A Week in December (17 page)

Gabriel rested his teacup on a ziggurat of his head of chambers' upcoming briefs and looked out of the window, down towards the river. Swollen with December rain, it was gliding on beneath the lights of the Embankment, under Blackfriars Bridge, above the embedded railway underpass, below Southwark Bridge and over the buried Cannon Street commuter lines - under, over, under, like a liquid weave, thought Gabriel, as it made its way through the old slums of Limehouse and Wapping, where watermen with lanterns in the bow had once pulled bodies from the water, and on towards the sea - or at least to the tidal barrier at Woolwich against which the swollen oceans were rising.

After tea, back in his room, Gabriel took off his jacket and loosened his tie. He put his feet on the desk and picked up the crossword. 'Butcher has ox tongue'. It was the last clue, and if 'boxcar' going down was right, which he was sure it was, it began with an 'x'. And since there was also an 'x' in the clue, this suggested an anagram. He looked away, out of the window, then looked back, and, as though by itself, the word formed in his mind. 'Xhosa'. The African language, or 'tongue'. 'Butcher' was not the man it had seemed, but a verb - a command to cut up 'has ox'. Purists preferred that anagram indicators be verbs, and an imperative was even better. Every word worked its passage, yet the surface meaning was fluent, unimpeachable; it passed the ultimate test - that it could be read not as a cryptic clue but as a normal statement.

He wasn't quite sure which part of Africa the Xhosa tribe inhabited. Was Nelson Mandela perhaps a Xhosa? Well, he wasn't a Zulu, he was fairly sure of that. Zulus no longer made him think of Michael Caine at Rorke's Drift, but of Saul Bellow, who, when defending the teaching of dead white male writers to university students during some multicultural debate, had declared himself open to authors from other countries, and happy to teach them, but unsure about who they were. 'Who is the Proust of the Zulus?' he had asked. 'I should like to read him.'

Gabriel typed the words 'Bellow' and 'Zulus' into his search engine. It turned out that the actual quotation was 'Who is the Tolstoy of the Zulus? The Proust of the Papuans? I'd be glad to read him.'

Bellow, as a Canadian-Russian Jewish immigrant to Chicago, could say things like that because he was himself the human outcome of persecution and upheaval. This gave him an advantage and an immunity. When he revealed a new character to be the dean of an arts faculty it was as good as saying that the tragedy of the century would run through his veins; he was Everyman as much as Bellow's creature, and the stresses and desires of his campus life in the broad-shouldered city would have a global relevance that could be sensed equally in Minsk and Tokyo. Philip Roth likewise, Gabriel thought: the more fiercely he focussed on the making of gloves or luggage in Newark and the minutiae of sexual desire, prostate surgery or coming death, the broader, paradoxically, seemed the resonance. For German-Protestant Updike it had been harder, since he was by birth aligned with a majority; but something about his detailed love of America, itself so diverse that it was barely an entity, had periodically at least allowed him to present his characters as representatives of something that reached beyond their native Shillington, PA. Culturally, it had remained impossible for a realistic British novelist to transcend Leicester or Stoke; the place names alone seemed to laugh at the idea.

Gabriel found his thoughts turning to Jenni Fortune, another result of human migration. What a frightened little whippet she had seemed when first she came in for a conference. He guessed that the panoply of law, the threat of Latin and long words alarmed her. Yet she drove a train. People entrusted their lives to her. As the months went by, he'd come to see that it wasn't intelligence she lacked and it wasn't character; it was confidence. He supposed her education in the local state school hadn't done much to supply the missing quality. He could tell from the way her eyes were always straying to his bookshelves that she was a reader, but when he'd first tried to draw her on the subject of her favourite authors, she clammed up.

What was this thing with women and confidence? he wondered, not for the first time. Catalina had had more of it than Jenni, though even she at some deeper level found it difficult to believe in her own value. Imagine Eustace Hutton ever doubting himself. Even Terry the junior clerk thought the world should move across and make room for him.

