Absolute Risk gg-2

by Steven Gore

  “I’ll make up for your loss,” Gage said, sliding it into his jacket pocket, “and take you out to dinner.”

  “You mean you want to use me as a decoy to see whether they’re watching me or following you? “

  Gage nodded, and then smiled back. “I think I like you, too.”

  CHAPTER 11

  It’s me. I’m outside Hennessy’s house,” private investigator Tony Gilbert said in a call to Kenyon Arndt as he watched Gage walk back down the steps. Gilbert was annoyed at having to report in to a lawyer as naive as Arndt, whom he pictured as a clueless Ivy League grad who’d probably spent his weekends playing squash or lacrosse or maybe field hockey with the girls. Wycovsky was a different story. That was a guy he wouldn’t mind sharing a Humvee or a beer with. “

  Have you figured out who the man is?” Arndt asked. “

  Not yet. We’ll probably know by tonight. But that’s not why I called-hold on.”

  Gilbert reached for another cell phone and switched to direct connect mode.

  “Get ready,” Gilbert told the two men parked a few blocks away. “He’s getting into his car. He’ll be coming your way. Four-door. Dark blue. Headlights on.”

  Then back to Arndt.

  “Hennessy’s wife gave him something. Looked like an envelope. Maybe it’s something we missed.”

  “What do you mean missed?”

  “Hold on.”

  “He’s almost to the corner,” Gilbert told the surveillance team. “He’s got his left turn signal on, so he’s probably heading back toward downtown.

  “You still there?” he asked Arndt.

  “Yes.”

  “We searched the place after the FBI got done.”

  Gilbert smiled to himself. Let’s see if Mr. Ivy League learned a lesson from having his hand slapped by Wycovsky after objecting to the tracking device they’d placed on Milton Abrams’s Town Car.

  After a long silence, Arndt said, “I see.”

  Putz. He should’ve accused us of incompetence for missing whatever it was that Elaine Hennessy had put into the envelope.

  “Does that mean you have to go in again?” Arndt asked.

  “It’s probably too late. But we’ll find out where he works or lays his head and take back whatever it is.”

  “You don’t mean-“

  “What do you care what I mean.” You fucking punk asshole. “I mean what I mean. Capisci? “

  Gilbert didn’t wait for an answer. He just disconnected and tossed the phone onto the seat next to him.

  Mystery Man may be our only lead to Ibrahim, and Ivy League thinks we’re gonna kill him? What kind of shit has this guy been watching on TV?

  Gilbert watched the car turn onto Madison Avenue two blocks away and head downtown. He then turned his ignition and pulled away from the curb.

  “What’s he doing?” Gilbert said into the other cell phone.

  The man on the other end laughed. “Driving like an old lady.”

  “He’s an amateur, that’s for sure. He didn’t check the street when he came out of the house.” A laugh. “And kind of a doofus. He even forgot the papers he came for and had to go back to get them.”

  “How do you want to handle it?”

  “I don’t know yet. Let’s give him some rope and maybe he’ll trip on it all on his own.” Gilbert paused as a sliver of a memory gave him an idea. “You still in contact with… with… what’s that guy’s name, the one who did time for that two-bit robbery by the statehouse?”

  “Strubb.”

  “Yeah, Strubb. Is he out?” “I’ll check.”

  The other man called back a few minutes later. “He’s back in town. Working for a bail bondsman as a sort of unlicensed bounty hunter.”

  “Give him my number and have him call me.”

  “Why are we looking for this Ibrahim guy anyway?”

  “Why do you think? So I can make the payments on my ocean-view condo in Mazatlan.”

  The other man laughed. “Which means you don’t know either.”

  “Don’t know. Don’t care-just show… me… the money.”

  CHAPTER 12

  Nothing like tear gas to change the subject, Milton Abrams thought after the attendees gathered again in the ballroom and after the Econometrics Society president completed the introduction he was supposed to make instead of reaching for the political hammer that Abrams now wanted to ram down his throat.

  Thinking about Lasker’s criticism of China’s currency regime, Abrams wondered whether Lasker had shorted the market, knowing that forcing the Fed chairman to admit the helplessness of the U.S. in the face of Chinese economic expansion would drive down the exchanges by a couple of percentage points the following day. Abrams had seen others do it before and he considered it to be the niftiest, and scummiest, form of insider trading ever invented.

