Dear Money (38 page)

July 7, 2005: London's subways and one double-decker bus are hit by Islamic terrorist bombs, killing fifty-two, wounding more than seven hundred. Britain's worst attack since World War II. The Dow continues to rise, breaking records; stock options multiply. Again we vacation in Maine, spending our week in a rented house down the beach from the Chapmans', all of us falling in love with the spot, the intoxicating view working its way into our bloodstream, my daughters coming to think of Pond Point as their summer spot where they will return year after year, summers following summers to the remotest outposts of time. Hurricane Katrina slams the Gulf Coast, killing more than a thousand, displacing millions, nearly wiping New Orleans off the map. Our infrastructure begins showing signs of inevitable collapse—bridges fall, roads crumble. Saddam Hussein goes on trial, and on the same day an earthquake in Kashmir steals some seventy-nine thousand souls.

"It never stops," my mother used to say when I was a girl. "If it's not one thing, it's another. It never stops." I would look at her and wonder about the consequences of
it
stopping, of
it
all suddenly stopping.

My annual bonus doubles, then triples, then the sky's the limit: B&B stock options that start amassing a beautiful, billowy wealth. And wealth, like certain kinds of sleek sailboats, made one swifter, allowed you to sail faster than the true wind of the market.

My father tells me he is proud of me for taking responsibility for myself. "But," he asks, "what is it you make? What are you making? What service do you provide?"

My mother asks, with solemn, doubtful eyes, if this is what I truly want.

My brother says nothing. I want my brother to say something. I remember the first summer he went away to camp, remember his return. I shadowed him for days, kissed him whenever I could. It was the first time I understood that people left.

The Dow hits a milestone, topping eleven thousand for the first time since 2001. Vice President Cheney accidentally shoots his friend in the face and chest while quail hunting. Representative Tom "The Hammer" DeLay steps down, forced out of politics altogether. Saddam is found guilty and sentenced to death for crimes against humanity. President Bush and Prime Minister Tony Blair admit mistakes were made and express regret for the abuse of the Abu Ghraib prisoners.

It never stops: journalists killed in Iraq, soldiers killed in Iraq, civilians killed in Iraq, riots in Afghanistan, nuclear missile tests in North Korea, Enron executives Kenneth Lay and Jeffrey Skilling convicted, thousands dead in Indonesian earthquake, sectarian violence in the Sunni Triangle, Darfur genocide, Fidel Castro pretends not to be seriously ill, gay marriage rejected, secret court to rule on wiretaps, U.S. revises torture policy, Democrats revise primary schedule, Kenneth Lay dead, grim report on Iraq, Pluto demoted and no longer a planet.

The mortgage market frothed. Homeownership rose to a record of almost 70 percent. Three headlines I particularly remember:

June 2005:

The Trillion-Dollar Bet—Homeowners Take Risks
in a Bid for Lower Mortgage Payments

May 2006:

The New Road to Serfdom—An Illustrated Guide
to the Coming Real Estate Collapse

September 2006:
Mortgages Grow Riskier and Investors Are Attracted

In April 2006, Lily Starr published her second novel. It became a much-publicized bomb, panned in the daily and Sunday papers. "It took her twenty years to write the first, radiant book. Apparently that's the span of time she needs to write something worth reading." And "This inelegant attempt proves she's a one-book wonder." By June the novel was buried beneath the sediment of other books. I felt sorry for Lily; I remembered the penetrating humiliation; the reviews were likely unfair. But I did not have much time to reflect. I had taken the plunge into what made the world go round, into multimillion-dollar trades and dazzling nights. Was I throwing money away? Yes, I was. And the more I threw, the more the apparent wind behind my sleek vessel brought money my way.

Theodor had found an entirely new and powerful focus, which allowed me to see for the first time that he hadn't been so carefree in our previous life as I'd always supposed. Our grinding financial concerns had bothered him, but now he seemed re-leased from those concerns, and this I relished and celebrated quietly every day. I loved that he was fabulously lost in his work. He'd completed two new commissions and had a show opening in Amsterdam. He'd hired an assistant—a grad student named Harrison, who wore the same T-shirt every day and followed Theodor around like a shy but earnest puppy—and the studio was full of the lively sounds of tinkering and banging. Theodor's sketches were all over the walls, his plans for new projects expanding. In his spare time he made necklaces, really smashing in their filigree design. He would come home from the studio and we'd have long, amusing conversations over late dinners, and I'd catch myself thinking, in a blinding flash of the obvious: Hey. He's funny, this guy I married! I kind of like him.

