I didn’t tell him about the big trucks and the headache. I just squeezed his hand back. Maybe he was right.
“Thanks, Pop.” I nodded off for a bit.
The rain tapered off, leaving a thick fog. I couldn’t see shit from the GW Bridge. If New York City was throwing a party for my return, it was well hidden.
—
THE FIRST STEP
had been just a mistake. An error. I put the wrong date on a trade ticket and the computer, rather than catching it and spitting it back to our clerk, assigned the trade to the following year. In this case, changing the settlement date gave a huge boost to the plus column for the day’s trading. The group had already had a very good day—we were up almost five million according to the computer. The fact that we should have been up only four and a quarter mil got lost in the euphoria.
Two days later, my clerk came to me with a report showing our unsettled trades. It was immediately apparent to me what had happened, and under normal conditions, I would have told him to make the corrections and shrugged off the restatement of our earnings.
But it was not a normal day. I had just had a major antler-crashing session with a bureaucrat from the risk management department who didn’t understand why my group kept going over their intra-day risk limits. I tried to explain that it was an inevitable function of our business. Customers often ganged up, all leaning in the same direction at the same time. We waited for our moment and then struck—sometimes we made out, more often lately we had not. But forcing already stressed traders to keep watch over their shoulder while in the middle of the fray was a sure way to get them all to sit on their hands. They would manage themselves toward the risk goals rather than the profit goals. The bureaucrat thought that this was a good thing.
I took the report from the clerk and ran my eye down the page. The mistake stood out like a pink elephant in Antarctica. Why hadn’t anyone else caught it?
I checked the computer—the trading desk was having a bad day. A brutal day. They were down close to three mil. If I authorized a correction on the trade, we would be down almost four. I made a second mistake.
“Why are you sticking this in my face, Joseph?” I only called him Joseph when I was pissed at him, otherwise he was Joe, or Joey if he had done something of special note.
He almost flinched. “It just needs your initials, Jason.”
“Is there a question? Do you think there’s something here I should see?”
He hesitated. “No, sir.”
“Fine.” I signed off with a scrawl and dismissed him.
I walked off the trading floor and hid in my office for the next hour, watching the red numbers accumulate on my monitor. The desk was getting crushed.
At that moment, I still had every intention of correcting that one trade just as soon as we had one good day. We had had many more good days than bad in the previous years. This was just a dry spell. A batting slump. The market had changed abruptly after the introduction of the euro. We would find a way to get our groove back. When we did, I would put through the correction.
That was the plan.
The next time was not a mistake. Once again, I had just walked out of a meeting. The little fucking bulldog from risk had taken his problem up the chain of command. I had to “explain” the “discrepancies” to a bunch of suits from the risk committee. The senior guys were all graybeards who hadn’t traded anything since Nixon let the dollar float. They did not understand. Markets had moved on. They should all have been out playing golf rather than wasting my time.
The truly fucked-up thing was that they were not asking me about a three-quarter-million-dollar mistake—that I had signed off on twice—but about limits of risk exposure that my twelve traders collectively violated each and every day—and always had—but for only brief moments. An hour at most. Not a big deal. To me.
The seat-of-the-pants approach for risk had always worked well enough for me. You take on what your gut tells you is right. If it smells bad, get out. And don’t risk more than you can make back in a day. So, if a young trader’s best day ever was up a hundred grand, you don’t let him take positions that might move against him by more than that in a day. This approach can sometimes be hard to quantify and the manager needs to keep an eye on what the troops are doing. Sometimes you have to cut somebody some slack, sometimes you have to rein a guy in, or even shut him down. Those are judgment calls. It used to be called managing.
But Wall Street fell in love with models. Not like Angie, these were black-box models that took in numbers, mashed and mangled them through t-statistics and standard deviations, and spit out other numbers. And since really smart guys were making the boxes—and, I must admit, sometimes creating huge profits with them—the rest of the world fell in step. This created a bureaucracy of monitors—typically not traders, but programmers and mathematicians—to watch over the rest of us and make sure we didn’t do anything to upset their black boxes.
