A Fatal Debt

by John Gapper

  “Nothing important,” I lied. “He seemed okay.”

  That might have been it but for Gabriel, who was waiting for me when I left my office for lunch three days later. He sat on the sofa by the elevators, under a notice board on which some guides to mood disorders were pinned. He drew my attention because he was lounging easily-not like an anxious patient or a parent who was waiting for a child in treatment-and because I vaguely recognized him. As I walked by, I saw him scan my badge and look at my face, appraising me with narrow eyes. Then he got to his feet.

  “Dr. Cowper? My name is Gabriel Cardoso. We had a friend in common, I think. Felix Lustgarten.”

  He spoke unhurriedly, in a rich voice with an accent I wasn’t sure about-it sounded Spanish. Gabriel, that’s it. I remembered him standing on the balcony of his TriBeCa apartment at his party on the night of Greene’s death. I’d been talking to Lucia before we’d left together, and she’d pointed him out. I recalled his air of detachment, as if he didn’t know most of the guests but enjoyed having them fill the place.

  “I was saddened by his death,” he went on. “We were not close friends, I would say, but we were once colleagues. He was a man I liked.” He gave the impression that he didn’t say it lightly: he had standards.

  “I’m sorry, too. I’d just gotten to know him. Shall we?”

  I gestured at the sofa and took a seat-I didn’t know how long I would want to stay. Gabriel reached into a jacket pocket and pulled out an envelope with his name and, I assumed, address scrawled on the front. Inside were two sheets of paper, well thumbed, and a small metal block: a computer flash drive.

  “I got this in the mail yesterday,” he said, frowning. “It’s a letter from Felix, and he’d enclosed this.” He held the drive between thumb and finger. “There are a bunch of documents on it. I looked at them last night and found them interesting. Disturbing, in fact. Felix asked me to show them to you. Just you, no one else.”

  I looked at the drive, now nestling in Gabriel’s hand. Felix had given no indication of having this in mind, and I couldn’t understand why he had sent an emissary from beyond the grave.

  “If he wanted me to see them, why did he send them to you?” I said.

  “Ah, well … They require some explanation.”

  It dawned on me then. When Felix had talked of Greene trying to hide the losses in the Elements, he’d said they were hard to grasp. He’d sent Gabriel to help me, I realized. I was touched by his posthumous gesture: he hadn’t just written me off after I’d walked out on him. Yet it worried me to be entrusted with this legacy.

  “You’re a rocket scientist?” I said, remembering Felix’s words.

  “I am indeed,” he said, beaming. “Do you have some time to talk? Maybe somewhere private. I will need a computer for this.”

  I hesitated for a few seconds, but I didn’t really have a choice. I owed it to Felix in death, no matter what he’d done in life.

  I could have wasted hours in Gabriel’s apartment just looking around. Maybe that’s how he spent his time, since he seemed to have plenty to spare. In the sunlight, with the view of Manhattan I’d seen from his balcony only at night, it was captivating. It was long and wide, with a dovetailing maze of rooms into which light spilled from high windows. A couple of rooms seemed devoted entirely to art, with blinds drawn to protect his collection of drawings. There was no sign that he shared it with anyone: it was just him in his monument to Wall Street wealth.

  “You have an unusual name, Mr. Cardoso,” I said, making small talk as he slotted the flash drive into a computer in his study and tapped at the keyboard, manipulating a baffling array of numbers.

  “It’s Portuguese,” he said, smiling. “I am originally from Brazil, you see. I came here to teach mathematics at NYU. Wall Street head-hunters kept calling me. Trading is all mathematics now, based on models. Traders don’t understand it properly, so they need people like me. Rocket scientists, like you said. Most traders don’t have a clue what they’re doing.”

  He sounded pleasantly amused by the idea rather than outraged. I began to realize why he looked so bemused by his surroundings and his wealth. They had been handed to him through a twist of educational fate.

  “You worked at Seligman?”

