Metronome, The (31 page)

He who saves one life saves the world
.

Nemzhov rubs his chin. “I don’t like it, but if it’s important to you…we can arrange for some killer-for-hire to admit to murdering Brockton and Streltsova. We have plenty of those in our jails, should be able to find one that fits the profile. People will bring up the old story of Streltsova reporting on the 1999 bombings in Moscow being the work of the FSB and the GRU.”

“Was it?”

“No, but if some people want to think that, that’s fine. Keeps them chasing the wrong scent. OK, I can’t promise tomorrow, but before the week is over there will be a story that should free Jeff Kron. So, Pavel, any other requests?”

“No, that’s the only one.”

“Then I have one question. The same one I asked earlier: Why did your father kill himself? I am sorry, but this haunts me.”

Because you did not see the whole diary, you don’t know how much he hated people like you. He’d been forced to play your game his whole life, but no longer
. I simply reply, “I think he did not want you to be able to pressure me through him.”

Nemzhov nods, unconvinced.

Sarah has an interview in Boston on Thursday. She’s going to leave tomorrow and come back Thursday evening, spend a day with her sister who lives there.

“It’ll be good for me to go, clear my head a bit,” she says sadly. “I’ll try to survive a day without seeing you.”

I show her my father’s diary and read the first few pages. I don’t think I am doing a good job translating.

We make love, as if this is the last time we’ll see each other.

Wednesday, June 28

I take care of business in the morning. First, go to the notary to complete my will. Then, to the local Kinko’s to make copies. Lastly, back to my apartment, prepare e-mails and two packages to the
Wall Street Journal
and
The New York Times
. There is not much else to do but wait.

My phone wakes me up at half past one in the morning. The caller ID says it’s from somewhere in Russia. A heavily accented voice tells me to check the news. I go to my computer and here it is: A man serving a life sentence in a Moscow jail confesses to killing John Brockton and Natalya Streltsova in Santa Barbara. The police confirmed that the man was in California during that time. The reason is given as contract killing, revenge for a business gone wrong between Brockton and one of the Russian mafia chiefs, since killed in another dispute.

I call Sal Rozen. “Sal, this is Pavel.”

“Do you look at your watch before you call?”

“Go to your computer, search the news for Brockton.”

I hear some swearing and footsteps as Rozen carries the phone with him, clicking of keys, then, “Holy shit! What did you do?”

“What do you mean?”

“Don’t BS me, if this is not your work, I am the Pope!”

“Sal, is this enough to get Jeff Kron out?”

He thinks, then I almost hear him nod. “Yeah, this should work. I’ll start tomorrow. You know Melissa Kron will turn heaven and earth with this.”

“Thank you, Sal.”

“No, thank you. But you still did not tell me what you had to do.”

“Sorry, Sal, I can’t.”

Thursday, June 29

I wake up to a beautiful sunny morning. I’ve lived here for twenty years, and I never liked the East Coast summers. Give me the heat of California or the rain of Canada, but please spare me New York’s humidity. But sometimes we get these wonderful June mornings when the air is clear and crisp and the sun is bright and not too hot and the city feels like it just arose from the ocean like Botticelli’s Venus, and you feel like you might just get that second chance at life.

I know what I have to do but I prolong it, go for a nice leisurely breakfast with an extra cup of coffee. I wonder if Julius Caesar hesitated before crossing Rubicon. Perhaps took a few hours, sat down for a nice lunch? No, I am sure he just plowed through.

“Enough!” I say out loud, spooking a nice tourist family at the next table. I push myself away from the table and quickly walk home. I read through one of the e-mails I prepared yesterday to make sure I got it right, then quickly hit “Send” on all of them afraid that if I don’t do it now, I’ll never do it. Then I grab the envelopes for the
Wall Street Journal
and the
New York Times
, walk over to a mailbox on the corner and quickly push them in.

Now that the deed is done, for the first time in many months I feel light and happy. The way one feels when a difficult task has been completed. I think of Sarah coming back tonight. Later, I will go buy some flowers and get us a nice dinner and a good bottle of wine.

