“Are you telling me they’re broke?”
“Stone-cold. Rex has his salary from Williams, of course,” Iona continued. “And Millie does have a small trust from an aunt that couldn’t be touched. But they have a daughter at medical school at Penn and a son at Michigan Law, and now all this debt … well, I don’t have to tell you …”
She paused, presumably to contemplate the wreckage of our friends’ lives, then continued: “They’ve put the house on the market—and, of course, it’s probably worth half what it was two years ago—and are looking for something to rent. The children can refinance with student loans, I gather. It’s so sad. Why is it always the good and decent and prudent who get torn to pieces by these things? Why aren’t the crooks who came up with these investments, quote unquote, in jail? That was one reason we all voted for the president.”
There was a lot I could have said to that. Prudent people don’t buy CDOs and other stuff with asserted alchemical powers. Prudent people don’t bend an ear to the blandishments of stockbrokers posing as “wealth managers.” Prudent people take out only one mortgage, and in amounts not exceeding fifty percent of the value of the property. Prudence assumes the worst to be possible, if not likely.
But prudence and decency aren’t synonymous. Some of the most prudent people I know are sharks, and some of the most decent people I know can be downright reckless; just look at Rex Hastings. Decent people reject the notion that others don’t give a damn about them, are just using them to make money or gain social acceptance. I thought about the people I see every time I go down to STST, who would soon be collecting bonuses that would buy Rex and Millie a dozen houses, and for doing what? For persuading German banks to buy the Polton deals? For soft-soaping the guileless New Zealanders who went bust thanks to Wolverine? These are buyers who are paid to be prudent. The trouble is, not enough people understand that prudence needs to incorporate a healthy measure of flat-out mistrust—especially when it comes to Wall Street.
So I said nothing. Iona, meanwhile, was just getting started, and I couldn’t tell if she was simply venting, or because she had me in her sights.
“It isn’t just Rex and Millie, of course. Half the people I know seem to have bought these securities—or worse. This man from Merrill cast a wide net. And the ripples have spread much, much further. Do you know a terrible man named Harley Winters?”
“Of course I’ve heard of him. Who hasn’t? Sitteth on the right hand of the Almighty down in D.C., right?”
She nodded. “Well, he got the ear of one of the important trustees of a foundation I’m in touch with, and persuaded him to put a big piece of the operating endowment into something called a ‘swap,’ and it’s lost them close to $100 million. They’ve had to cancel programs, cut fellowships and reduce benefits. You know that Palissy exhibition I’ve been working on with them for two years?”
“Of course.”
“It’s canceled. You should walk around our village. Businesses that have thrived in the town since World War II have had to close. That nice shoe store, for example. For the first time I can remember, people I know are using food stamps in the markets. It’s horribly embarrassing for all concerned. You see what’s going on, and you come to hate Wall Street. I’m surprised none of these bankers have been murdered.”
This made me feel truly guilty—for perhaps the first time. These were people whom I knew—whose lives I knew—who had been hospitable and generous to me.
“It’s really sad,” Iona was saying. “Christmas is going to be awful. Everyone’s depressed and angry and hardly in a festive mood. A whole way of life has collapsed around our heads, and people need to sort out their lives before they can begin to go on with them. I can tell you my own circumstances aren’t what they were, but fortunately there’s Mother—but even she’s complaining that her bonds aren’t doing as well as the bank told her they would.”
Still, if you look at the situation with a clear eye, Rex Hastings has no one but himself and his “wealth manager” to blame for the financial mess he’s in. But who has the luxury of clarity these days?
They say if you take the king’s shilling, you’re the king’s man. So where does that leave me? I feel like a stiff drink might help. No wonder people become alcoholics.
DECEMBER 13, 2009
The sleeping dragon has finally rolled over and opened one eye. Dodd-Frank has reached the Hill for markup.