  “Used to. I was pushed out last year by Marcus Greene, before Harry killed him.” He chuckled as if Harry had meted out retribution for him. “I wasn’t in Greene’s clique, eh? And I said some things he didn’t like, too loudly. But I was there long enough to be comfortable,” he said, waving to his apartment. “That’s how I know Felix, and Lauren Faulkner as well. Felix mentioned her, I think?”

  I didn’t reply, but my silence didn’t seem to bother him because he kept talking as if he hadn’t noticed.

  “You want to know how we became friends? I had a nice office off the floor at Seligman. Just a glass box, but I had a very comfortable chair in there, a leather armchair. You couldn’t see who was in it from outside, and Lauren would come by to take a nap. They work stupid hours, bankers. They don’t get enough sleep.”

  “That’s funny,” I said. I tried to imagine the ever-alert Lauren curled up on Gabriel’s chair. It would have been a more relaxing time, I imagined, when she hadn’t been under such strain. It made her seem human-not the woman who’d threatened me.

  “I remember us talking one evening, before the merger. She said she was looking at the Grayridge books. I told her to be very careful. Things were becoming difficult in the markets and I’d heard rumors. It was very complex stuff, you know. I offered to take a look with her, make sure it was all okay. I had the feeling something might not be right. A couple of days later, she was gone.”

  “Didn’t you find that odd?”

  “No one gets much warning on Wall Street, you know. They put a trash bag on your desk for your stuff and escort you from the building in case you steal something. It’s like you’ve been executed. The same thing happened to me. I didn’t know how bad things had been at Grayridge until I saw this.”

  “These are the Elements?” I said, looking over his shoulder at the screen. I could see what Felix had meant: it was just a blur of numbers to me.

  “This is Radon. Let me explain.”

  Grayridge had sold the Elements through the Cayman Islands to investors trying to make money from the housing boom before it fell apart, Gabriel said. The mortgages had been bundled together and then divided into securities with differing amounts of risk in them. It wasn’t even that simple, because they were synthetic CDOs, built out of credit default swaps based on mortgages. They’d been a crazy mash-up of financial risk.

  “There were nine deals like this one structured by the CDO desk,” Gabriel said. “They did the same thing each time. Sold the equity and mezzanine to hedge funds and kept hold of the triple-A tranches. They issued the risky paper, the bonds that paid the most, to other investors. But the yield was very low on the super-senior tranches they kept, so they levered them up to make a return. They held about $120 billion, yielding $160 million a year.”

  His explanation reminded me of what Harry had told me on the beach at East Hampton and in Riverhead, and I hadn’t understood that, either. I wasn’t treating Gabriel for depression, though, so I could ask him what I wanted.

  “A hundred and twenty billion dollars?”

  “That’s right. What’s your question, Ben?”

  “It sounds like a lot of money.”

  “It was, but the paper was supposed to be risk-free, like a government bond. There wasn’t going to be a default even if the mortgage holders stopped paying. They’d built it to take a hundred-year storm. Take a look here. This is the loss on all of the Element deals at the date of the merger. What does it say?” he asked.

  I looked at the screen and there were hundreds of figures on it, a grid of numbers. I shook my head as if baffled, which I was, and Gabriel gave me a clue by wiggling the mouse to make the onscreen arrow jiggle by one box.

  “Three hundred and twenty-four,” I read.<
br />
  “A $324 million loss. When the merger went through, Harry thought there wasn’t much of a problem. It seemed like Marcus needed a bit of help, but it would be okay. You want to know how much they’d already lost? The whole $21 billion.”

  I frowned at him and looked back at the screen to scan the numbers again. “I can’t see anything like that here,” I said.

  Gabriel smiled. “Felix knew I would understand. Marcus told the traders to alter the model, shift the correlations. That altered the figures for long enough for the merger to be approved. He hid the entire thing.”

  “Correlations?” I repeated dumbly. “What are they?”

  “You’re a doctor. Do you know about broken heart syndrome?”

  Gabriel’s question was so unexpected that it took a few seconds for me to respond. I hadn’t expected to be an expert on anything amid this deluge of mathematical finance, but he’d at last mentioned something familiar. I’d been taught about the condition in medical school, and a widowed patient of Rebecca’s had died from it.