I arrange things on my desk. Make sure the removed pages are in their proper places in the diary. I turn on the old metronome, the way my parents did when I was a child. I listen to its sound, tuning out the noise of a busy New York street and imagining my parents as teenagers, huddled around a wooden crank radio, hungry and cold, armed only with their will to live.

I know it's too soon. I know both Sarah and I should take our time. My logical, reasonable self knows this. But my other self is not listening. Too often have I been a careless rogue. I blew it with Anya and Karen. I don’t deserve it, but here it is, another chance. I am afraid to lose it. Simplify: go back to physics, teach, be with Sarah. I know she wants a child, perhaps we can have one.

Monday, July 3

The brief service has ended. With short notice and the holiday weekend, not many have attended.

Two men are standing to the side, talking. The older one, in his fifties, wearing a nicely dark suit, is short and overweight but otherwise not particularly noticeable. Not so the younger one with sunken cheeks, deep-set eyes, and thin lips, dressed in a leather jacket and speaking with a heavily accented, high-pitched voice:

“There was never any danger of him being able to send the materials out. When he was in St. Petersburg, we got to his computer and changed the e-mail settings. Anything he sent would go first to our servers where we would check it before forwarding.”

“What about other communication? Did he mail anything or tell anyone?” asked the older man.

“He was followed for some time. It was an effort to keep him safe, the damn fool kept walking into dangerous situations. The two envelopes he put in a mailbox were removed immediately. And of course his apartment was bugged and his phone tapped. We think he did not want to jeopardize others so he never shared anything of importance with them.”

“And this is being treated as a suicide for sure?”

“Oh, yes. We’ve been careful to leave no marks. Newspapers reported that he killed himself because he was depressed over the failure of his fund and the recent suicide of his father. His girlfriend found him in a bathtub and called 911. Officially, he took a bunch of sleeping pills and cut his wrists to be sure. He made a new will just a day prior and left it right on top of his desk, which showed that he was in a suicidal state of mind.”

“Nicely done, nicely done. I actually was not convinced about the wisdom of this operation. It has not succeeded, but you handled it well.”

“Thank you. We were never sure about Rostin, but the colonel was interested in finding a connection to Baker and, with us in control, thought that the risk was worth it.”

“That’s OK. We’ll find another, more conventional way of getting to Baker,” said the older man. “Campaign contributions, I know a few lobbyists he is friendly with.”

The younger one continued, “To be on the safe side, we’ll be closing Greg Voron’s fund and the associated partnerships. We’ve been looking to do this anyway. Our people think that the scheme he’s been running is coming to an end and it’s time to cover our tracks.”

“And what was in Rostin’s will?”

“Pretty much all of his assets were the proceeds from the sale of the apartment on Malaya Sadovaya. He left half to his wife Karen, and the rest was split between Andrei Rostin, his daughter Jennifer, his girlfriend Sarah, and Anya Weinstein from Moscow.”

“Who is that Anya?”

“A daughter of his old professor and, we think, Pavel’s girlfriend before he met Karen Baker.”

“Were there any instructions?”

“Only that Andrei Rostin should use the money to visit Paris and that Jennifer should study what she wants and not what others tell her.”

“You are not going to try to hold back the money?”

“No, don’t want to attract any more attention. This is not our money anyway. The neighbor purchased the apartment and paid for it.”

“And that Jeff Kron affair?”

“Let him be released, who cares now? It’s an old case, nobody’s interested.”

People started leaving. A group of three women were moving past the two conversing men, when one of them, a nice-looking blond in her early forties, stopped and walked over to a black-haired woman standing by herself. The two women stood for a few seconds looking at each other, then embraced and cried. The brunette reached into her bag and gave the other woman a notebook.

When the blonde woman then rejoined the other two, the oldest one said sharply. “Karen, why are you hugging that slut? Is it not enough that he left her money? You should contest the will!”

“Oh, shut up, Mother,” replied the blonde woman. “She is not my enemy and nobody is going to contest anything. And tell father, since he did not show up in person, that I will be moving out and taking the kids.”

The youngest of the three asked, “Mom, what did Sarah tell you?”

“She said that she does not believe that your father killed himself. And she gave me the notebook that he brought from Russia. She said you should have it.”

“I presume that was Karen Baker?” asked the older man.

“Yes, it was her with her mother and daughter. Sam Baker and Pavel’s son did not make it.”