It’s a process that shouldn’t take more than a decade. Wall Street will see to it that if and when Dodd-Frank passes, it will consist of several thousand impenetrable pages of bothersome but essentially toothless regulation. And that will only be a first step. Hundreds, more likely thousands, of administrative implementations (how the damn thing will actually function; who will have the power to do what to whom; and how; and when) will have to be written and incorporated into law, and that is when Wall Street will set its K Street wolves on the fold. The carnage should be terrifying.
DECEMBER 23, 2009
Lucia reports that STST is a graveyard. Everyone’s tired. No one above a certain pay grade is in the office; they’re out spending their estimated bonuses (which are still paid before the actual trades pay off, so why shouldn’t they spend them lest someone try to take them back?). This means good news for local Ferrari dealers, Hamptons real estate agents, people who sell $25,000 wristwatches and $100,000 earrings and $1,000/ounce caviar. Bonus time also activates the pheromones, and you can bet that in $500-an-afternoon hotel suites up and down Manhattan, comely young persons ranging from the crème de la crème of pole dancers to clients’ “executive assistants” to junior analysts with degrees in English from Sarah Lawrence are celebrating the jolly season with their bosses.
The only sign of austerity at STST is Mankoff’s ban—over Rosenweis’s strong objections—on Christmas parties. Official STST Christmas parties, that is. Anyone is free to use his own dime to hire a private room at La Grenouille or Per Se or the skating rink at Rockefeller Center and haul in buckets of Veuve Cliquot and all the foie gras you can swallow. Just as long as it doesn’t appear in Page Six or New York Social Diary. Caterers’ people have eyes and ears, and have been known to sell what they’ve seen and heard to the media.
Publicity other than that disseminated by Lucia and her troops is now anathema at STST. No freelancing, no talking to journalists without prior permission. The less the public grasps how well the firm is doing while the rest of the economy is down in the dumps, the better for all.
By noon today, I had got through whatever was on my desk and brought my calendar and to-do list up to date, so I thought I’d risk the wild streets to finish my shopping. On the way out, I decided to peek in and see if anyone at San Calisto was around. Not that my expectations were high. Most of the old boys decamp for the Christmas holidays to sunnier places—Florida, the Caribbean, Arizona—returning to the city after New Year’s for a brief spell of portfolio rebalancing before heading back to the sun or the slopes for the balance of the winter.
The Ancient Mariner was alone at the table where the old boys gather for drinks. He was engrossed in a thick book while he picked at a plate of cheese. I greeted him and asked what he was reading.
“It’s this new history of the Morgan bank. Absolutely first-rate. Listen to this. It’s from the summer of 1932. Roosevelt’s running for president and he gets a letter from Russell Leffingwell, an important Morgan partner and a terrible busybody-about-Washington. Leffingwell starts out by pleading—and I quote—
“ ‘You and I know that we cannot cure the present deflation and depression by punishing the villains, real or imaginary, of the first postwar decade, and that when it comes down to the day of reckoning nobody gets very far with all this prohibition and regulation stuff.’
“To which FDR replies:
“ ‘I wish we could get from the bankers themselves an admission that in the 1927 to 1929 period there were grave abuses and that the bankers themselves now support wholeheartedly methods to prevent recurre
nce thereof. Can’t bankers see their own advantage in such a course?’
“And then Leffingwell again: ‘The bankers were not in fact responsible for 1927 to 1929 and the politicians were. Why then should the bankers make a false confession?’ ”
He put the book down and beamed at me triumphantly. “Who says history doesn’t repeat itself?”
“Amazing,” I said. We chatted briefly, and then I made my escape just before he launched into what I was certain would be a book-length discourse on the Penn Central collapse of the late ’60s. As I waited for the elevator, my mind shifted to other matters, and my thoughts weren’t happy ones. I was thinking about old times and past New Years in the Berkshires, perhaps never to come again. Other reflections on life’s shouldn’t-haves and might-have-beens crowded in.
There are days when life’s no fun, no fun at all.
DECEMBER 24, 2009
Usually I’m out and about on Christmas Eve, dropping in here and there on families who like to offer cheer to lost souls. This year I decided to stay in, have a few drinks and order in some Chinese, watch A Christmas Carol on DVD, and make an early night of it.