In Old Pye Street, meanwhile, it was a lethally quiet morning. John Veals spoke to no one. Those who knew him well - Stephen Godley, in other words - recognised that this meant a trade was being put on. The words that stayed furthest from Veals's closed lips were 'Allied Royal Bank'; even to put the name into the air was to chance it being inadvertently repeated outside the office before Kieran Duffy could get to work.

Veals was confident that Duffy could take the positions in gilts and sterling without arousing too much suspicion, but as he sat at his desk with the door locked, trying to think how else he could exploit the collapse of Allied Royal, he did what he sometimes did at moments of quiet introspection: he looked to Olya for inspiration.

John Veals's desk had a small rectangular table set at right angles to one side. On this he kept a laptop, whose screen was a modest 15.6 inches; it was a negligible affair when compared to the four flat-screen terminals with their jagged graphs and instant price movements that lowered over his main desk on a chrome gantry. On the laptop, however, he would flip though various websites - the BBC news, a horse-racing site and, more and more often, a soft-porn place he had recently discovered. It was called babesdelight.co.uk and featured naked young women who were mostly, to judge by their names and cheekbones, of Slavic origin. Having read of the proportion of Internet traffic devoted to porn, Veals had vaguely wondered if there might be money in it. He was unembarrassed by sex, as by anything else, and didn't bother to turn off the pictures if someone came in. The girls were clearly over age and weren't engaged in anything more than showing their bodies to a camera; there was nothing here that was not on knee-high offer from the country's favourite family high-street stationer.

The girls at babsesdelight were laid out like an exotic stamp collection, twenty to a page. If you clicked on one, it offered you a series of a dozen poses, many on a beach or by a waterfall, some in the jagged mountains of what might have been Slovenia. Occasionally when you clicked, the first image didn't lead to the next page of the album but prompted something cruder, which Veals snapped shut. Usually, however, it was just naked girls in bedrooms, naked girls on farms or naked girls on a hike.

There was one in particular who had taken his eye. She was called, allegedly, Olya and claimed to be keen on tennis and cooking. She was slim, as were almost all the girls at babesdelight, but she had large breasts which she held coquettishly in her hands as she grinned out from her Transylvanian background. Her hair was black, her eyes brown and, unlike the majority of the girls, she had not undergone total depilation. She reminded Veals of a real girl, not a pin-up; he could imagine himself talking to her, as well as stroking her rear when she knelt on all fours and glanced back over her shoulder.

Olya awoke in him a feeling other than lust. He couldn't put a name to it and didn't try; it was a soft and unfamiliar sensation. He just liked looking at her, almost every day. He felt a fraction guilty if he left it more than a week.

Hello, Olya, he almost said. Hello, John, she almost replied.

Veals suddenly sat up straight in his chair. He had had an idea. Olya had cleared his mind.

Thanks to its empire roots, Allied Royal still had strong connections in Africa, where the commodities export markets had long relied on its finance. If ARB suddenly found itself short of money it would look for quick savings. It couldn't hammer its pensioners or its UK mortgage holders because that would cause a riot; but who would care about a few Third World farmers? If ARB decided to suspend its credit lines to distributors, exporters and shippers, then the producers of cocoa, coffee and so on would find the value of their crops plunge - they would wither in the field; but by contrast the price of what they had presold, of what was already in the warehouse, would rocket - and the profit from that could go to John Veals. He could get Duffy to take long positions in warehouse receipts for all the commodities financed by ARB.

He had suddenly remembered what fun trading could be.

There was a knock on the door and Veals went over to unlock it. Young Simon Wetherby was standing outside.

'I was just going through some papers, John, and I had a couple of queries. Is this a bad moment?'

'No. It's a good one. Quiet day.'

'Yes. So I'd noticed.'

'Come in and take a seat.'

Veals followed Wetherby's eyes to the laptop computer, where Olya was in close-up. 'Charming girl, isn't she?' said Veals.

'Yes. Pretty.' Wetherby sat down and looked across at Veals, his innocent face shining with concentration. 'It's about our activity in the American sub-prime market last year.'

'What about it?'

'There's just something I didn't understand. All these credit default swaps. The insurance things. How did that work?'

'Aah ...' Veals put his feet up on the table. 'That was fun. That finally opened the door. Do you want to hear a little story?'