  “I have,” I said. “Stress cardiomyopathy. Heart failure caused by chemicals released into the bloodstream after an emotional trauma. It can happen to people whose wives or husbands have died. What’s that got to do with it?”

  “It’s a correlation. The first death makes the second more likely. It affects the price of life insurance. It’s the same with mortgages. If some borrowers stop paying, there will be a loss, but you need to know the chance of the defaults being followed by others. If the correlation is low, the loss will be, too. If it’s high, the loss will be, too.”

  “So the correlation was high on the Elements?”

  “Incredibly high. Like nothing I’ve ever seen. It’s like you have a hundred people outside in a storm. What’s the chance of all of them being struck by lightning?”

  “Pretty small, I guess,” I said.

  “Unless they’re all together-they’re tightly correlated. Then if one gets hit, they’re all hit. A vast number of mortgage borrowers stopped repaying all at once. The triple-A paper was going to be wiped out. Three months before the deal, Greene found out. He couldn’t admit to it because his bank would have been bust. He got the desk to lower the correlations so the model showed the losses not reaching the triple-A. He knew he couldn’t hide it for long, but he didn’t have to. Just long enough to fool Harry.”

  “How do you know it was him? Couldn’t the traders have done it themselves?”

  “There was one thing Greene didn’t want anyone to find, a document Lauren discovered in the data room. It was buried in here. I only found it at three a.m.”

  He clicked the mouse and a printer whirred to life on the shelf by me, spooling out a sheet of paper. It was an email message to Greene with a brief opening line-“Here are the metrics we discussed”-and below a list of the Elements.

  “When Greene found out, he got Rosenthal to run the numbers on the models. They gave him the right assumptions, all the volatilities and the correlations. It predicted what was going to happen very precisely. Those guys are smart, I must say.”

  I examined the paper. At the bottom of the email was a piece of legal boilerplate saying it had been sent from a Rosenthal employee and warning against disclosure. There was a list of five email recipients at the top, led by Marcus Greene. The final three names were all from Rosenthal, and the bottom one was Tom Henderson.

  Henderson’s calm disdain as he’d reviewed my feeble efforts to pin him down came back to me: You don’t have any evidence, merely the imaginings of a psychiatric patient. He had given me a long enough hearing to discover if I did, though. He hadn’t just been indulging a runaway psych bearing an unconvincing threat.

  I’ve got evidence now, I thought.

  “You enter these numbers in the model and guess what comes out?” Gabriel asked.

  “I don’t have to,” I said, knowing already what Lauren had found.

  “Negative $21 billion. Marcus already knew.”

  25

  We gathered at Green-Wood Cemetery, a grand affair spread out on a hillside in a scrappy neighborhood of Brooklyn, with a view over the docks, the harbor, and the Statue of Liberty glowing copper green in the distance. It was a wet spring day, but the clouds parted as I got there and the sun emerged on the blossom trees and mausoleums on the slopes. Felix couldn’t have asked for more, I thought. Maybe he’d chosen it: I wouldn’t have been surprised.

  I walked up the hill to the cemetery through a stone arch on which was a bas-relief of Jesus being laid to rest following the Crucifixion. Unlike Christ, or even Harry, Felix wasn’t coming back. He had drowned off Southampton and washed up on the long, broad beach among the seashells. He’d left a note for his wife and children, I’d been told, which was brief, remorseful, and blessedly vague.

  To my left was a field with low gravestones set into it and a multitude of tiny Stars and Stripes fluttering in the breeze. A pair of Canada geese was waddling defiantly past, and when I bent down to scan a couple of stones, they turned out to be the graves of Civil War veterans. In death, Felix had transcended obscurity and was being sent to the afterlife accompanied by high technology and higher security. I passed a dozen or so huge trucks with satellite dishes on their roofs and burly technicians watching over a cardiovascular array of cords.

