three inches from touching noses. He’s grimacing away the pain. “If I don’t make it, talk to my kids. Tell them something nice about me. You can do that.”
I think I can. I may have to get creative. “Sure, Jack. You’re going to be fine, though. Stop talking and try to breathe slowly.”
I’m pretty sure you give CPR only if the person isn’t breathing, so I think I’m in the clear for the moment. “Where’s the goddamn ambulance!”
“Two more minutes, Nick.” It’s William again.
“Hold on, Jack,” someone shouts from rows away, and this starts a ripple of encouraging words from dazed-sounding voices.
“Does he need some water?” William is trying to help again. He feels like he’s part of the rescue team.
“William, I don’t know what the hell he needs. Just clear a path for a stretcher.”
William goes about this, parting the ring of people and walking the shortest route to the elevators just as one opens and three paramedics come running out.
“Follow me,” William yells, feeling very involved now. They all run up, and I roll away from Jack and watch seated on the floor while they check Jack’s vitals and get ready to move him. They’re fast and decisive and relaxed. They’ve obviously seen a lot worse than this.
In a moment, Jack is up on the stretcher, wheeled to the elevator, and gone. I’m still sitting on the floor by my desk. Everyone is still standing around in a looser formation of the ring they had been in while Jack was on the floor. They’re shocked and everyone is talking in whispers.
Most of the people are like kids having watched their sports hero fall with a career-ending injury. I feel more like the player one locker down who’s been taking the same steroids for the last ten years.
I’m still sitting on the floor with my legs straight out. Ron walks over and offers a hand up. I take it without thinking or looking and he pulls me over and into my chair.
If I can’t find the fearlessness to make a change, maybe I can find the fear of not making a change.