Terror on Wall Street, a Financial Metafiction Novel (5 page)

CHAPTER TEN

HOW IT ALL WORKS

Harry wrote a single phrase on the blackboard:
The Stock Market.
  Once the class came to order, he spoke.

     “Does anyone know how the stock market works?”

     Snookie raised her hand.

     “Ms. Baxter, tell us what you think.”

     “Thank you, professor.  I’ll try. It’s basically like any other kind of market where people buy and sell.  Trading of marketable securities started in 1791 under a buttonwood tree in lower Manhattan Island. Picture a late afternoon when the garbage wagons, pulled by horses, passed by on their way to barges that would haul off the refuse to a dump site offshore. A huge herd of wild pigs followed the wagons, forcing the brokers to pack up the card tables where they had laid out all the stock certificates they had for sale. When trading was slow, the brokers gathered up the stone rubble in the vicinity and built a wall around the tree, and that’s how Wall Street got its name.”

    
She’s like an encyclopedia. Dates, numbers, everything!

     “Very good, Ms. Baxter.  Perhaps we should have you teach the class.”

     Everyone snickered at that thought except, of course, for Snookie - and Carlos and Ike, who both thought it was a fine idea.  Harry continued.

     “The following year, all the larger traders formed the New York Stock Exchange and signed what was called the “Buttonwood Agreement.” Those brokers who had been left out formed their own organization called the “CURB” and literally stood out on the sidewalk for the next one hundred and thirty years, trading their securities by using hand signals with other brokers hanging out the windows of the offices on the street. It wasn’t until 1921 that CURB changed its name to the American Stock Exchange and moved into their own building out of the rain and snow. The CURB today is known as the American Stock Exchange, or AMEX.

     “Does anyone know what makes the NASDAQ exchange different from the New York or American Exchanges?”

     Snookie raised her hand again.  “Ms. Baxter?”

     “The NASDAQ Exchange meets in cyberspace and consists of a network of 50,000 computers where trading is done electronically. These trades are executed in under one second. In fact, some large firms have sophisticated trading systems that use programs to gain a few microseconds' advantage over other slower and less sophisticated systems.”

     “Very good, Ms. Baxter.  Is there anything you don’t know?”

     That comment sent another round of laughter through the lecture hall, but Snookie didn’t even crack a smile.  Harry scratched his head.

    
She’s so serious all the time.  Just like a computer.
    

     “At 9:30 AM Eastern Standard time, trading starts on the NYSE Monday through Friday, except for holidays. The markets to the east in Europe have been open and trading for three hours by then, while the markets in the Orient have been closed for some time.

     “By the end of the day our domestic markets are open twenty-four hours a day, Monday through Friday. And by the end of our domestic markets’ trading day, some five billion shares will have changed hands.

     “Approximately 80% to 90% of the shares that exchange hands are traded by professional portfolio managers acting for large mutual funds, pension funds and trusts, and by speculators with trading rights who keep the market functioning with arbitrage activities throughout the day. The rest of the trading activity is represented by individual shareholders whose buy and sell orders are executed by their retail brokers. 

     “Does anyone know how market prices move?”

     Bob Brammon raised his hand.  “Mr. Brammon?”

     “Market prices move on the basis of random events that become known throughout the day. Some of the events may have been anticipated by the market while other events were not anticipated by the market and appear to be random.  It is not at all unusual for the price to fall on a security when a dividend is raised, or when a higher dividend was anticipated by the market.”

     “That’s correct, Mr. Brammon.  After all, investors are human, and it seems that their emotions drive swings in the market.  That’s something Mr. Pendleton may wish to elaborate on later.  Market prices change on receiving fresh news. But what you may have read in the financial press (or in a broker’s analyst report) is already old news by the time you’ve seen it, and has already been digested by the market and incorporated into prices for the security.”

     “I might add, class, that Mr. Brammon’s work here at the University is sponsored by his employer, a major Wall Street investment banker. He’s here doing original research using quantitative techniques, and I’m certain that he will be of great value to the group in evaluating the role that risk took in the meltdown our financial system in 2008.

     “Remember, our class project is to concentrate on the damage done and the impact that the financial industry has had on millions of shareholders and to recommend changes in the financial system to prevent a repeat, if at all possible. I hope that we can come up with some reasonable recommendations for our government to pursue without damaging our country’s ability to allocate capital among the companies here in America.  We have the best and most robust method of distributing venture capital that has ever been invented, and I would hate to see all that go down the drain."

     Ike raised his hand.  “Professor, I think the study of neuroeconomics can be very useful in solving our crisis.”

     Harry smiled.  “Well, Mr. Pendleton, please tell us how.”

     Ike turned to Snookie and smiled proudly.  She didn’t even flinch in reaction.

