Moral Hazard (2 page)

Only with Mike, with whom Cath shares a youth of student radicalism and an adulthood of socially disapproved smoking, is any degree of candour possible, and she collects his
obiter dicta
about the inherent instability of a market leveraged to the hilt. (‘The only perfect hedge is in a Japanese garden’; ‘They think they’ve beaten the odds, vanquished them. But these systems are never infallible. At some point, they
always
blow up.’) With her memorably described superiors, Hanny (whose skin ‘patched with perspiration at the slightest exertion’), Bart (who ‘feigned aggression like a barracuda’), Chuck (who ‘lived to please, loved to schmooze’) and above all Horace (‘wreathed with gossip, like mist on a mountain’), she must be more guarded. ‘Nearly everyone at Neidecker claimed to be above the fray, going along with absurdities of corporate life, while laughing up their sleeves,’ she observes. ‘Yet they guarded their positions on the food chain with the single-mindedness, the savagery, of wolves.’

The impossibility of speaking out is glimpsed at a corporate conference following the Russian default, when a colleague asks the obvious question of the CEO:

Cath knows enough of corporate protocol to understand: ‘The banker who asked the question was
dead.
’ But she has already inadvertently killed her closest friend at the firm, by previously blurting to Horace what Mike had told her of the frailty of a now-collapsing hedge fund in which the firm was invested. Mike loses his job, without rancour: ‘They would have fired me, anyway.’ Cath resigns hers when it’s no longer needed, without regret: ‘I hated every moment while I was there, but I’m not sorry for the experience.’

For Horace, they understand, it’s nothing personal; it’s just that ideology can brook no argument. ‘Mike and I, flotsam from the sixties, weren’t the idealists, not by any stretch; he was. Horace idealized unfettered markets, which he genuinely believed had the power to create a brave new world.’ At last, she learns second-hand that he, too, has been defenestrated, and Neidecker Benecke sold.

So, while
Moral Hazard
is a fine Wall Street novel, it is also more, enunciating as it does disquieting truths about a services economy. Cath is vulnerable, Bailey more so. The superior outlook from Cath’s workplace does not obscure its realities:

To make good her escape, she needs her dearest love to die. Moral hazard, indeed.

Modern working life is replete with unpalatable compromises and perverse incentives. The investment- banker-turned-anthropologist Karen Ho concludes in her fascinating ethnography
Liquidated
(2009) that Wall Street has pioneered a whole way of work—involving short time horizons, constant job insecurity, minimal institutional loyalty, parrot cries of ‘shareholder value’ and ‘creative destruction’—and mandated it for the rest of the world. In one of my favourite books about modern offices, Joshua Ferris’s
Then We Came to the End
(2007), a character wanders quietly back and forth, all the while composing ‘a short, angry book about work’.
Moral Hazard
is how that book might read.

Moral Hazard

How would you have me write about it? Bloody awful, all of it.

I will tell my story as straight as I can, as straight as anyone’s crooked recollections allow. I will tell it in my own voice, although treating myself as another, observed, appeals. If I can, no jokes or jibes, no persiflage—my preferred defenses. I’d rather eat garden worms than be earnest or serious. Or sentimental.

I recount the events of those years with great reluctance. Not because you might think less of me—there is always that. No, the reason is a rule I try to follow, summed up by Ellen Burstyn in the movie
Alice Doesn’t Live Here Anymore
: “Don’t look back. You’ll turn into a pillar of shit.”

See? I can’t help it. Wisecracking—a reflex. I’ve lived in New York for several decades, but I was born in Australia, where the fine art of undercutting ourselves—and others—is learned along with our ABCs. Australians—clowns, debunkers.

I have to start somewhere, so it might as well be with Mike.

I met Mike—beanpole Mike, angular and awkward as Abe Lincoln and looking a little like him—in Pasqua, a coffee shop in the World Financial Center, downtown in Battery Park City. Long gone, replaced by a Starbucks, Pasqua was popular with the bankers, traders, analysts, lawyers, and back-office types who worked in the center’s towers because the coffee was heavy, viscous, bitter—a powerful propellant. Not to be trifled with. Drink enough Pasqua coffee and you were
orbiting.