Every day, crossing the bridges into Manhattan, the morning sunlight in all the glass, the traders wonder if today will be the day—because it might, and often is, at least for someone. Every single trader out there is waiting for that day. Again, it is not dissimilar to the writer waiting for the big moment of recognition to occur, to be hailed as great and showered with the reward.
Today could be the day.
But of course,
it
comes when you are not expecting it: the big day in the big game.

The first sign was the lights on the turret, the phone. They were blinking wildly. I knew who was calling. I could tell from the impatience of the lights. I will never forget the day. I will never forget what I was wearing. It was the skirt I'd worn on the Monday after my first failure: chocolate-colored, a different cream shirt. The skirt had a good vibe, made me feel lucky, strong in my perseverance.

Snake was in Calcutta for a funeral. So I was first on the desk, Tiger having been stolen away by another bank the year before, along with Josh. Sam had moved to the Wild West of subprime, along with the fabulously successful June Scarpetti. Gus, the analyst, was now an associate and next to me in the hierarchy. The new kids were kids, smart, sharp, going places, but still just on the threshold, freshly minted from the London School of Economics and MIT: Jon, English, a cricket star, and Pat, American, a swim team star, both white boys. They called me, with Jon's British affect, "Mum." The tag stuck after I'd taken them into Win's office for a sit-down, spent a half hour explaining how the floor worked. Did I feel as if I were speaking a foreign language? Yes, but it was a second language, one in which I'd become fluent. Did I borrow something from the Win Johns playbook? Yes, and I may have laid it on a little thick. I was unseasoned enough to want to impress these two by baffling them. Win would not have done that, and when I was finished the young boys sat there, completely flummoxed. "Jon, Pat, you're staring." Two schoolboys in their coolly pressed white shirts, jaws agape. "Yes, Mum. Sorry," Jon said. And it stuck.

I caught hold of the blinking lights: Cerbeus from Houston on its direct line. Just then our salesperson—a thirty-year-old girl with perfectly blown-out hair, just the same every day, and smart, demanding eyes—marched over, pointed to me and said, "You. With me, now," lifting me with her finger, using that tone of the salesperson, a tone that won't quite accept that she's not a trader, that at the end of a long day she goes home in a cab rather than a town car. Okay, I thought, I'll give her this. This is big and she wants me next to her.

Perfectionism, I came to understand, is a good thing in preparation, but a bad thing once a trade is being executed. You have to be able to let go. In rehearsing for a concert, a musician practices over and over to get it right. But on the night of the performance she has to let all of that work vanish, allow the feeling to take over, for spontaneity to carry her to the far reaches of her talent.

I stood up to follow the salesperson, turned to Gus and said, "Whatever you do, don't buy another mortgage." I knew what was coming. Gut feel. The split decision that you can't be taught. It starts to seep into you, along with the squirt of adrenaline. Suddenly everything's switched on high alert. I knew Cerbeus was thinking of lightening up its mortgage holdings, so much so that the salesperson's tête-à-tête at the end of the row to warn me was completely unnecessary. I was barely listening to her, nodding in agreement, but all I could think about was how to reduce my risk. I had to, in order to take on a lot of Cerbeus's risk, which was what I was driven to do, of course. It is what all traders are driven to do, because in the end, the glory goes to the biggest stars.