  As he approached the podium, Abrams wondered whether anyone else in the room recalled that Lasker was the inventor of ETIFs, exchange traded index funds, that allowed investors to bet on the movement of the entire market at once instead of just one stock or mutual fund at a time, and recalled Lasker’s onetime slogan: Whoever moves the market, rules the world.

  Abrams thanked the president for the introduction, made the obligatory how-many-economists-does-it-take-to-screw-in-a-light-bulb joke, and then moved into the substance of his speech.

  “What I want to address today,” Abrams said, “is the fact that the economic models that have guided the central banks of both the U.S. and Europe and the risk assessment analyses of financial institutions throughout the world have failed. They have provided us with a picture of the economy that is simply mistaken. It has been…” Abrams felt like he was raising a sword to strike down and split the society in two, and then swung. “It has been nothing more than the imposition of mathematical fantasy over reality.”

  The audience fragmented into groups of nodding and shaking heads, and then coalesced into what seemed to Abrams like bands of guerrilla fighters poised for battle in an academic jungle.

  The Nobel Prize winners, who’d built their careers designing those models, had taken up defensive positions among their sycophants. Arms folded across their chests, heads fixed forward like obstinate children refusing to wash their hands before dinner.

  Young professors of finance and physics and mathematics sat on the fringes, looking up at Abrams as though waiting for the order to fire.

  “All of these laissez-faire models rest on the assumption that there’s an invisible hand that brings the market to equilibrium if left unfettered by government interference. It looks at economic history through the distorted lens of this model, and views the boom and bust cycles of the last hundred years merely as aberrations, when-in fact-they are the norm.”

  Abrams thought of Hani Ibrahim, that puzzling little man whose office at MIT was the gravitational center of those rebellious youngsters, and of Michael Hennessy who’d driven him not only out of the country, but into hiding.

  “What would the public think if it knew that the entire edifice-the… entire… edifice-of economic theory on which the hopes and dreams of two generations has been built rests on nothing-nothing-but on centuries-old analogies with the way particles of pollen drift around in space and with the way gas distributes itself in a container and with observations of water seeking its natural level.”

  An image of a basement filled with putrid water flashed through Abrams’s mind and a wave of nausea wrenched his insides. Maybe Ibrahim was dead, had reached a final place of rest. Maybe Gage’s speculation was right: He’d not simply been deported, but sent somewhere to be tortured. And torture was no more of a science than economics. It was trial and error, and the extreme limit of that kind of error was death.

  “Any plumber could’ve explained to the good men-and they’re all men-of economic science that water reaches its natural level in a man-made world only when the plumbing has failed.”

  And maybe for all those years Hennessy had been searching for a ghost, a crea
ture that persisted in existence only in his guilt.

  “Let’s think back a few years, to the beginning of the mortgage crisis. Former chairman Greenspan testified before Congress and admitted-in his words-that 'there was a flaw in the model that defines how the world works’ and that ‘we obviously are viewing an economy that does not resemble our textbook models.’ “

  Abrams raised both his eyebrows and his finger like a teacher who’d led students into an intellectual trap.

  “Except the second comment was made in 1994, not in 2008-and in private, rather than in public, where it deserved to be heard. Which means that the Federal Reserve chairman knowingly encouraged the public in a delusion that he himself recognized as such.”

  The youngsters in the audience sat up, puppylike, as if their owner was about to toss them a treat.

  “And the country went more into debt and more into debt and the bubble grew and exploded and grew and exploded and wealth became more and more concentrated at the top and economic insecurity became concentrated at the bottom. And as sure as a syllogism, it has only gotten worse.”

  The puppies began panting.

  “It’s time to start with a new model. One that begins with the supposition that equilibrium is not the natural state of the market, and it’s not like water reaching its own level. A model that understands that the market’s natural tendency is to seek the extremes of expansion and contraction.” Abrams raised his finger again. “Once we begin from that assumption, the aim of the central banks ceases to be one of maintaining equilibrium by keeping the economy moving at peak speed-as if velocity alone will provide stability-but instead aims at reducing the vibrations and muting the effect of the gyrations-even if that means suppressing economic expansion.”