     “Uh, yes, sir.  I believe there are two problems facing the average ‘man on the street’ investor. First is his lack of information on how to invest in marketable securities, including his almost religious faith in what his broker tells him.  A second problem lies in what goes on in his mind when he’s faced with the decisions that must be made during the investment process.

     “In my opinion, I believe the worse enemy of the investor is that fellow whom he sees in his mirror as he shaves every day. Neuroeconomics is a relatively new field where economists study how the mind, specifically the limbic system, works to mislead us when we are confronted with sensory signals that take over our brains when we make financial decisions.”

     “Very pertinent indeed, Mr. Pendleton.  I look forward to your contribution, and I’d like to see how it comports with Mr. Brammon’s findings.  Now, class, we’ve run out of time; but saving the world will not wait, so I will be available at my office on campus anytime you need me.  Please be prepared to discuss, when we meet again, what type of contribution each one of your disciplines can make.”

     Snookie waited until the room cleared and then approached Harry while he was packing up.  Harry was looking all around the table, and seemed frustrated.

     “Professor Mason?”

     “Yes, Ms. Baxter?”  Harry looked up at her, then back at the table.

     “Are you looking for something?”

     “I seem to have lost my glasses.”

     “Professor, you’re wearing them.”

     Harry felt his glasses, just to make sure they were really there, and smiled. 

     “Oh, my goodness.  You’re right!”

     Harry continued to pack up his briefcase, then paused.

     “I’m sorry, Ms. Baxter: did you have a question?”

     “Yes, professor.  Are you really serious about saving the world, or is it just a learning exercise for the class?”

     “My dear, everything in life is a learning exercise.  But, serious?  Yes, I’m dead serious.  I think that unless we do something and do it quickly, we may be heading back to an economic stone age.”

CHAPTER ELEVEN

ARMAGEDDON

Carlos and Henry stopped on their trip to Midway to pick up Harry and his wife Jennifer.

      Harry opened the door for Jennifer, then slid in next to her.

     Carlos looked at Harry in shock when he saw the Band-Aid on Harry’s face and the scrapes on his hand.

     “What happened to you, Professor?”

     “Nothing, just a few scrapes.  Anybody able to get any news on the radio?”

     “It comes and goes.”

     “Use the dial, not the digital shortcut.  I remember when all radios had just dials.” 

     Carlos fiddled with the radio dial, and an AM station crackled to life.

    
Members of the House Committee on Terrorism have proposed wide-sweeping reforms to the visa waiver program, with House Speaker Nettle Winehard proposing an outright ban on Muslims.

     “How ignorant.  It’s not the Muslims who caused this problem.  They should call for a ban on the industrial military complex.”

    
Now we will go live to the White House, where the President is addressing the nation.

     “My fellow Americans, in this time of crisis, we must all stick together.  Panic is not going to help, and just feeds the enemy. I’ve put together a task force from the FBI and the Department of Home Security and they’re working diligently to keep the American public safe.  The FDIC and the Federal Reserve are both doing their jobs, and I can assure you that these measures will stabilize our economy."

     “They always approach everything as if it were a war.  The terrorist attacks created very small casualties themselves, but they triggered an economic collapse of gigantic proportions.”

    
“And I remember what you said, professor.  Printing money is not going to get us out of this.”

     “No, Mr. Rodriguez, it’s not.  But neither is putting an army on the streets.  The elite are scrambling to do something to protect themselves.”

     “Not us.”

     “Of course not us, Mr. Brammon.  Our only use to them is to be a consumer at the bottom of the food chain.”

  When they got to the airport, they found Larry waiting outside the private terminal.  He had made it just in time.  They exited the car.

     “Good luck, Henry.”

     “You too, Carlos.  Give them hell on the hill!”  Henry shook his fist and drove off as Carlos waved.

     Harry was happy to see Larry Thompson.  He smiled and shook his hand.

     “Glad you could make it, Mr. Thompson.  Have you heard from Mr. Pendleton and Ms. Baxter?”

     “No, Professor.  Last I heard, they were both flying out of O’Hare.”

     Harry frowned.   “I hope they made it.  We need them in Washington.”

     “If there still is a Washington.”

     “O’Hare is closed.  That’s why I asked.  We’ve been trying to call them, with no luck.”

    When they got inside the terminal, they learned that the pilot and co-pilot were already on the plane.  The co-pilot came out to the gate to hurry them on.

     “If we’re going to get out of here at all, we have to try to do it now.”

     “We have two more people who may need a ride.”

     The co-pilot just pointed to his watch.  “Five minutes.”

     He rushed back onto the plane.

     After five minutes of calling and waiting, they all boarded the jet. 

     “We’re just going to have to pray they make it.”

