Moral Hazard (5 page)

In the clipped cadences of the busy Wall Streeter, he gave me his history. “Columbia, majored in mathematics. Joined SDS. The antiwar organization.” A glance my way. “Don’t look so surprised.”

A rabble-rouser from the sixties running the risk-management unit at Niedecker? I was surprised, but it was no more improbable than my writing speeches for its executives. Actually, I was tickled. I’d done time on the barricades myself.

“Harvard for postdoc studies,” continued Mike. “Hot bed for quants. Steve Ross was there. Also a radical. Or at least he was then. Marx turned him onto economics, finance. Same here.” Another glance to gauge my reaction. “We’re not the first to arrive on the Street via the Moor, although nobody is going to admit it.” The Moor. My oh my. Marx’s children’s nickname for their father. This was unreal.

Silence. “After Harvard, a stint at J. P. Morgan. Boring bunch. Heads up butts, minds in neutral. And then Niedecker. It’s been fifteen years.” Another glance. “You don’t know who Steve Ross is, do you?”

I shook my head.

“Option pricing trees. Brilliant guy.” He paused. “You’ve probably read Adam Smith, Keynes, maybe some Galbraith, not much else, right?”

“Right.”

“I’ll send you a couple of books.”

“Thanks.”

“Gotta go,” said Mike, stubbing out his second cigarette.

“Me too.”

We walked together to the Winter Garden, passing other smokers, some in groups, some solitary. The promised books arrived in the internal mail the next day, and my education in modern finance began.

We had gone through the nightly routine.

First, a Stouffer’s frozen dinner, the extent of my cooking abilities. In the good years, Bailey always cooked for us. For him, food was a ceremony; even if he were eating by himself, he set the table as if for a special event. But cloves had wound up in the pepper grinder, plastic wrapping left on meat, a kitchen towel placed on a burner. He gave it up voluntarily, as he was giving up everything, redrawing his boundaries in order to preserve his dignity, but keeping an illusion of activity.

Then we watched the evening news, which included a segment on the newest hope for people with Alzheimer’s. These segments ran, cruelly, at least once a week. They still do. Current advice to prevent Alzheimer’s: Eat leafy green vegetables. At that time, though, they mostly involved the results of a study of Canadian nuns. The better educated the nun, the more she exercised her brain, a researcher had concluded, the less likely she would be to develop Alzheimer’s. This was the opposite view of the home healthcare workers I chatted with in the elevator of our apartment building. Jamaican and Filipino women with reserves of compassion, they believed that Alzheimer’s was the result of overworking the brain, no doubt because the people they cared for had the money to hire them, entailing education, careers.

That night, the segment was about the development of genetically engineered, memory-impaired mice. It was billed as a major breakthrough. I always watched these segments with hope pricking in me—hope that turned to blasphemous fury when “the latest best new hope for Alzheimer’s sufferers” turned out to be insulting generalizations derived from small and unrepresentative populations, or scientific breakthroughs that would yield real results in twenty years’ time. “Fucking nuns,” I’d say, out of Bailey’s earshot. That night: “Fucking mice.”

Next, coaxing him out of his clothes and under the shower. Once a fastidious man, vain about his appearance, he would come to bed fully dressed and unwashed if I let him. The business of bathing was too complex for him, the feel of water alien on his skin.

The refusal to wear a diaper, now a necessity at night. “That’s for children!” he protested. I tried humor, prancing around with the diaper on my head, pretending to be Queen Victoria. Finally, he was tucked in. Another day over without major mishap, another night ahead of us.

Our cat climbed onto the bed and stretched out on Bailey’s stomach. Their noses almost touching, Bailey said to the cat, his tone triumphant, “Eva Truilly, Zora Diamond, Lulu Lawes!” These names were talismans: his boyhood schoolteachers. Prompted by the results of the nun study, Bailey had convinced himself that if he could remember their names, he would not succumb to Alzheimer’s. I’d catch him at odd moments reciting this litany under his breath. “You know, I couldn’t remember them this morning,” he’d confided earlier. “They were gone. But just now they returned. They were sitting on top of my brain, fluffing their feathers.”

The segment on the evening news spurred me to talk with Bailey about what was happening to him. I’d try this when I could, to see how aware he was. And I probably nursed the vain hope that he would become my partner again, rather than my charge, able to aid and comfort me as I him. Come back from wherever you’re going, be adult and wise, understand how hard this is for me, too.