As I was going through a pile of mail, I happened across STST’s 2009 Christmas keepsake, an elegantly printed, deckle-edged copy of the firm’s fourteen commandments, which Lucia sent out to friends and clients. It’s clearly intended to remind the world how virtuous an enterprise the TARPworm is, despite all the terrible things people say about it. I made myself a drink and read it through, all the way from “Our Clients Come First” to #14: “Integrity and Honesty Are at the Heart of Our Business.”
It’s hard to match up what I’ve observed firsthand at STST and the values propounded in its code of conduct. But what do I know? I’m among the unconverted, while STST’s people believe themselves to be practicing a kind of religion. I wonder: before settling down to the day’s affairs, do STSTers repeat the commandments to themselves, like nuns and holy men telling their rosary beads?
I wonder what kind of precepts Strauss would write today, now that his gentler, more gentlemanly Wall Street has given way to a tough, rough, callous, rent-seeking regime driven by computers that can do the numbers in milliseconds but conspicuously lack moral conviction or judgment. A Wall Street that has no place for gentlefolk or deals done on a handshake. If anyone’s come up with an algorithm for fair play, I haven’t heard of it.
And there I think I had better let the matter rest before I start thinking bad thoughts.
Merry Christmas!
DECEMBER 31, 2009
STST opened 2009 at $84 and closed the year at $168. Wonderful performance, if you own the stock, handily besting the Dow Jones, which opened the year at around 9,000, sank to a low of around 6,500, and finished at 10,548.
I must say, this past week passed pretty quickly. I’d been dreading it; after all, it’s been years since I passed New Year’s in the city, but the Berkshires interlude is fini, so there you are.
I had planned to spend New Year’s Eve alone, feeling sorry for myself, consoled with a special vodka and an even more special caviar a Moscow newspaper shipped over in the diplomatic pouch to Lucia, which she—generous soul!—passed on to me. But in the end the need for company prevailed, and I’m going to go along with some friends to a party that a Chelsea gallerist is throwing. He just sold a Jeff Koons “Diamond” (basically a Crackerjack favor blown up to industrial scale) for $20 million to a man who made a fortune marketing blow-dryers in Eastern Europe, so the champagne and nosh should be first-rate, and anyone who’s anyone left in the city, which may or may not include anyone worth meeting, will be there. These days, one wants to be on the lookout for possible new clients more or less 24/7.
What have I done with my week? Well, for openers, I’ve caught up on some of the new and exciting stuff that Wall Street’s getting up to now that they’re once again confident that they can get away with anything.
The big news is so-called “HFT”—high-frequency trading. This is straight out of Flash Gordon, or a Kubrick movie. If you’re one of those people who’ve been predicting that computers will take over the world, here’s your proof. What we’re talking about here are computers trading millions of shares per second or tiny fractions thereof—up, down, long, short, and sideways in search of infinitesimal splinters of profit. At these speeds, it’s 100 percent algorithmic and electronic: all about beating the other guy’s software and hardware.
I gather Mankoff is steering clear of high-frequency trading, even though the big concern is that HFT may not stay away from STST, in the sense of screwing up the execution prices of big orders.
Things certainly seem to have gone back to being too good too fast. I can’t help thinking that one of these days, the computers are going to go apeshit in response to some trading asymmetry and produce a 1987-size up-or-down spike in a single session. This will represent a whole new set of opportunities for Washington to come down on Wall Street’s head and write new “reform” legislation, which will only end up leaving “lay” investors worse off once K Street gets through modifying it.
In my view, getting rid of the human element in stock trading can only lead to the retreat of the human element from investing, and this will be a very bad thing. HFT has nothing to do with judgment, or value, or how a business is run, or what its prospects are, and the people who consider such factors important—the people who have been the backbone of this business for two hundred years—are going to shy away from markets dominated by Wall Street versions of R2-D2 and look elsewhere. And then?
