The Capitalist

by Peter Steiner

  Then in the fall of 2008, the stock market’s various indices, suddenly, without much warning and in unison, stopped rising and turned downward. Banks began to founder, one after the other, first Bear Stearns then Lehman Brothers. Venerable, well-established institutions everyone had assumed would always be part of the banking landscape vanished into the cataclysm, leaving chaos and debt and broken dreams behind. The entire world economy threatened to collapse.

  Despite the cataclysm, Larrimer’s value had more or less held its own, showing only modest losses, and then, after a brief interlude of modest correction, inching upward again. The avoidance of a collapse in value in Larrimer shares was, as the most recent statement explained, thanks to Larrimer, Ltd.’s early reading of the overheated real estate and financial markets and its timely investment in various leveraged instruments and hedges against just this eventuality. “The indications as early as last spring were that we were overdue for a severe correction, and I am happy to say Larrimer, Ltd. was able to take appropriate defensive positions without putting your assets at increased risk. Your assets are as safe as they ever were. We are in for a bit of a rough ride. But I am confident we will all come out the other side in excellent shape.”

  The defensive positions St. John described in this, his newest and, as it turned out, final monthly statement were not precisely as he described them. In fact, as his clients were soon to discover, there were no defensive positions or hedges or leveraged instruments in place. And not only that: The charts showing Larrimer’s continued growth against various stock market indices were nothing more than elegant fabrications. Dreams and confabulations. As astonishing as it might seem, every one of Larrimer, Ltd.’s investments and trades and audited statements and gains, not just now, but going back over the previous twenty-five years, was an invention of St. John Larrimer’s mind. The general stock market indices were the only true thing in Larrimer’s monthly statements. There were no astute readings of market trends; there were no cunning investments. In fact, there were no investments at all. They did not exist. They never had.

  IV

  THE TRADERS IN THE LARRIMER trading room were buying and selling shares and financial instruments, or at least they thought they were. They were executing sell and buy orders, puts and calls, and other financial maneuvers as they were instructed. But their orders went nowhere. They disappeared into the vast and ephemeral cyberworld. In fact, except as a name embossed on stationery and painted in gold leaf on the door of a suite of fancy midtown offices, Larrimer, Ltd. did not exist.

  The most recent modest profits Larrimer had posted were merely St. John’s means to gain a bit of time, to prolong his clients’ trust for the few days he required to remove the last of their money to various safe and secret offshore accounts and to then remove himself to a location beyond the reach of his clients and, more important, beyond the reach of the New York attorney general, the United States attorney general, and all the other law enforcement officials who would soon be eager to interview him.

  St. John used the Waterford lighter to fire up one of the Havana cigars he favored when he was alone. He held the lighter in his rock-steady hand and puffed and puffed until he was enveloped by a cloud of fragrant smoke. Call him a thief, if you must. But what he was doing was what the financial system was ultimately designed to do—to take other people’s money. He leaned back in Andrew Carnegie’s chair and blew smoke at the ceiling.

  St. John was not stupid or venal; he was a realist. He did not wish investors ill, even the most ill informed. He was driven by his belief in the marketplace in its purest form. He was not one of those ordinary investment bankers who actually used their clients’ money to buy equities and then sweated bullets waiting to see what went up and what went down. He believed the financial and stock markets had moved beyond that outmoded model of decades earlier and had arrived at a pure, clear, unadulterated system of capitalism: an economic system characterized by private or corporate ownership of capital goods; by investments to be determined by private decision; and by prices, production, and the distribution of goods determined mainly by competition in a free market. Period.

  The market was now as it should be: a zero-sum predatory system of success based on advantage-seeking, whether the advantage be a millisecond’s head start because your computers were closer to Wall Street, or advance knowledge of an earnings report. Insider trading was an outmoded concept. They were all insiders now. Or they were dead. It was an economic system, not a moral or a political one. And to function successfully, it needed to be free of moral and political constraints.

  While the moral and political world had imposed interfering rules and laws on them, every banker and trader worth his salt was finding ways around those laws. To those who balked at the notion of a predatory economic system, St. John would have suggested they just look around. The natural world was in essence an economic system, and what in the natural world was not predatory? By taking down the zebra, the lion kept the zebra population in check and kept nature in balance. It was not pretty, but it was the way of the world.

  Madoff had been reckless and had therefore been taken down by the marketplace, not by morality or politics. The marketplace was the ultimate regulator: cold, indifferent, relentless. St. John had kept his ambition in check and made certain that his fictitious earnings reports, while usually, but not always, superior to those of the market, had remained within the margins of credibility.

  Thanks to his caution and good sense, over the twenty-five years of Larrimer, Ltd.’s existence he had stolen an amount just shy of three billion dollars. Real money certainly, BIG money even, especially for an operation such as his. But still small potatoes compared to Madoff. And compared to some other Wall Street thieves he knew about too.