There was another reason: Bailey’s mother had been an outspoken member of the Hemlock Society. And she’d carried out her belief, taking her life rather than enter a nursing home. Before Alzheimer’s, Bailey often talked about her courage and his own commitment to “dignity in death.” The catch-22 with Alzheimer’s was that he needed to make his “exit” not in the extremity of the disease, but early, while he still had the ability to carry out his wish. While he still had some life left to enjoy.

Bailey’s reaction was to turn to the wall. “Talk to me, Bailey,” I said. “You always said you didn’t want to live if you could no longer work. When you couldn’t look after yourself.”
Oh God.
I hope I was gentle.

“I
am
working. I
am
looking after myself.” Muffled crying. “You will take care of it when the right time comes. You and the doctor.”

“We can’t, my darling.”

“You will! You must!”

I tried to explain. But he wasn’t listening. He had drifted back to Eva Truilly, Zora Diamond, and Lulu Lawes.

That night, Bailey woke again and again. The first time, he fell and became wedged between furniture. The second time, he stuffed his diaper down the toilet. The third time, having disposed of the diaper, he left a trail of urine on the floor. I slept through this last accident, to be shaken awake by Bailey. Stuttering badly, tears flowing in anguish, he pointed at the urine. I quieted him, cleaned up. Back in bed, he told me how disappointed he was with his life. This sense of failure was growing larger by the day. He carried it with him, shouldering it like a sack of coals.

Bart’s secretary, who called her boss “Big Guy,” complained about me to Hanny. Apparently I wasn’t sufficiently deferential. I was puzzled; I didn’t care enough to be impolite. Hanny decided to give me a lesson in corporate servility. Every phone call I made, I had to tell him what I planned to say. Every memo, e-mail, and buck slip I wrote, I had to pass by him. I obeyed his instructions to the letter, reporting all my communications, no matter how short or innocuous, down to the commas and periods. Finally, by the end of the week, even Hanny was tired of the charade. “Cath, give me a break,” he said. “No,
you
give
me
a break,” I replied.

That was also the week of the Elton John concert. Chuck had invited select members of his department to view Elton John at Madison Square Garden from Niedecker’s skybox. I tried to refuse but was told it was impolitic. We all dutifully assembled in the skybox, stiff as store mannequins. Elton appeared, way below: a tiny, strobe-lit, herky-jerky clown manfully pounding the piano and producing a strained, indistinct sound. I looked around at my coworkers. They were jiggling their legs and mouthing along. They knew every word. Disdain bloomed in me like algae in a pond. If I didn’t know that they were as adept at judging me as I was them, I would have felt sorry for them having me in their midst.

I never went out at night in those days. When I arrived home, despite yellow Post-it notes and phone calls reminding him of my whereabouts, Bailey was hysterical, red-faced, blubbering. He thought I had deserted him.

“Resist much, obey little,” said Mike. Prompted by the words in the wrought-iron fencing, he was quoting Whitman. Mike was in a high mood. Bright sunshine and fitful wind signaled the end of another winter. Instead of huddling by doors or in recesses in the facade, smokers were spread across the plaza. We were on our bench. The river, the harbor, glinted. Oh Bailey, Bailey.

The cause of Mike’s mood wasn’t the sun but a fake memo that someone had written and placed in the racks where the analyst reports were displayed. The send-up had been provoked by a memo from the CEO. Ostensibly about the firm’s strategy, it contained, buried deep in deathly prose courtesy of Chuck and Bart, the news of sizeable layoffs.

The fake memo had been photocopied and faxed so many times I had trouble making it out. Mike took it back and read the last paragraph out loud: “ ‘In conclusion, we find ourselves at an inflection point. We must fish, cut bait, or get off the pot. These are difficult and exciting times, made all the more difficult and exciting by the lack of a coherent vision other than to sell the firm to the highest bidder. But difficult and exciting times require sacrifice. Making sacrifices is your job, not mine. As I always say, you are our greatest asset—our human capital. But you are also completely expendable. Onward, friends.’”

“Goodness me,” I said, genuinely surprised. In my experience, admittedly short, the Niedecker rank and file did nothing but click its heels and salute.

Mike cackled, slapped his knees with the flats of his hands. “The security guys are running around trying to find out who wrote it.” Niedecker, like other banks, employed a squad of retired policemen to frog-march wrongdoers off trading floors or out of offices. “You’d think they’d be happy to have a sign of life in the body politic. A pulse beats!”