The guy's name was Chuck. He was on the direct, waiting for me to pick up, to price his trade. Chuck's thick Texas drawl cut across the line, skipping all of our usual pleasantries. Indeed, he wanted to sell me mortgages, FN 5.5s with a notional value of $5 billion. I'd played golf with Chuck, a slender, dapper man who wrote poetry in his spare time (fancied himself a Wallace Stevens) and loved that I'd been a novelist. Of all my clients, he was the one who asked me most about that career, had read
Generation of Fire.
He had put money in a pool with some of his colleagues, betting that within five years—start to finish—I'd be writing books again. I didn't hear this from him. He was an honest guy. No insider deals. But I did let him know I knew, told him he was dead wrong. "This is too exhilarating," I said. "Been there, done that." He gave me a big warm flirtatious smile that seemed to indicate he knew more about me than I did about myself. We were in the dry heat of a Scottsdale golf course on business, gigantic saguaros rising with all their limbs from the dirt, and the green grass as startling in this climate as a field of emeralds. A lot of Wall Street guys had that tic, thought they knew you better than you knew yourself. I shot him the same smile back. It became our own little game of truth, a way to connect.

Now on the phone: he knew where 5.5s were trading; he had been watching the market, waiting for this last little rally before making the call. It was the start of a new quarter, and he needed to unload them and was willing to sell them at a small discount if I'd take the risk of the full size, all in one clip. Five billion dollars in one trade. It was five times the amount of FN 5.5s I'd seen traded all week. In one trade. I priced the risk 6 ticks below the bid side, 98–24 bid. "I need 98–26," he said, his tone devoid of the banter that typically accompanies price negotiations. He meant business. This was the turning point,
my
turning point.

"Done," I said, dropping the line to return to my desk to focus on the risk—my risk now—and leaving the salesperson to confirm the trade. "Well," I said to Gus, "today just got a little more interesting."

I didn't know it, but we were just getting started. The deal took three days. On the second day Chuck offered me another bundle, as big as his offer the day before, again worth $5 billion. Later that day he offered a third bundle—$6 billion in notional value. I bought all three lots.

I didn't really have a choice. With all three lots I'd have more control of pricing, no competition with other dealers for positions. The more you control the information flow, the more you know, as with stud poker: if you have three kings, and an opponent is betting as if he has two kings, you know he's bluffing. But having all three lots, I also assumed tremendous risk. Sixteen billion dollars' worth of bonds, all in one coupon. This was easily ten times as many mortgages as I'd ever had, as Snake had ever had, in risk. What if I couldn't unload them? In fact, this was the biggest single trade our desk had ever done, putting the whole Securitized Products department well over its risk limit. (The approval for me to go over the risk limit came, of course, from above, with, oddly to me at the time, Win dissenting. He was uneasy about the leverage, thought I'd succeed but didn't like the precedent for B&B, thought it invited a strategy that could prove dangerous if allowed to grow. But these were heady times.)

So what was on the line that required approval from the lofty white chamber above? If we go back to cars, you could say that I had, in effect, just bought all the new Toyotas in North America. They all belonged to me, in my chocolate skirt. It wouldn't be enough for me to say I had all the Priuses or all the Corollas. Rather, I had all of Toyota's cars. The job of selling them and making a profit was now entirely mine. The risk, of course, was that the market could decide it didn't want Toyotas anymore, not for a price that would make sense to me, that would allow for recouping what I'd laid out and, more important, what I'd borrowed. B&B didn't have all the capital that such a trade required. Actually, no bank could have had that kind of capital on hand. So here I'd have all these Toyotas that I hadn't paid for, but that I was responsible for, and that I would have to pay for if their value was adjusted down. The market could change its mind; it could decide it wanted GM's cars (with its Humvees and SUVs), could pass on my Toyotas. Of course the market didn't know I had all those Toyotas, giving me the advantage, and that's why Chuck didn't sell them around. Having all of them gave me the ability to manipulate and maneuver, to play to see what the market would bear. Now that I had priced the trade, I had to move the risk.

At the end of the second day, I set out my strategy at an after-hours risk meeting in the conference room. The head of Rates, the head of Fixed Income, Win, Snake (on a conference call from India) and Gus were there, among others. I was the only woman. I noted this fact as I always did, but had grown accustomed to the arrangement. (Honestly, the thought of my gender would be fleeting at best; with this kind of risk almost everything else seemed irrelevant. In a way, even when you are in there explaining your strategy, all you want to do is go out on the desk and trade. For me, risk like that is the only time I want to be at work. You wake up early, you get in early, you are
dying
to start trading again.)