The Banker's Dilemma: She promised him Paris in the spring

by Roman Klee

  Grenelund didn’t know whether to laugh or cry. When it came to financial details, her approach was big picture only and Billings was being very unhelpful.

  Solomon’s senior partner had been hoping to swap her usual Happy Holidays round of golf at the Castle Grove Club, for the gun practice range. (She was the proud owner of a new Glock 17 G4 handgun—an early Christmas present from her husband.) Now she would have to postpone counting bull’s-eyes, and deal with the gravest crisis in the firm’s history. How in the world could this be happening?

  “Okay, Bernie, if you’re right, and I still don’t think you are, how much are we talking here?—hypothetically, of course.”

  “Hypothetically Alva, the firm’s profits have become losses. Those losses will be hundreds of billions of dollars. The hedges are not enough to cover us.”

  “Hang on Bernie, what you’re saying clearly isn’t right.”

  “But if it is—if we can’t square the books, we’re on the hook for half a trillion.”

  The sum was not bad for a day’s work. It totally eviscerated the firm’s net worth and then some. After one hundred and twenty-nine years in business, Solomon Brothers didn’t have a bean to its name. This was leverage working in reverse, massively magnifying the losses and it was not supposed to happen.

  How many times had she asked and how many times had her risk managers told her they had all the bases covered? They assured her that their models had been back tested, stress tested, even battle tested, to take account of an Armageddon style market meltdown.

  Her guys were the best paid on the Street. They were the smartest guys in the room. The size of their annual bonuses was testimony to that. They made the firm billions and helped themselves to hundreds of millions as payment for their dedication and effort.

  But now it was as if the ledger had been turned upside down and back to front, because as far as Grenelund was concerned, the very same guys were responsible for losing multiple billions of dollars. Whose mistake was it?

  Clearly, there was an error in one of the models—simply no other way to explain it. Which super smart had screwed-up big time?

  Or was it sabotage? Had someone planted a mole in the firm? A stranger in the house, working for a competitor, who all along planned to bring down the great firm of Solomon Brothers? Alva Grenelund had no way of knowing if she was thinking along the right lines. As explanations went, they all seemed pretty good ones.

  She liked the sound of a mole working on the inside against her and the firm best. It was the most logical reason for the trading catastrophe, even if slightly outlandish. Any other explanation meant her famous team of quants was wrong and that simply could not be the case.

  One thing was clear however. She was in no way to blame. Even if they could identify the culprit, a witch-hunt along those lines would only serve to satisfy the doubters, the ones who never believed in the supremacy of brainpower over gut instinct.

  The tantalizing multi-million dollar bonuses were there for the taking one minute and then gone the next. (Imagine what they could have bought; the fleets of Ferraris and Lamborghinis, the Picassos and Monets, the Gulfstream jets and Lürssen yachts, the penthouse apartments, fifty-thousand square foot cottages, crates of Armand de Brignac champagne, a complete collection of Vacheron Constantin watches, walls hung with sixty-five-inch Bang & Olufsen TVs, coke by the pound and girls on call—twenty-four-seven.)

  Talk about high-frequency trading. The idea was to make big money fast, not to see it disappear at an even greater speed. No one expected it to cut both ways—that was not how their system worked.

  Yet all the while, Alva Grenelund had a fall back position. And she intended to make full use of it, with immediate effect.

  Δ = T +5

  Minutes before the sun rose on Christmas Day, and despite her initial reluctance, Alva Grenelund started her second meeting of the morning. The tension in the boardroom was near breaking point. Not all the members of the Management Committee were present. Some had made surprisingly quick get aways to their vacation homes, others were already abroad with relatives.

  But wherever they happened to be, they all hooked up to the firm’s video-conference link to receive the kind of news no one wanted to hear at any time of the year.

  Despite the sour demeanor of the partners, one person in the room looked perfectly calm; Alva Grenelund. She was wearing her game face, even though her elbow was giving her trouble after too much golf practice. (Someone suggested a cortisone shot, which Grenelund knew she needed like a hole in the head.)

  Solomon’s senior partner showed no emotion when CFO Markus Markstaler, told the committee that based on the numbers in front of him, the venerable investment house known as Solomon Brothers, was insolvent.

  Some of the other members did not take the news with the same degree of calm. Audible gasps of horror filled the air. Fists thumped the table.

  Grenelund observed the men sitting around her. She watched as the color drained from their faces even faster than the millions of dollars that had just drained from their equity accounts. The guys on the video link looked like they wanted to kill Alva Grenelund, the chief architect of this disaster.

  Matt O’Connor started with an expletive driven rant about who was to blame. Who let Grenelund flip all the positions in the partners’ SOP Fund? Didn’t they have trustees who were supposed to look out for their interests? O’Connor was well known for his short temper. The son of an Irish dock worker, he grew up in the Bronx and had been one of the firm’s star traders before making partner.

  Grenelund let the guy blow himself out, and then told her audience that it should not lose all hope, because she was examining a work-around. She couldn’t say any more for the time being.

  Solomon Brothers senior partner knew what her next step would be. It was as if she had already mentally rehearsed the moves, should one day a disaster ever strike the firm.