     The pilots went through their routine checks and they were ready to take off. 

     “We’ve been cleared for takeoff.”

     Then they received another call from Air Traffic Control. 

     “Sorry, folks.  There’s going to be a slight delay.”

     “What’s the holdup?”

     The pilot looked back in frustration.

     “They say they can clear us for takeoff, but we’ll be the last ones and they can’t guarantee we’ll be able to land at Ronald Reagan.”

     “Why not?”

     “Air traffic controller’s strike.  A lot of airports are closed.  O’Hare’s been having rolling blackouts affecting air traffic control, so they’ve closed it and cancelled all flights.”

     Carlos thought of his friends, who had declined his offer to fly them in his father’s jet.

     “We’ve got clearance.  We’re number ten for takeoff.”

     The plane taxied into a line of small aircraft.  Everyone wanted to get to someplace better, wherever that was.

CHAPTER TWELVE

HOME AWAY FROM HOME

Harry’s study was furnished and equipped with several computer workstations, with a high definition TV screen hooked up to those stations. In this manner, the workstations could access the mainframe on campus and then, via dedicated fiber optic cables, the large-scale high-speed computers located at the University of California and MIT. Only the Pentagon could rival the computing power at his disposal. At all times throughout each day, several of his graduate students could be found there, working on their individual projects. With Harry nearby, they could ask a question or two without interrupting his work and without waiting for the next class.

     In one corner of the room, an African gray parrot named “Jackpot” was watching CNBC on the monitor, commenting on the market as he watched the red and green arrows (indicating an up market when green and a down market when red) flash across the screen.

     “Market is up today!  Cramer says sell!”   

      Harry’s wife Jennifer, a financial expert in her own right and about 20 years his junior, had her own desk in the study, which she used as her office as well.  She was a lovely woman, with porcelain skin and strawberry blonde hair.  More impressive than her beauty was her graceful movements.  There was a knock at the door, which Jackpot mimicked perfectly.  As Jennifer walked to the door to answer it, she drifted across the floor with the finesse of a figure skater.    “Harry, it’s June Lockheed from the Financial Digest – your 11:00 appointment.”

    
“Pork bellies are up!  Cramer says sell!  Sell!”

    
Who is this June? Do I know her?
Since his mini-stroke last summer, Harry was having trouble remembering appointments, faces, and people’s names.  Jennifer showed June into the study. 

     “June, this is my husband Harry.  I’ll leave you two alone for now.”

     “Have a seat, June.”  Harry motioned to one of the soft chairs in front of his desk and June took a seat.  Harry sat in a chair next to her.  She was a pretty young woman, dressed demurely in a grey business suit, and Harry could see that she was hiding a pair of beautiful turquoise eyes behind her conservative-looking glasses, perhaps in an attempt to disguise her beauty and to appear more professional.

     “Market is up!  Market is up!  Cramer says sell!”
 

     Jackpot danced on his perch, moving his head back and forth in a circular motion.

     “You watch Cramer?”

     “More for entertainment than anything else, but Jackpot here thinks he’s cool.”

     June smiled.  “Hello, Jackpot.”

    
“Hello, Jackpot.  Cramer says sell. Hello, Jackpot, hello.”

  
   “So, what is the
Financial Digest
and how come I’ve never heard of it?”

     “It’s brand new.  I founded the digest only a few months ago.  I distribute it by email and  only accept advertisers who are Certified Financial Planners or Registered Investment Advisors.”

     “It sounds interesting, but what’s it got to do with me?”

      “I just thought that perhaps you might want to make some comments on our current financial crisis.  It’s interesting to hear everyone say that we’re in a recovery while you say that we’re in a depression.”

   “That’s not an original idea, June.  John Meynard Keynes defined a depression as a prolonged period of below-trend growth which neither collapses nor goes back to trend.  The government’s just afraid to call it what it is because they don’t want to cause a panic.”

     “Can I quote you on that?”

     “If you like.  Say, I’ve got a bunch of students working on a solution to the current economic crisis.  You may want to talk to them as soon as they’re ready with their findings.”

     “I would love to, thanks.”

     “Now I have a question for you, June.  Have you gathered any stories of people who have been hurt by the financial meltdown?

     “Yes -yes, I have.  I’ve had a couple of clients who were really hurt.  I’m a registered investment advisor and the
y
came to me for counseling.”

    
“Cramer says sell!”

     “Tell me about them.”

     “It was a cowboy-type and his wife.  They were potential clients who had been taken for a ride by their broker.  Since I’m a Registered Investment Advisor, I have a fiduciary duty to my clients to provide them with a stock portfolio that meets their needs and ability to take risk as compared to a stock broker, who is just a salesman and who mostly acts for his own interests.  Like Woody Allen said, “Your broker invests your money until it is all gone.”