So much for Chauncey’s adventures in the magic world of high-finance high-tech. The New Year will bring new challenges. I expect to be more than unequal to them.
So: Happy New Year! And party on!
JANUARY 1, 2010
It seems odd to look out the window on New Year’s morning and not see snowy Berkshire fields backed by gentle forested slopes; not to be aware of the small warm sounds of a country household gradually coming to life, the smell of coffee, the dogs snuffling at my bedroom door, anxious to get going; the general quiet. For most of my life, I’ve been away from home on New Year’s Day. Every year when I was growing up, Pop would take me south after Christmas to visit his old Groton roommates in places like Hobe Sound, Florida, and Aiken, Souch Carolina, both bastions of the WASP ancien régime.
Pop was everyone’s dream houseguest: funny, up for whatever the “it” of the moment was, considerate, accepting of the house rules, good with the help, a generous tipper, always ready to make a partner at tennis or golf or the fox-trot, a fourth at bridge, an object of derision at charades. There were a lot of ways he mentored me, but none more effectively than in the business—perhaps it’s an art—of house guesting.
I had scant hope for the New Year’s Eve party to which I got myself taken last night, and my expectation was right on the money. Same old, same old. Shrill, desperate, too much to eat, too much to drink, everyone talking a quarter note too fast and a semiquaver too high, most of the company worrying about their finances.
I was home by 1:00 a.m., where I had a good old-fashioned “Lonely Guy” welcome to 2010: a taste of almost-flat champagne and a few last spoonfuls of Lucia’s caviar, and it was lights-out before 2:00 a.m. Too bad the evening was a bust, because right now, I’d like a little zip in my life. Frankly, I feel pretty lonely these days. I find myself rushing back to the apartment to get at this diary, which itself has become a force for solitude. I thought about getting a cat (unlike dogs, they don’t have to be walked), but cats have unacceptable ideas about who’s boss.
Funny: it used to be that I couldn’t wait for tomorrow; now there are times when I turn the light out and hope the next day won’t come. Not suicidally, you understand—just in the sense that maybe it would be kind of nice if everything just went … poof.
It’s not that I don’t have a lot of friends—I do—and not that my weekends aren’t busy—if I want them to be, they are—or that I lack for social and sexual opportun
ities—I don’t. But something’s missing.
I need to address this hole in my life. My old man believed that every New Year should start with an unflinching personal review. A look back and a look ahead. No matter where we were, no matter how bibulous and late the evening before had been, he’d rise promptly at eight on New Year’s morning, breakfast according to the dictates of his hosts, and then carry a yellow notepad and a third cup of coffee off to some secluded part of the house he was staying in and make a list of what to deal with in the coming year. There would be stuff left over from the year just ended that needed follow-up; more importantly there would be warning signs.
He was always after me to do a review of my own. It didn’t take all that long, he’d urge, pointing out that he was invariably finished by the first Bloody Mary call and the first college bowl game on TV. But I’d resist, it just wasn’t my style—when it comes to introspection and self-examination, I prefer to work in the moment.
But for whatever reason—my guess is that it has to do with being in New York, and not in some bucolic setting far from the madding crowd and the wails of the world—I awoke this morning determined to do such a review. And so, having risen at a reasonable hour, I sat down with a cup of coffee and reread what I’ve put in this diary going back to the very first entry, almost three years ago, when Mankoff summoned me to breakfast at Three Guys to propose that I fix the 2008 presidential election.
More and more, as time has moved on, and we enter our fourth year together, Gentle Reader, I worry that I’m starting to set down too much about how I feel, what my reactions are. Editorializing mixed in with the news, if you will. Hard to tell where one ends and the other begins. I seem to talk an awful lot about my old man. The truth is that I miss him. There are times when I wish he was still around to tell me what to do, how to react. My San Calisto chums make up for some of that, but not enough. I’m very wary of turning them into surrogate fathers; they’re just good, wise friends who happen to be old men. What’s that line at the very end of Lear: “We that are young shall never see so much, nor live so long”?
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