I had never agreed to those limits when they were introduced—they were forced on me by this same group of old mother hens, who imagined they were appeasing the regulators by strangling my ability to get business done. My boss understood. He knew what the game was about. But in that meeting he just kept his head down and let me take the flack.
They let us leave only when I had agreed to abide by another meaningless set of even stricter guidelines. Another victory for form over substance.
I buttonholed my boss in the elevator.
“Why did you leave me hanging out there, David? I kept waiting for you to come charging to the rescue, flags flying and bugles blaring.”
He spoke quietly and urgently. “You just dodged a bullet, Jason. When the firm is doing well, producers run the show—you know that. But we’re not. The suits are taking over. We’ve had a couple of tough quarters and the board is looking for someone to take the fall.”
“Come on, man. You know it’s just the cycle. We’ve been through it before. We’ll be knocking ’em out of the park again soon enough.”
“Right now, the board would be thrilled with some consistent singles. You run a good team, Jason. Everybody knows it. If you keep your head down and your group starts making a little money on a regular basis, you should be fine.”
That stopped me. “And if not?”
“Those old farts will serve you up to the board as the sacrificial lamb, and there won’t be a thing I can do about it.”
I had just bought Angie another new toy—a sixty-thousand-dollar Cadillac Escalade. She wanted it to ferry her fashion-world friends out to the Montauk house. But Angie hated to drive. So did I. She would lose all interest in that huge machine by midsummer. Ironically, it was a belt-tightening gesture on her part; she would not have to hire a limo each time she wanted to show off the beach house. But buying her expensive presents—on a whim, to feed her acquisitive and mercurial spirit—was part of how I saw myself then. It was important to my self-image that I could go on being that guy for her. And for that I needed a job—a big job. With a big bonus.
“I hear you, David.” I wasn’t going to let a bunch of empty suits stop me. “Thanks for the heads-up. Don’t worry. I’ll make it work.”
I checked in with the trading desk. We were down just under a mil for the day. That meant we were only up two for the month. It was a meager showing for a dozen experienced traders. I checked the trade blotter. They hadn’t really been doing so badly, most of the trades were reasonably profitable. And one was not. It was a big trade with a Middle Eastern monetary authority. My trader had been caught wrong-footed and had dropped two mil before he could get right way round. I couldn’t undo the trade, or the trades he had done to offset the mini-disaster, but I could shift the settlement date. Instead of settling three days in the future, it would settle 368 days in the future. The desk would be up a mil on the day—four for the month—and today’s problem would become next year’s problem. I could reverse it again the next time the desk had a big day. It would only be for a few days. Or a week. If anyone caught it in the meantime, I could bluff it out. If a junior clerk caught it, I’d tell him I was right and he was wrong. If anyone more senior asked, I would call it a mistake. Just like the previous one.
From the vantage point of a prison cell, it was ridiculously easy to see the flaws in my logic. By the time the markets became more favorable, and my group was hitting homers on a regular basis, I owed the future over fifty mil. There never seemed to be a right time to go back and make the corrections. A year later, it was two hundred and fifty. Every time I rolled out a settlement date, our profits ballooned. The board was thrilled. Dave made sure I was very well compensated. The graybeards and the suits backed off—reluctantly and only temporarily.
The day—five years ago—when Angie brought the Kid home from the hospital, I had three grand worth of flowers delivered to the apartment, and I stayed in the office until almost midnight. I was scrambling to offset a pair of trades that were finally due to settle. I waited until the Tokyo markets opened, executed enough large trades to offset the problem—baffling the Japanese traders—and plugged in the long settlements. Then I went home to meet my son.
Jason Jr. was not an easy baby. He never giggled or cooed; he screamed when he was held; he resisted making eye contact unless caught nose to nose, in which case he became almost feral, clawing and biting. Angie, having sacrificed her normal pillar of vodka, for the sake of this child, was a wreck. She cried whenever she was awake. Maybe not every woman should be a mother, but not every mother had to deal with a child like mine. Vodka bottles began showing up in the recycling bin. I started sleeping on the couch.