“And the woman she embraced?”

“Sarah Shoffman, Pavel’s lover that found him.”

“And who is that?” the older man nodded toward a young Asian woman, standing by a tall blond man.

“Oh, that’s Suzy Yamamoto. She did a bit of research for Pavel. Don’t worry about her, she is totally irrelevant.”

Almost three thousand miles away, four people, three men and a woman, sit around a small table in a private room of a U.S. penitentiary. A tall, blond man in his early 20’s wears an orange jumpsuit of an inmate. A slightly older woman in a business suit on the man’s right bears a family resemblance to him. The man next to her is dressed casually in a blue open-collared shirt and jeans. His pose is relaxed, almost leisurely, left hand dangling, but fierce dark eyes betray the intensity. The last one, a short bold man in khaki pants and a poorly matched jacket with a chessboard black and grey pattern leans forward and gently drums his fingers against the table.

“Jeff,” said the woman to the inmate, “This is Mr. Adrian Cronby, he is an attorney with the Innocence Program organization. He will help me and Detective Rozen to overturn your conviction.”

“Thank you, Ms. Kron,” replied the man in a blue shirt. “Mr. Kron, nice to meet you. You can call me Adrian.”

“Please call me Jeff.”

Adrian nodded, “Jeff, your chances of being released are excellent. Admission of guilt by a known hired killer is a powerful exculpatory material. In addition, Detective Rozen briefed me on a number of inconsistencies in your case that were swept under the rug in the rush to convict.”

“Do you know why the killer suddenly made his admission now?” wondered Jeff.

“Frankly, Jeff, I don’t know,” shrugged Adrian. “Perhaps his conscience caught up with him. Does it really matter?”

Jeff turned to the man in a checkered jacket:

“Detective, I am sure you had something to do with this. That man that you brought here to see me not long ago …”

“Jeff, I don’t know,” interrupted the detective. “Let’s focus on getting you out of here.”

The people described in this book are fictional. But most of the historical events and characters have been reproduced faithfully. This
Commentary
is intended to help the reader distinguish between fact and fiction.

The Leningrad Blockade

While the Rostin family is fictional, the story of the siege is as described: mass starvation, freezing temperatures, constant bombardment, cannibalism. The estimates of the human toll range from seven hundred thousand to a million and a half. Almost half a million are buried in 186 mass graves of Piskariovskoye memorial cemetery.

It is also true that the military leadership wasted countless lives in senseless frontal attacks and that the leadership and those in the food supply chain did not suffer from lack of food.

Illustrative sources:

“The 900 Days: The Siege of Leningrad” by Harrison Salisbury,
http://www.amazon.com/The-900-Days-Siege-Leningrad/dp/0306812983/

“Leningrad – State of Siege” by Michael Jones,
http://www.amazon.com/Leningrad-State-Siege-Michael-Jones/dp/0465020356

The Financial Crisis of 2008

The roots of the crisis are represented faithfully. The bank that Mikulski and Rostin worked for is modeled after Lehman Brothers but truly could have been any of the large Wall Street banks.

It’s well known that the real estate bubble and subsequent collapse was the immediate origin of the crisis. In a greatly simplified picture, three distinct forces combined to lead to this trouble:

1) “securitization” of mortgage obligations where residential mortgages were “pooled” together to create consolidated debt instruments that could be sold to investors,

2) government’s policies that, in the name of encouraging home ownership, pressured quasi-government organizations such as Fannie Mae to purchase lower-quality (subprime) mortgages, and

3) ratings agencies’ (S&P, Moody) inability to property rate the risk of such debt instruments or unwillingness to antagonize their Wall Street clients.

As the result, financial institutions were able to obtain high ratings for pools of low-quality mortgages and sell them to investors that relied on these ratings. Essentially, these collections of bad loans were marketed like high-quality AAA corporate debt in mistaken belief (or intentional lies by those that understood the real hazard) that combining multiple loans reduces the overall risk. Such risk reduction would have been true if these loans were not highly correlated – but they were correlated because they all depended on constantly rising market prices. The lenders could make loans without worrying about such loans actually performing because they could package and sell the loans to someone else. Given the human nature and lack of oversight, creation of such moral hazard was bound to lead to a disaster.