Mike was standing behind me in the impatient, early morning line that tailed out the door. I ordered a large black, and he said, speaking over my shoulder to the young man behind the counter, “Same for me,” to save time.

“Diesel fuel,” I said, conversationally, but staring ahead, as New Yorkers do, so as not to be intrusive.

“Liquid amphetamine,” he replied.

Amphetamine? The phrase “amphetamine activists,” from the sixties, somehow emerged from the recesses of my mind. I sneaked a look at him, taking in his large nose and tufty hair, and thought,
My age, ugly as an eagle.
I faced the counter again.

Through the window, across the damp plaza, last passengers were leaking from the Jersey ferry, heads bent against the puncturing cold, coats buttoned, scarves wound tight, gloved hands holding bags and briefcases or thrust into pockets. The Hudson was in a bleak mood, turned in on itself, indifferent, with scraps of ice bunched at the edge, driven there by the current.

Our paths crossed again several days later because, as it turned out, we both worked for Niedecker Benecke, the investment bank. You will know it: not quite top tier but bumping against Goldman Sachs, Merrill Lynch, and Morgan Stanley. At the time—the winter of 1993–1994—financial services companies were shrugging off the recession induced by the excesses of the eighties and ramping up for the excesses of the nineties. Corporate raiders and junk-bond peddlers—Mike Milken, Ivan Boesky, Carl Icahn—were the past. Joseph Jett, Nick Leeson, the Asian meltdown, CNBC, irrational exuberance, the 10,000 Dow, the dot-com boom—that was to be the future. As was the dot-com bust, the obliteration of the World Trade Center, recession, fear. Dragon’s teeth sown.

I was writing a speech on derivatives for Niedecker’s general counsel to be given at a gathering of an international regulatory body in Japan. Hellishly complicated, computer-generated financial contracts, derivatives are the brainchildren of those math pointy-heads known, in Wall Street lingo, as “quants”—from the words “quantitative analysis,” I’d guess. Derivatives and the regulation of them were particularly contentious in the early nineties, although, as one old-timer commodities trader told me, sniffily, they’d been around, in one form or other, since the Sumerians. “Once upon a time, it was commodities, then futures, now derivatives,” he’d opined, delicately shooting his cuffs. “It’s all structured finance. It’s all aimed at neutralizing risk by parceling it up, selling it to someone else. Quanting around, nothing new in that.”

The general counsel ordered me to research views within Niedecker on derivatives, including those of the head of the risk-management unit. That was Mike. A math pointy-head himself, he had the job, in part, of monitoring the activities of the firm’s quants. Heaven knows, nobody else in executive management had a clue what they were up to.

I knocked on the frame of his open door. “We have a two-thirty.” In true corporate fashion, I was left to flap on the threshold, drying, waiting for him to acknowledge me. An interminable minute passed. Mike took a last look at the screen of his computer and in a single, abrupt movement was at the door, hand extended.

“I remember you. The coffee shop.”

“Yes.”

“You’re from Communications, right? A speech for ——?” He named the general counsel, famous among unyielding men for being unyielding. “Writing for him, huh? What did you do wrong?” Laughed, high up, in his nose.

I explained the speech, switched on my tape recorder, and asked my dutiful questions. We covered the Group of Thirty recommendations for derivatives regulation, the GAO response, the Basle Agreement. He gave the standard financial industry arguments. Derivatives are risk-management tools, nothing but beneficial, a boon to investors and the economy. To regulate them would be to hinder the flow of money, disrupt the global good. Et cetera.

Mike’s answers were peculiarly without enthusiasm. For the most part, when Communications personnel come calling, corporate henchmen are all smiles: upbeat, encouraging, patient. And no doubt sigh with relief once we are out of sight. One can never be too careful.