  At moments like these, she was grateful for the power of her own foresight. Grenelund had resisted the siren calls to take Solomon Brothers public. She shuddered to think how much more difficult the task ahead of her would be, if she was forced to follow strict S.E.C. procedure and immediately notify investors of the firm’s parlous financial position.

  There would be rumors of course. Wall Street was nothing without its rumormongers. But she would issue a confident denial before the markets opened. Then, just so long as they kept everything in house, they could buy a few extra weeks maybe even months of priceless time, and with them Grenelund was optimistic she could avoid calamity.

  The boardroom emptied and Grenelund was left alone. If the day had been a more normal one, she would have returned to her office and asked Tabitha to make her first call of the morning to Newt Cleveland, chairman of the Federal Reserve. She might have added, Oh and tell him, I’m not calling to wish him Happy Holidays.

  But Tabitha was probably being woken up by her excited kids, screaming that Santa really had been.

  Grenelund made the call herself, dialing Cleveland’s home number and at first, spoke to the Fed Chairman’s wife, who sounded none too pleased by the interruption to her Christmas morning. Never during her entire tenure as Solomon Brothers’ senior partner, did Alva really imagine this day would ever come.

  From the get-go, she needed to use the nuclear option and outlined the dark scenarios that threatened not only her firm. Its derivative hedges had unwound because of bad collateral. The firm’s repo lines would be cut off. And she feared a loss of confidence from hedge fund clients, who would panic and close down their prime brokerage accounts.

  It was highly likely that the insolvency of Solomon plus all the forced selling, would collapse the U.S. banking system, with fatal knock-on effects for the rest of the international banking community—unless of course the Fed lent a helping hand.

  And even though she’d been getting more than enough flak from her co
lleagues about her apparent conversion to the Christian faith, Grenelund uttered a silent prayer, just in case. The time had come to ask for the Fed’s blessing, so the Brothers could be made whole once again.

  When she finished talking to the guy who occupied the top seat on Constitution Avenue, Grenelund had a second number to call. In many respects it was even more important than the first.

  Joe Aldrich, a former Solomon CEO, was the firm’s most valued member of its Diaspora. He was the man who single handedly could take the Brothers’ case to the highest office in the land.

  He was the Treasury secretary.

  Maybe he would reward Alva Grenelund with her best Hanukkah present ever. Some children would be getting lumps of coal for Christmas, or at least they deserved to. Grenelund was confident she wouldn’t be joining them because she was a natural born winner. And as a one-percenter, she had the privilege of appealing to the financial court of last resort.

  Losses in the order of half a trillion dollars were not enough to deflect her from her central purpose—self-preservation. To hell with the consequences for the rest of the financial system. Wall Street, Main Street, what did they matter?

  The one and only person who counted was Alva Grenelund and she was determined to come out of this mess with her equity stake and pension fund not only intact, but significantly enhanced; because more was never enough.

  She had no intention of giving up her apartment on East 89th Street, the estate on Long Island or the houses in Palm Beach, Aspen, Mayfair and St. Tropez. (And whatever else Phil had bought, without telling her.) The use of her executive plane was a sacrosanct entitlement.

  How in the world could she fit in enough golf practice if she was denied her right to flit from one country club to another? (Especially as it was part of a mission critical exercise to lower her handicap.)

  Her husband would continue to get his seven figure monthly allowance to spend as he wished on vintage cars, planes and a personal trainer. The kids would get their own money for shopping, socializing and recreational drug use.

  And her exclusive buyer accounts at Chanel, Dior, Yves St. Laurent, her make-up artist and hairstylist, her private call on-demand helicopter, her financial planners and advisors and housekeepers, butlers and ground staff and her personal protection squad, which would certainly need reinforcing—none of these perfectly standard entitlements for a woman of her ability and stature was about to be cut back.

  Never … ever.

  Didn’t they understand that she played a vital economic role? She was putting her money to good use; she was the poster girl for trickle-down economics. A true job creator, her spending power alone supported hundreds of jobs in the luxury goods sector.

  Hell, after the way she had devoted her life to the firm, they should be rewarding her contribution to banking. If only she had chosen to let loose her talents in another country that really appreciated genius.

  Alva Grenelund was in no doubt that had she worked in the U.K. and achieved only half as much, by now she would be a lady—possibly even a dame or marquise.

  Δ = T +5.1

  Nathan was still not sure whether he would make it in time. The travel instructions were very specific; guests had to be at Hoboken Terminal by seven o’clock precisely. The train waited for no one.

  Predictably, they got held up in the Holland Tunnel. Nathan checked the clock on the dashboard again. If only he hadn’t been forced to sift through the trash, if only he hadn’t spotted the two tough guys. If only his apartment had the regulation approved fire escape, he would not have been rushing around, wasting valuable minutes and making critical mistakes.

  This was no time for a display of dignity. Nathan apologized and barely thanked the driver (who was re-examining the Rolex in the improved light). He grabbed the bike from the back seat and peddled furiously the remaining distance, breaking one NYC Traffic Rule after another.