It is not the book’s intent to create an impression that the Russian security services created the crisis. In the book, Voronezhsky is smart enough to take advantage and profit from the bubble and the financial chicanery that went with it, but the crisis was manufactured entirely within the US.

Illustrative sources:

“The Big Short: Inside the Doomsday Machine” by Michael Lewis,
http://www.amazon.com/Big-Short-Inside-Doomsday-Machine-ebook/dp/B003LSTK8G

“All the Devils Are Here: The Hidden History of the Financial Crisis” by Bethany McLean and Joe Nocera,
http://www.amazon.com/All-the-Devils-Are-Here-Financial/dp/
159184438X

The Quants of Wall Street

In the book, Pavel Rostin is a physicist that goes to work on Wall Street as a quantitative analyst, or a “quant” in the Street’s lingo. A quant is a person that applies mathematical and statistical methods to financial problems, usually in derivatives pricing, statistical arbitrage and risk management. Career jumps from physics to Wall Street were not entirely uncommon in the 1980’s and 1990’s, with one of the better known examples being of Emanuel Derman, physics PhD from Columbia that joined Goldman Sachs in 1985.

One of the most successful theories in finance is that of Black-Scholes formula that applied some of the theory behind thermodynamics to options pricing. While Black-Scholes theory was developed in 1970’s, it was not until 1990’s that Wall Street kicked off the era of exotic options and derivatives. The complex formulas began to be used extensively in ‘financial engineering’ where ever more complex ‘synthetic’ financial instruments were being created. For example, in 2000 quant named David X. Li proposed a solution to value so-called ‘collaterized debt obligations’ or CDOs using the Gaussian coppola. This formula was used to price tranches of mortgages.

But the problem with these attempts to apply the laws of mathematics and physics to financial markets is that financial markets are different – they highly depend on the actions of others. As Nasim Taleb warned, investors are “fooled by randomness” and don’t expect deadly volatility jumps that occur in financial markets. Mathematical and physical problems are right in typically assuming the famous bell-curve distribution in the natural world. But this distribution, as originally pointed out by Mandelbrot, does not work in finance.

The perils of quantitative finance are perhaps best illustrated by Robert Merton and the history of Long-Term Capital Management (LTCM). Merton received the Nobel Prize in Economics in 1997 for his contributions to the Black-Scholes-Merton formula. He was a co-founder of LTCM which earned fabulous returns for its investors for four years by using high leverage. But in 1998 the volatility turned against their positions, the fund lost almost $5B and had to close soon thereafter.

One can argue that the same recipe of excessive leverage and high volatility brought down the markets in 2008. The profits generated prior to the crash have remained private, while the losses were born by everyone.

Illustrative sources:

“The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Desroyed It” by Scott Patterson
,
http://www.amazon.com/The-Quants-Whizes-Conquered-Destroyed/dp
/
0307453383

The Financialization of America

The deregulation milestones and various statistics are reproduced faithfully. While there were many voices calling for tighter restraints of financial markets after the 2008 crisis, in reality nothing have changed. In 2014, the financial institutions are bigger than ever. New and improved rackets, such as high frequency trading and creative derivates, are being created as regulators turn a blind eye. The finance industry continues to be by far the Number 1 in campaign contributions and lobbying expenditures. In 2012, the average Wall Street salary was $363K. In comparison, the average salary in New York was under $68K and median for US households only $50K.

Illustrative sources:

“How the West Was Lost: Fifty Years of Economic Folly and the Stark Choices Ahead” by Dambisa Moyo,
http://www.amazon.com/How-West-Was-Lost-Economic-ebook/dp/B00486UAXY

And many others.

On the Russian Financial Crisis of 1998

Under Yeltsin, the Russian government had been funding itself by taking on short-term debt at high interest. The situation could not continue. On August 17, 1998, the Russian government defaulted on its domestic debt, let the the ruble exchange rate plummet. And froze all bank accounts. Almost half of Russian banks went bankrupt. The Russian middle class lost most of its savings. Domestically, it resulted in halting some of the economic reforms, and revitalized secret police took power and wealth from the original oligarchs and replaced them with “their” oligarchs. One of the losing oligarchs was Boris Berezovsky who had to escape Russia; in 2013, he was found dead on the floor of his bathroom.