I was busy. I had to keep trading so that I could keep rolling settlement dates into the future and keep posting the phony profits. On the Kid’s first birthday, I gave Angie a teardrop sapphire pendant the size of a robin’s egg. That was the day that the hole I had dug hit five hundred million. Half a yard.
I stayed late every night reviewing old trades to watch for upcoming settlement dates. I gave up vacations because I was afraid of being found out if I were out of the office for more than a day or two at a time. I rarely had a pleasant word for anyone. I was sure a couple of my traders were starting to suspect me, which I ascribed to paranoia until the day I found one of them had “mistakenly” dated a trade 368 days in the future, generating a large, and false, profit of one million dollars. I told Joe to correct it and barricaded myself in my office for the rest of the day. That night, I found myself arguing with myself as I walked home—out loud. Very loud. I frightened a homeless man who scurried out of my way when he heard my two-sided tirade.
The only thing that made the grinding machine in my head stop for even a brief moment was sex. Angie provided. She was where I went for oblivion. We were barely even speaking by then. She was dealing with her own feelings of inadequacy and rejection by her own child and living on 80-proof fruit drinks. But most nights, before I headed for the couch, we met on Frette sheets for a brief and savage encounter—that left us further apart and more alone, but at least exhausted and able to sleep.
By the time David called me into his office for our last chat, I had been running the scam for three years. I knew it was over. The group had run up profits of over a billion dollars during that time—more than half of it was legit. I had even started reversing some of my “mistakes,” covering the losses with our legitimate gains. David had been showing me off at board meetings; my traders were being treated like rock stars by the sales force; I made it onto the CEO’s Christmas card list.
But the graybeards had, quite sensibly, determined that it was statistically impossible for our group to have performed that well, given our mandated risk parameters. They started the investigation—not because they had any inkling that I had been fudging the books to create profits, but because they thought I was cheating on their stupid risk levels. They called in the accountants to check. The green eyeshade guys found the fiddle, panicked, and notified the SEC.
Things began to get weird. I started getting requests for clarification of trades that had happened years ago. My clerk got “transferred” to the accounting department, though he seemed to spend all of his time in the eighth-floor conference room with a lot of guys in ill-fitting gray suits. It wasn’t hard to read the smoke signals—I was surrounded.
I hired a lawyer and gave him a huge retainer. I put the Montauk house on the market. I set up the trust fund for the Kid. Angie and I set up the divorce scam to keep some of our assets from the Feds. Then I waited.
David finally called me in, late one Friday morning.
“I won’t insult your intelligence by pretending you don’t know why you’re here. It’s over, Jason.”
There are times when a trader gets stuck in a losing trade and hangs on way too long waiting for it to get better. He loses all perspective. That trade is all he can focus on. It becomes an obsession. His whole body becomes involved. He finds himself walking stiffly, as though his nerves had turned to glass. Cramps and flatulence are typical symptoms. So are headaches, blurred vision, and sleeplessness.
At that point there is only one thing to do—take your lumps. Sell out the position causing you pain. Take the loss and move on. The first loss is always the easiest. A bad position never gets better, it just gets older.
Traders call this “puking” because the feelings before and after are just the same. For all the pain and discomfort in the moment before puking, there is as much relief, release, and resignation immediately after. Puking is always better than fighting it.
I felt the cold sweat on my back, the hot, green flush on my cheeks. I choked back the acid rising in my throat.
David was still talking. “The firm has agreed to provide you with legal counsel, but only insofar as our interests coincide.”
In other words, “Get a lawyer.”
“Thank you. That won’t be necessary. I’ve already taken care of that.” My head was clearing. The angry knot in my stomach that had me drinking Pepto-Bismol for lunch every day was loosening. The hundred-pound anvils that had been sitting on each shoulder for the past three years metamorphosed into butterflies and flew away. This was far from over, and the ulcer- and angina-inducing symptoms would return many times over the next year, as the Feds threatened and my legal team negotiated, but at that one moment I felt the elation of finally being caught.