     “Brokers!”  Harry puffed out the word in frustration.

    
“Brokers are thieves!”

    
June looked at Jackpot, then back at Harry, and smiled.  “Can I quote Jackpot on that one?”

     “If you like.”

     “Anyway, the client’s name was Tex.  He and his wife came to my office with such trepidation that I thought he might get up and leave at any time. She looked as if she wanted to get the meeting over with as soon as possible.

     The look on Tex’s  face was that of complete defeat, and Glenda, his wife, sat in her chair as if she were sitting on top of a dozen eggs. 

     “We brought our historical account statements like you asked, June.”

     Tex tossed the papers on the conference table as if, by this action, all their problems would disappear, and Glenda started to cry while June looked through the papers.

     “I see that your broker’s opened a margin account for you.”

     June flipped through the statements.

     “Looks like he churned the securities in the account weekly, which made a lot of profits for himself and his company when the market was going up; but when the market collapsed, the margin calls wiped you out.”

     “Damn right they did!”

     “Looks like the market value of your portfolio  barely covered what you owed.”

     “Isn’t there anything I can do?”  Tex looked like a lost little boy.

     “When you opened the margin account, you gave your broker the authority to trade your account as he saw fit, and you also agreed to arbitration by an arbitrator appointed by the industry.”

     “So there’s no way I can sue this mother-“

     “Dear…”

     “…This guy for wasting all our money?”

     “Not in my opinion.  But I’m not a lawyer.”

     “We’ve already been to lawyers.  They say the same thing as you.”

     “I’d been hearing stories like this for several years and it was always the same.  Tex’s broker, Steve, had been with the firm for twenty-five years.  He was a high school dropout, and for several years he worked day labor jobs and did some landscaping while he worked on his GED. Then his father suggested that he join his country club as an associate member. Herbert Benchman, the manager of a local brokerage firm, asked Steve if he knew a lot of the members of the country club, and he said yes.  It wasn’t long before Steve has passed his Series 7 exam and was part of the firm, converting country club members to clients.”

     “He found his calling.”

     “Apparently, but he knew nothing about investing.  He put his new clients into options and futures and became one of the company’s most successful brokers.  Clients lost all their money, though.”

     “Of course.”   

     “But that’s not the end of the story.”

     “Go on.”

     “As he was leaving my office, after I told him he probably had no recourse other than arbitration, Tex  said, “We’ll see about that.”  About a week later the headlines read ‘
Broker Branded’. 
Tex had invited Steve to a barbecue at his house and ended up branding him with an “X” right on his rear end.”

     Harry laughed.  “I’m sorry.  I don’t condone that type of behavior, but it’s kind of funny.  And well deserved.”

     Jackpot squawked and laughed with Harry.

     “I see Jackpot agrees.  I think that Steve was lucky that Tex didn’t kill him.  But, of course, Tex is the one they put in jail.”

     “Of course.”

     “The story sent ripples through the industry not because of the violence, but because of what Tex’s case revealed about their practices and procedures.”

     “June, I’d like you to consider talking to my group of graduate students while they try to figure out a solution to these types of problems.  They could benefit from your stories.”

     “I’d be honored.”

***

     Harry had fallen asleep at his computer.  Jennifer put her hand on his head and stroked the thinning grey hair, and this startled him awake.

     “Where am I?”

     “At the office.  Time to go home, Harry.  Even Nobel laureates need their rest.”

    
Time to go home!

     Harry stretched and yawned, then stood up and felt his pockets.

     “Have you seen my keys?”

     “Check your desk.”

     Harry looked around the desk and, sure enough, he found them there, just like she said.

     “Let’s go, Harry.  Tomorrow will come around sooner than you think.”

     “Yes, yes.  Let’s go.”

     “
Let’s go! Let’s go!”

    
Jennifer opened Jackpot’s travel cage and he hopped from his perch into the cage.  Harry smiled and followed her to the door.  He put his jacket on, then paused, patting at his jacket pockets.

     “Hon?”

     “Hmm?”

     “Have you seen my keys?”

     “Harry, you just asked me that.  They were on your desk and now they’re probably in your pants pocket.”

     He felt his pocket. 

    
There they are!

    
Harry chuckled.  “You’re right, I had them all along.”

     “It’s probably stress, putting a strain on you.  Maybe you can ask Dr. Reynolds for something to, you know, take the edge off.”

     “I don’t know if I want to take anything, Jennifer.  Don’t I have an appointment with him to go over the results of my physical?”

     “Yes.”

     “When?”

     “It’s next Wednesday, Harry.  I reminded you yesterday.”

     “Guess I just wasn’t paying attention.”