“Who did write it?”

He shrugged and folded the memo into a precise square. “Cone of silence, my dear. But it’s not hard to figure out. Look for a banker who can write. And who is also witty.
That
limits the field.” The wit in the memo seemed to me heavy-handed, but Niedecker was a buttoned-up workplace; those of us with funny bones panned for laughs like prospectors in a played-out gold field.

Mike and I had continued to meet on and off, and my knowledge of modern finance was slowly expanding. Balking like a nag in a steeplechase, I coaxed my mind to understand random walks, Brownian motion, game theory, fat tails, dynamic hedging, arbitrage in its many permutations. Mike’s time was limited, but he enjoyed, as men do—if you will permit the generalization—instructing a woman.

And he’d opened up. In outward appearance, Mike was a Big White Man from Connecticut—Greenwich, to be exact—complete with wife, children, Volvo. But he was also a generalized radical, neither of the Right nor of the Left, but scattershot in his criticisms. Some might call him a fulminator. I fell into the habit of giving him a subject, usually one of the numerous financial scandals that occurred with regularity in those years—Joe Jett, Nick Leeson, Peter Young, Orange County, Bankers Trust, Metalgesellschaft, Sumitomo, Daiwa—and he’d deliver a little lesson, a colorful sermonette. For the most part, I didn’t mind his didacticism because I had hit the jackpot: access to the febrile, moody, bitchy underbelly of Wall Street. I primed and prompted and was rewarded with a flood of commentary.

Mike was schizophrenic in his attitude. He took a dim view of investment bankers, whom he characterized as digging clients’ graves, helping them in, shoveling the dirt. (“Exhibit A: the Orange County bankruptcy. Traders sold that donkey of a treasurer, Robert Citron, dicey securities, and investment bankers launched public offerings to get him in even deeper. I rest my case.”) An even dimmer view of the tendency to ignore the moral hazard involved in rescuing mismanaged financial institutions for the good of the entire system. (“Where’s the incentive
not
to screw up?”) A Leonard Cohen fan, Mike hummed “Everybody Knows” in the halls and elevators:
Everybody knows the fight was fixed / The poor stay poor, the rich get rich / That’s how it goes, everybody knows.
I kid you not.

But Mike was addicted to the Street’s energy, the pace, the game. He was infatuated, too, with the idea of himself as a renegade, an independent mind. Or, more precisely, with the irony of someone with his views keeping an investment bank from running aground on shoals of sloppiness and stupidity, incaution and greed. While he claimed to be uninterested in bonuses and job security—the crude but effective carrot-and-stick of corporate life—he wasn’t about to rock the boat or take his math skills anywhere else.

That day, he recounted a conversation he’d just had with Dan Napoli, head of Risk Management at Merrill Lynch. Napoli had told Mike that he always began meetings with head traders by asking, “What’s worrying you?” “If those traders were honest,” Mike said to me, “the answer should be,
everything
.” He shook his big head. “Financial engineering—
perfumed
phrase. Derivatives—
freakish
.” He made plugs on either side of his neck with his index fingers and lurched his upper body. Boris Karloff.

“‘Behold the miserable wretch I have created!’” I contributed, remembering my Mary Shelley.

Mike gave no indication that he understood the reference, instead continuing with his train of thought. “You know what the guys selling this bells-and-whistles stuff call it? ‘YDWTK.
You Don’t Want to Know.
’ Muddier than the Mississippi.”

“So Scholes and Merton are mad scientists?” Myron Scholes and Bob Merton were in line for a Nobel Prize for their work on a formula that had transformed derivatives from hothouse plants to unstoppable jungle vines.

“Smart guys. But their math works only in the short run.” In full lecturing mode, Mike sketched an imaginary graph in the air. “The horizontal axis is time. The vertical axis is human involvement. Math only works right down here where the two meet. The more time that passes, the more human involvement, the more the math breaks down.”

My mind took that hurdle, that water jump, with ease. As soon as humans entered the picture, anything could and did happen; all bets were off. “What about the hedging aspect? Isn’t that the point of their engineering—to protect against the unexpected? Against outliers?” I was showing off the little bit of quant jargon I knew. Outliers are the phenomena that occur outside the normal distribution of events, in the so-called fat tails of probability curves. A thought scooted across my mind: Was Alzheimer’s an outlier? Was I living my life in a fat tail?