One of the international consequences was international market turmoil that brought down LTCM, probably the best known quant hedge fund of the time. The Federal Reserve stepped in to organize a rescue. Debatably, this has started the Federal Reserve on a dangerous road of ever-increasing market interference. In August of 2014, the Federal Reserve’s balance sheet stands at almost $4.5 Trillion, leveraged at over 70:1 (more than twice the leverage of Lehman Brothers when the famous bank collapsed). Since the 2008 crisis, the Federal Reserve has been buying 60-70% of the U.S. debt every year.

Illustrative sources:

“How Capitalism Was Built” by Anders Aslund,
http://www.amazon.com/How-Capitalism-Was-Built-Transformation/dp/1107628180

“The Sale of the Century: Russia’s Wild Ride from Communism to Capitalism” by Chrystia Freeland,
http://www.amazon.com/Sale-Century-Russias-Communism-Capitalism/dp/0812932153

The Voronezhsky Document

The document is fictional. The closest equivalent that the author is aware of is in writings of Igor Panarin. Igor Panarin is a Russian professor and diplomat, currently the dean of the Russian Foreign Ministry School for future diplomats. In 1997, he was awarded Doctorate in Political Sciences for a thesis titled “Informational-Psychological Support of the National Security of Russia”. In 1998, Panarin formulated his hypothesis of the eventual breakup of the U.S.

In 2014, it is hard to ignore increasing signs of emerging China-Russia axis to oppose what these countries view as “American hegemonism”. Besides closer economic and military cooperation, both countries are actively trying to move away from using the US dollar in international transactions. In particular, China is positioning renminbi as another ‘reserve currency’.

On Russian Claims That the Promises Made to Gorbachev in 1989 Have Been Broken

Numerous participants in the Malta summit of 1989 and in subsequent discussions confirm that there was a promise to not expand NATO to Russia’s borders.

Illustrative sources:

“Superpower Illusions” by Jack F. Matlock, Jr., 2010 by Yale University.
http://www.amazon.com/Superpower-Illusions-Jack-Matlock-Jr-ebook/dp/B00492CRVU

“NATO Enlargement: Illusions and Reality” edited by Galen Carpenter and Barbara Conry, 1998 by the Cato Institute. Especially “The Perils of Victory” by Susan Eisenhower.
http://www.amazon.com/NATO-Enlargement-Ted-Galen-Carpenter/dp/1882577590

The Statement of Richard Palmer on Infiltration of Western Financial System

This is factual. The hearing took place on September 21, 1999. The statement has been reproduced faithfully. It is widely believed that very substantial assets have been transferred out of the collapsing Soviet Union and hidden in the West. How much, where this money are now and who controls them, we don’t know.

See, for example:
http://democrats.financialservices.house.gov/banking/92199pal.shtml

On Financial Warfare

On June 23, 2006,
The New York Times,
the
Wall Street Journal
and the
Los Angeles Times
published articles about the U.S. government sifting the international banking data, the data that has been viewed as private.

Illustrative sources:

“Treasury’s War: The Unleashing of a New Era of Financial Warfare” by Juan Zarate, 2013.
http://www.amazon.com/Treasurys-War-Unleashing-Financial-Warfare-ebook/dp/B00DFM5C3U

The Wolfowitz Memorandum

The concepts of the memorandum have been reproduced faithfully. See, for example,
http://work.colum.edu/~amiller/wolfowitz1992.htm
.

Zbignew Brzezinski’s Book

The concepts of the book have been reproduced faithfully. See, for example,
http://www.amazon.com/Grand-Chessboard-American-Geostrategic-Imperatives-ebook/dp/B005OSFX0A

Russian Poets and Writers

Anna Akhmatova: the pen name of Anna Gorenko (1889-1966), one of the most acclaimed Russian poets of the 20
th
century. Suffered greatly from the Stalinist terror: personally condemned and censored, while her husband was executed by the secret police and her son spent many years in the Gulag. She was in Leningrad during the most horrible part of the siege. In 1946, Andrei Zhdanov banned her poems and had her expelled from the writers’ union.