'That's what I was hoping for.'

'It's a little bit tough. You may want to take a deep breath at this point. Gather your forces. It won't take long, though.'

'I'm sure I shall be equal to the task, John.'

'OK. Here goes. You know we screwed up on sub-prime. I could see it was a disaster waiting to happen but we just couldn't make it work for us.'

'Yes. I saw the positions we liquidated.'

'OK. Bezamain calls me from New York. This is some time in April. He's had a weird visit from this banker.'

'Why's it weird?' said Wetherby.

'He's offering us a way of us shorting his own market.'

'What? I've never heard of that before.'

'Me neither,' said Veals. 'So I got on the plane to New York and met this guy, Johnny from Moregain or Goldbag, I forget which. We knew the sub-prime market was rotten but it was too expensive to short the stock of the mortgage lenders and the builders and so on. And anyway the market was still holding up. But Johnny says: Look, forget the stock, you can short the actual mortgage bonds - the ones that are backed by the sub-prime loans.'

'You can short the actual security?'

'Yes.'

'The useless ones?' said Wetherby. He looked a little shaken, Veals thought.

'Exactly. These original sub-prime mortgage bonds, a boxful of iffy mortgages, were mostly rated overall BBB. Fair enough. But when the banks bought them, they turned them on their side and sliced them like a loaf of bread. Then they asked for different ratings for the different slices. And clients could buy the slice of their choice, according to their appetite for risk. At this point of course it ceased to be a simple mortgage bond and became a synthetic bond. And then the bank asked the agencies for a rating for all the different slices, because some loans were naturally riskier than others - even in a crock of shit, some shit smells worse than the rest. So the agencies give them a range of ratings, and in a way that was fair enough. But the problem was that while the ratings may have reflected the internal differences between the tranches, the whole lot was overrated by comparison with other products.'

'But why were the agencies so bullish overall?'

'Because they had the wrong computer models. They just couldn't get their heads round the fact that many of these loans were worthless. Their computer model simply misweighted the possibility that house prices could fall. Ever.'

'So now you had dangerous product with a safe rating,' said Wetherby.

'Yes, but it's even better than that, Simon. Even the AA tranches which you'd expect to pay out modestly are giving the investor the high return he'd normally get from risking his cash on a BBB. So Goldbag has for a moment actually squared the circle. It's exciting. They're selling respectable-sounding instruments with disreputably high returns. And don't forget that because all the loans are basically sub-prime, the house owners, the unshaven hobos, are having to pay a penally high rate of interest. And it's that rate of interest that gets passed through to the new investors, who are therefore getting a massive B-style yield from an A-rated risk.'

'It sounds as though the banks were flooding the market.'

'No, they were responding to a demand for shit. A ravenous demand from their customers. Many of whom, incidentally, were credulous Europeans who trusted the ratings agencies.'

'Then what happened?'

'They ran out of stock. No more houses, loans or buyers to be found.' Veals laughed. 'It was a fucking Klondike and there was no gold left.'

'So what did they do?' Wetherby grimaced. 'Do I want to know?'

'They created more stuff. Even dodgier stuff. Now Goldbag and Moregain cut out the mortgage-lender people, Out West or whoever, and send brokers out like door-to-door salesmen. Find a wetback or a hobo. Offer him a giant loan with a teaser rate or an introductory payment holiday. Get it back to Wall Street. Slice it up. Secure the dodgy rating. Sell it on. By now they've got a lot of these synthetic bonds on their books. But they've got one problem.'

'What's that?'

'It's costing Goldbag a lot to pay out the shit holders, the people with the worst tranches of the worst bonds at maybe ten per cent interest. And that's when little Johnny comes knocking at Marc Bezamain's door and says, "Would you like to short my market?"'

'But how could you borrow it and sell it and--'

'You couldn't. It wasn't like shorting a normal stock. What Johnny was suggesting was that we entered into a credit default swap on one tranche only of the bond. The worst part.'

'So they sold you insurance against one section of the bond defaulting.' Wetherby seemed to be struggling, Veals thought; perhaps he feared where this was heading.