  Unlike Madoff, St. John had injected dips and setbacks in his reported returns, losses any fund would necessarily have experienced. He had also kept his annual returns sufficiently within reason to avoid alerting the SEC. And even when the SEC had come calling in the person of half a dozen lawyers, alerted by someone or other with an ax to grind—a jealous competitor or a nosy accountant—they had, after as thorough an examination as their limited means allowed them, given Larrimer, Ltd. a clean bill of health, which he of course cited in his next newsletter as though it were an endorsement. “Here is what the SEC recently wrote—after a thoroughgoing audit of our investment strategy: ‘Larrimer, Ltd. has used careful market analysis and prudent strategic investment to earn substantial returns on investment without exceeding any SEC guidelines or violating any laws or regulations.’”

  Bernard Madoff had just been too damn greedy. He had never reported a down year. How ridiculous was that? St. John had been tempted more than once to blow the whistle on Madoff, for his stupidity if for no other reason. Except that doing so might have called attention to himself.

  There were plenty like St. John in the money business. Many specialized in devising new market derivatives and other arcane and ultimately bogus strategies. The main purpose of these strategies was of course to earn unreasonable amounts of money, but a secondary purpose was to allow these financiers to avoid thinking of themselves as thieves while they were stealing. St. John knew plenty of them personally. He even used their services when he needed corroboration for the worthiness of some particularly arcane investment strategy. And they used him when they needed similar bona fides. “Do you know St. John Larrimer of Larrimer, Ltd.?” they would ask their clients. “Take it from me: Larrimer wouldn’t be buying these bundled mortgages if they were not an extremely reliable investment vehicle.”

  That was not to say St. John’s clients (or his fellow thieves’ clients) were idiots. A fancy rug or an expensive print on the wall was not sufficient to persuade them of anything. And they regarded Larrimer’s brochures and financial statements with healthy skepticism. At least at first they did. Once they saw the returns, all skepticism vanished.

  Larrimer’s returns had an almost erotic power, a gorgeous and ult
imately fatal allure that could not be resisted: a 2 percent loss in a year when the Dow was down 14 percent, then a 4 percent gain in a flat year, then 13 percent up, then 21 percent, then 8 percent, beating the market by just a few percentage points. Of course, with returns like that, few clients withdrew their money. They understood the magic of compounding; they left their money to grow with Larrimer, Ltd. and added more when they could. When someone did withdraw money, there was always sufficient new money coming in to pay them off, including even their fabulous gains.

  Bernie Madoff was a fool. Had he really thought the market would continue to climb and, by its continued climb, cover his scheme forever? What was the point of the entire exercise if you were going to be called to account, to have all your gains stripped away and end up spending the rest of your days in a nylon jumpsuit, living—if you could call it that—in a steel and concrete cell surrounded by convicts and guards and razor wire? In St. John’s eyes, Madoff was the biggest sucker of all, because he had had the most to lose.

  St. John had seen to his interests, which was what you were supposed to do in the capitalist system. He had given enormous donations to museums and dance companies and charitable causes. But he had also donated substantially to the election campaigns of New York senators and state and national representatives. The mayor was his friend, as were a number of New York City assemblymen and a great many policymakers in prominent positions. These precautions made it certain that he could speak to pretty much anyone he wanted, when he wanted, about matters that affected his business.

  “C’mon, Tim. You were in the business. You know there’s already an unreasonable amount of reporting accompanying each trade. Much of it is redundant.”

  The treasury secretary chuckled. “I was in the business, St. John, but I’m not anymore.” St. John paused long enough to make the secretary uncomfortable. “All right, St. John, I’ll see what I can do.”

  “Just lean on the SEC.”

  “I’ll see what I can do.”

  “It will be good for all investors, Tim. And for your people. Who could be against eliminating unnecessary paperwork?”

  “I’ll see what I can do.”

  It was a conversation Abdur Pandit of Kavreen Style would have recognized and keenly appreciated. “Yes, yes!” he might have said, brimming with admiration and envy. “Oh, yes. You Americans are the masters of business, no doubt. It is how I would like to speak to Mr. Vikram Rob, the independent agent who keeps throwing up barriers in front of me. It is how things are done in the capitalist world. It is how business is done. The world is like a sewing machine. It must be kept in good repair; it must be cleaned and oiled, so that it can continue to sew. It doesn’t mean terrible things won’t happen, which are no fault of our own. Catastrophes even, yes. But these have nothing to do with the system. They come like a meteor, from outer space. The fire that happened, I could not have foreseen or prevented it. Oh, it was a terrible thing. I weep for those people who died. But it does not change anything. We know how the world works, do we not? And we do what needs to be done, even when it is difficult. Isn’t that so? And by the way, Mr. St. John Larrimer, forgive me if I appear forward and immodest, but I must tell you: It was I who manufactured that lovely pocket square peeking from your suit pocket. It pleases me enormously to see you wearing it so handsomely.”