  He turned into Marin Boulevard, then right and finally into Lackawanna Plaza. And there ahead of him was the entrance to Hoboken Terminal. It was still undergoing renovation work, the scaffolding had not yet been taken down, despite promises of completion before Christmas.

  He checked the time on the clock tower; there were just minutes to spare. He threw the bike down and ran as fast as he could along the concourse to track fourteen, the one furthest from the ticket office.

  Nathan thrust Jade’s invite into the hands of a conductor dressed in a vintage green and gold braided uniform. He examined it, appearing not to notice that it was held together with Scotch tape.

  “You better hurry son, they’re about to go.”

  Nathan heard a whistle. A Union Pacific 844 locomotive with four cars, sporting a deep olive green livery with gold lettering, was ready to depart.

  Nathan’s heart sank as he saw the dome of the observation car move. He couldn’t afford to miss his ride. Even though he still hadn’t fully recovered his breath, he started to sprint.

  The first three cars were already ahead of him, so he picked up the pace. He saw an opportunity. Using all his remaining energy, he was now running parallel with the final car. He lent forward, intending to grab the handrail of the car’s back porch. But he hesitated for a vital second and felt himself falling.

  Then as if he had been willing it to happen, the rear door opened and a man appeared, offering an outstretched hand.

  “You can do it! Just jump!” he shouted.

  Nathan felt a tight grip on his right arm, and suddenly he was propelled through the air, landing head first at the man’s feet.

  “That was a close call!”

  Nathan was still too winded to reply. He got up.

  “Hi, I’m Osgood. My friends call me Oz.”

  They went inside, slamming the car door shut.

  Nathan was more embarrassed than anything else, but he was also relieved. He had made it against all the odds. And the first thing that now struck him, was the unconventional richness of his new surroundings. He introduced himself and apologized for his less than dignified entrance.

  Oz invited him to sit down on a large couch, upholstered in green buttoned velour and finished with gold fringe. Nathan’s timing was better than he could have imagined, because the breakfast service was about to begin.

  Oz sat directly opposite and he needed no prompting to talk about the train. He was clearly a fan, because on many levels it was no ordinary train.

  Originally built in 1929, it had since been restored. Rare and intricate wood carvings covered the ceiling, which Oz explained were taken from a Maharajah’s palace.

  Nathan wasn’t sure, but he thought their inspiration may have come from the Karma Sutra. The walls were lined with an elaborate Paisley styled fabric, gilt framed mirrors and Gothic artwork. The windows were dressed in heavy brocade, with more gold fringe. The overall effect was opulent, with no attempt at understatement.

  As the conversation progressed, Nathan discovered that he was talking to Budd’s brother-in-law, who was obviously proud of his connection to the Wrights. Nathan quickly understood how being related to one of the country’s richest families had its advantages.

  Oz explained that the first-year Jade used the train, her guests were so thrilled with the experience, they insisted she make it a regular part of the travel arrangements.

  Since childhood, Budd had been fascinated with trains. He liked them so much he built a railroad all the way around his island. Completed just in time to celebrate the couple’s golden wedding anniversary, Budd and Jade shared a special meal in the dining car. And he got to sit up front with the engineers, pull the whistle and stoke the furnace.

  The journey time from Hoboken to Brunswick would take nine hours. A liveried steward brought a regular supply of eggnog, miniature mince pies, gingerbread cookies, panettone, cinnamon rolls and candy canes. Kids ran up and down the cars, playing games. The jolly sound of Christmas ca
rols was piped throughout the train, preventing parents from catching up on lost sleep.

  Nathan no longer cared whether his new found friend would manage to keep the conversation going for the entire length of the trip. He was simply thankful to be escaping New York and leaving his pursuers behind.

  He was also looking forward to seeing Carla again.

  When they arrived in Brunswick, the first thing he noticed was a cavalcade of black limos heading in the direction of the airport.

  Oz noted Nathan’s interest and smiled. “You can bet your sweet Fannie Mae, those guys have a lot to be scared about!”

  Δ = T +5.2

  Budd Wright liked playing games. Whenever he visited New York, he always tried to get in a couple of bridge rubbers with the members of the Park Avenue Association (especially when Svetlana Simanovska had been compos mentis). And if the opportunity arose and he saw the odds were in his favor, he bet big, playing the occasional hand of stud poker or Texas Hold’em. Growing up in Kansas, one of his favorite childhood games was hide and seek, and as if proof were needed, recent events showed that he had lost none of his passion for it in later life.

  Keep the other side guessing, never explain and never complain, had become the watchwords he liked to live by.

  For Wright, playing the stock market was also a game, one requiring skill and sometimes a little luck. But if anyone asked him for a stock tip, he always declined, sticking to the line that certain activities were best conducted in private. Visitors to his home on the Isla de Ballenas had to be prepared to take unconventional behavior in their stride, but they could always count on Budd’s ultimate discretion. Because whatever took place on the island never became public knowledge.

  Budd liked to play one of his favorite games with new guests. It was designed to test their eyesight and honesty. He would get up early in the morning and randomly scatter gold American Eagle coins along the winding pathway that led to the main house.