  A couple of reporters leaned by them, take-out coffees in hand. One of them was my friend Bruce Bradley, who’d led me astray on Fox News about Harry. He was wearing either the same blazer or another like it and was laughing overheartily at his producer’s joke. Higher up the slope, near the arch, were five or six black Lincoln Navigators and Chevy Suburbans with another group of burly men clustered by them, these in suits rather than casual gear. They had translucent wires stuck into their ears, carrying Secret Service radio chatter. Someone important had turned up for Felix. Finally, there were three Suffolk County sheriff’s cars filled with uniformed officers trying not to be overawed by the Feds.

  All in all, it was quite a show. Felix would have liked it, or found it entertaining. My feelings were still raw, but I’d found that despite everything he’d done, I’d come to miss him. Although he’d betrayed Harry, he’d been the nearest I’d found to a kindred spirit, at least until our last meeting. I didn’t count Anna-she came under miscellaneous.

  A familiar vehicle was parked under a tree beyond the arch, which marked the border between the gawkers and the mourners-Nora’s stone gray Range Rover. I felt odd seeing it, and I peered into a window as I walked past to check if she or Anna was inside. It was empty, but I saw Nora as I looked up again. She was standing on a hill thirty yards away by a pink blossom tree, dressed in black with a small cap fixed to her hair. I watched her turn away from the scene to walk farther into the cemetery.

  I’d entered a minefield of encounters by being there, but I hadn’t felt able to avoid it. I hadn’t done much for Felix, so I could at least attend his send-off. Walking after Nora, I came over the brow and looked into a bowl-shaped arena with a chapel at the bottom like a bonsai version of Christ Church in Oxford, in the same limestone with ornate carvings leading up to its dome. It was overlooked by rows of mausoleums and graves set along pathways.

  As I got there, I saw an encounter unfold below me. Two vehicles were parked near the steps by the chapel. One was a heavy black limousine from which Tom Henderson had emerged and was shaking hands with two men I didn’t recognize. The other was a Suffolk County sheriff’s truck holding Harry. As Harry emerged, wearing a dark suit and handcuffs, they gazed at each other, but I couldn’t see their expressions from a hundred yards away. A Secret Service man stepped in front of Henderson, as if to protect him from a felon, and he sprang up the steps while Harry was held behind. Finally, Harry was allowed to proceed and he walked slowly through the wooden doors of the chapel.

  By the time I arrived, most people were in place on the seven rows of benches in front of the altar, under a brass ring of blazing electric lights. It suited me, for it allowed me to slip into a
backseat and scan the mourners. Nora was in the same row as Harry but a few seats down from him, as if jail protocol had to be observed, and Henderson was on the far side. Gabriel was on the same bench and gave me a nod. There was no organ, so we sat there in silence until the doors opened and a minister in white robes led a procession into the chapel: first the coffin and behind it Felix’s wife, black-haired with an ashen gray face, and their two children. The little boy had Felix’s molelike nose.

  When the priest spoke, I realized he was reading from the Book of Common Prayer, as if we’d been taken back to an English church. It’s Episcopal, I thought-my brand. It was the first time I’d seen the religion in action, rather than treating patients in its name.

  “I am the resurrection and the life, saith the Lord,” he intoned. “He that believeth in me, though he were dead, yet shall he live.”

  I looked across at a stained-glass window that was backlit by the sun and attempted to ignore the sound of Felix’s wife weeping. It wasn’t easy; she had a low-pitched, agonized gulp that sounded as if she were dying herself, the body’s last effort to fill the lungs. I wanted to place my hands over my ears to block the sounds of pain, but it was impermissible. The first psalm was a relief-it was a cue for her to blow her nose and for the rest of us to cough and shuffle before the reading started. It was De Profundis, and I listened unthinkingly.

  I look for the Lord; my soul doth wait for him;

  in his word is my trust.

  My soul fleeth unto the Lord before the morning watch

  I say, before the morning watch.

  We spilled out into the sunshine at the end of the service, and I drifted to one side so as not to intrude. The coffin was put back in the hearse and the priest led the mourners up a path to a lawn with a view over warehouses and docks. By the grave, I caught a glimpse of the little girl whose toys I must have seen in their apartment, holding her mother’s hand while the minister read the committal.