Mike was unusual in another respect: he didn’t use jargon or clichés. Agent Orange words. “Liquidity” and “transparency,” yes, but not “going forward,” “proactive,” “paradigm,” “incentivize,” “added value,” “comfort level,” “outside the box,” “a rising tide lifts all boats.” He didn’t even use “fungible,” a word that was enjoying a big vogue. So I ventured a last, offhand question. “What do you
really
think of derivatives?” Worth a try.

He quickened. “The mathematics can be awesome. You have to
admire
the mathematics. And they
can
be an excellent risk-management tool…” He trailed off, obviously wondering whether he should continue. “Well, it helps to look at derivatives like atoms. Split them one way and you have heat and energy—useful stuff. Split them another way, and you have a bomb. You have to understand the subtleties.”

Understand the subtleties. God is in the details. Cracks me up.

Cath. That’s my name. At the time of the events I am recounting, I was in my forties: bedrock feminist, unreconstructed left-winger, with literary tastes that ran to recherché writers like Charlotte Mew and Ivy Compton-Burnett. You will perhaps know of Charlotte Mew: a melancholic Georgian poet who, beset by financial problems and bouts of insanity, drank a bottle of lysol. Dame Ivy—peer of Henry Green, Sylvia Townsend-Warner, and Molly Keane, immediate ancestor of Muriel Spark—wrote abrupt, conversational novels about small cruelties and how power, even in minute amounts, can be abused.

Ivy, Henry, Sylvia, Molly, Muriel: they assumed intelligence—emotional as well as intellectual—on the part of the reader. I shouldn’t write of Muriel Spark in the past tense, but she is no different from the others, grievously neglected, well on her way to being reduced to marginalia, cult status.

I digress, although it amuses me to see an old passion flicker to life. I was attempting to describe myself. Not my physical appearance—you can imagine that for yourself—but my beliefs. Opinions. Prejudices. These, formed by the politics of the sixties and firmly held, were not so much unexamined as untested.

You can guess them: affirmative action, a woman’s right to choose, a judicious redistribution of wealth, parity for everyone in all things. I was against the obvious: capital punishment, egregious pollution, trickle-down economics. Absurd exercise, I know. I might as well say I am for ice cream and against monogrammed hand towels.
You
write down your beliefs without sounding pompous.

Another try. I was for civility and a sense of humor, against anyone who had stopped listening, receiving, changing. People who had no
give.
Of course, I disapproved of bankers, on principle. Not that I knew any. Until this job, I had worked and made friends with people who shared my views. Mostly moral, mostly kind.

An unlikely candidate, then, for the job of executive speechwriter, to be putting words in the mouths of plutocrats deeply suspicious of metaphors and words of more than two syllables. “
SAT
word!” “$10 word!” they would write in the margins of draft speeches. There were some inexplicable exceptions, such as the aforementioned “fungible” or, a more recent example, “granular,” which, having gained acceptance against all odds, were clutched as tenaciously as a child might a favorite toy.

An unlikely candidate, too, to be working for a firm whose culture had been shaped by the kind of drive required to shave dimes off dollars without actually making something useful or entertaining, something that could be touched or enjoyed. A firm whose ethic was borrowed in equal parts from the Marines, the CIA, and Las Vegas. A firm where women were about as welcome as fleas in a sleeping bag.

But you are meeting me at a time when my judgment was suspended, my tastes in literature, or anything else, for that matter, irrelevant. I didn’t have the luxury. The reason was my husband, Bailey.

After a youth entirely lacking in forethought, I had married. Married? Bedrock feminist? It happens. Sweet Bailey, dearest Bailey. Twenty-five years older than me, imprudent as I, but who cared? He was optimistic where I was pessimistic; enthusiastic where I was distrustful; charming, outgoing, where I was withdrawn, intense. He saw the point of me, not always discernible, and I would have loved him for that alone. He was always doing, always curious. He surrounded me with warmth.

I haven’t put on rose-tinted glasses. We had our problems. George Eliot once wrote that marriage is awful in its nearness. I agree. Yoked together,
bound
, in a three-legged race with no finishing line.