  V

  ST. JOHN KNEW THERE WAS no way he could expect to stay in the United States in the immediate aftermath of absconding with three billion dollars, and he had planned accordingly. After thoroughly researching the extradition and penalty questions, he had settled on France as a place where he would be able to live safely once the bottom fell out. France’s politicians were as corruptible as their American counterparts, and its extradition laws and treaties sufficiently malleable to provide him a reasonable expectation of security and protection. He had acquired a French passport and set about arranging things with the responsible French authorities years ahead of time, spreading enough money around to see that he would be properly insulated against unwanted assaults from law enforcement entities, French, American, or otherwise.

  St. John owned a penthouse apartment looking over the bay at Cap d’Antibes and had a large yacht moored nearby, its staterooms made up, its crew at the ready. He entertained the French president and his beautiful wife, as well as the leaders of the opposition parties and anyone else who might eventually be of use to him. The French president was intoxicated by wealth. He counted St. John among his close friends. They sailed out on cruises together.

  The president and his wife sported gold Rolex watches, gifts from St. John. They took ski vacations and luxurious African safaris. Besides New York and Cap d’Antibes, St. John had homes in Saint Moritz, Mexico City, Paris, and Hong Kong. But his preferred residence was his beach complex not far from the large stone outcropping called Pain de Sucre on Terre-de-Haut, one of the islands in the Caribbean Sea, a part of the French department of Guadeloupe and therefore under French jurisdiction.

  The stock market had been overheated for months. It was just as St. John had written in his last report. Signs of strain were showing. Questionable investments were being called in; many legitimate assets were overvalued. The big investment banks were enormously overextended, having borrowed a hundred dollars for every dollar they invested. And in the frenzy to make money, they had constructed fantastical derivatives with no intrinsic value, and then sold them to unsuspecting clients—individual and institutional, clients whom the traders and executives derided. “They’re Muppets,” wrote a Goldman Sachs vice president in an e-mail he would later come to regret, by which he meant they were gullible fools.

  On that Monday afternoon when the market took its most precipitous slide to date, and coincidentally just after St. John had gotten a warning call from one of his contacts inside the SEC, he called Nigel on Terre-de-Haut. “The moment has arrived, Nigel. Things are about to unravel. I’m on my way.”

  “Oui, Monsieur St. John. Bien. Tout est prêt. Everything is ready.”

  St. John had over a thousand clients, and he understood percentages. He knew there had to be dangerous criminals among these clients, people who would be disposed to use force to try to get back what he had stolen from them. That was why he had Nigel. Nigel was efficient and fastidious, and he also had a lethal side. In an earlier life he had been a French Foreign Legionnaire, then he had been a mercenary in the Congo. After that he had spent a few years overseeing operations for Blackwater in Somalia and Iraq. Once he was in St. John’s employ, however, Nigel was satisfied that he had found the perfect position for his particular set of skills. He hired six other strong-arm specialists—former colleagues from the Legion and Blackwater—whose job it became to ensure that St. John could continue to live in unmolested and tranquil splendor.

  St. John’s car drove right onto the tarmac at JFK and parked by the small silver jet, as was St. John’s privilege. He took a hundred-dollar bill from his chest pocket and pressed it into the driver’s hand. He boarded the waiting jet, which immediately taxied to the runway and took off.

  St. John watched as the shore fell away behind them. He pushed aside a vague sense of regret. Seeing his sons would be more difficult now, although he had rarely seen them even when there had been no impediments to doing so. He had ensured that they were well provided for. Now they had their own lives apart from his. He lit a cigar and watched the clouds passing, watched the ocean beneath them turn from gray to azure blue. He had known all along this day would come. That was as it should be. Every ending was a new beginning.

  After three hours, the two small islands of Les Saintes appeared on the horizon ahead. The plane banked, then dropped over the hills and onto the runway that ended at the water’s edge. St. John came down the stairs and got into the waiting car. Nigel signaled the French customs official—whose meager government wage St. John subsidized—and the customs man waved them on their way.

  Five minutes later the electronic gate in the mighty wall around St.
John’s estate slid open. “It’s good to be home, Nigel. Everything all right?”

  “Yes, sir,” said Nigel.

  Coconut palms lined the curving pink-gravel drive like two rows of soldiers. The car sped past the guard barracks. After another minute the plantation house came into view, a great sprawling structure made of stone and weathered wood, completely surrounded by a deep veranda. Clusters of upholstered wicker furniture sat here and there around the veranda. Ceiling fans turned in an uncoordinated and lazy rhythm. Breezes ruffled the curtains in the open French doors. Servants moved about silently, making sure everything was perfect for the master’s arrival.

  Since buying the property from a Pakistani computer mogul, St. John had enlarged and upgraded the house. He had built extensive garages, along with guard, servant, and guest quarters. He had made the pool into a lagoon with caves and small hidden bays. He had added tennis courts and a voluptuous tropical garden that fell away to the sea. St. John had spent part of every winter here, running his financial empire and preparing for the day—this day—when the stock market would finally collapse under its own weight.

  The collapse had not been his doing. But as it had come about, the financial swamp would now drain, and the bottom-feeders—at least those who had not made provision—would be exposed, trapped in the shallow pools that remained, swimming in ever smaller circles, gasping for air until they succumbed.