  That had been the practical implication of Ibrahim’s theory, but Abrams wondered whether Ibrahim had a chance to think it through that far. Or whether he’d even had time to think out its implications for risk management.

  “What is called risk management in financial circles is just quackery by another name. Investment banks and brokerage firms have wrapped themselves in a mythology that assures them that the tools they possess for managing risk actually do so. But they don’t. They fail because they plan only for small imbalances, temporary and minor losses of equilibrium, but not for the crises when they are most needed-and which they never see coming.”

  Abrams focused on the reddening face of Mitchell Allen Levinson, a Nobel Prize winner for the Efficient Market Theory of Portfolio Allocation. He’d made a billion dollars, and then lost five, as head of ML Capital Partners. Abrams had watched him follow a self-hewn path from theoretical argument toward the cliff edge of practice, and then into a naked freefall through the pages of the New York Times and Business Week and Fortune.

  Abrams smiled to himself as he recalled the last of the three-part Economist series that had reported that Levinson was now back to teaching Econ 101 at Michigan State, that his private jet was now owned by the CEO of Relative Growth Funds, and that the woman he’d divorced his wife to marry, and who’d once found his bald spot so endearing, had now decided that she only wanted to be friends.

  “More fundamentally,” Abrams continued, “the theories by which we have managed both the economy and our investment practices are driven not by science, but by…”

  Ivan Kahn, the mule-teethed 1970s radical, now the economy writer for The Nation, made a fist as if his favorite football team, six points behind with thirty seconds to play, had just made a first down at the one-yard line. Abrams imagined him finishing the sentence in his mind with the word “greed” or “corruption” or “selfishness,” the assumed sins of the wealthy.

  “But by our having forgotten the real purpose of economic growth, which is to reduce the quantity of human suffering, not to increase the gross national product of gadgets.”

  Kahn reddened, glanced around, and then slipped his BlackBerry into his shirt pocket.

  Abrams felt a certain warmth envelop his body when he said that line and thought back to when he composed it while playing his self-appointed role as an adjunct professor of the New York transit system.

  In the weeks after his confirmation by the Senate, Abrams had discovered that a temporary advantage of being a new Federal Reserve chairman was that those who vilify the position still lacked a recognizable face to target. That way it was still possible for him to do his research, not in his Liberty Street office at the New York branch of the Fed, but where it should be done, on the subway. He’d come to view trains not as mere modes of transportation, but as moving classrooms, each stop a mid-term, and the terminus at Pelham Bay or Far Rockaway or Jamaica Center, the final exam.

  It was at the Fifty-ninth Street-Columbus Circle Station a week earlier, observing the kids gathered on the platform after their Friday demonstration, clutching their iPods, slipping in their earbuds, texting “c-u-L8-r” on their iPhones, that he’d composed the phrase “gross national product of gadgets,” along with another one:

  “We look at the world through a microscope of economic analysis or a telescope of political synthesis, when we should be looking in the mirror.”

  Beautiful. Absolutely beautiful. Abrams wasn’t sure that he fully understood the implications of the line yet, but Fed chairmen were allowed to be incomprehensible, even to themselves. After all, it was one of his predecessors who’d said, “I know you believe you understand what you think I said; but what you fail to realize is that what you heard is not what I meant,” and who later admitted that he didn’t know what he’d meant either.

  Abrams glanced at his watch and sniffed at the faint remnants of the tear gas still floating in the air. There would be no time for questions today, and no answers-at least from him-that would move the markets tomorrow.

  CHAPTER 13

  The gross national product of gadgets?” former U.S. president Randall Harris said, as he flicked off the television in his New York office. “The telescope of political synthesis? He makes me miss that nincompoop Greenspan.”

  Harris looked over at Ronald Minsky, CEO of Relative Growth Funds and former professor of finance at Harvard. “Hasn’t he noticed that Relative Growth has solved all of the problems he keeps complaining about?”

  Minsky smiled. “Hegel wrote that the owl of Minerva spreads its wings only with the falling of the dusk.”

  “What the devil does that mean?” Harris finished the question in his mind, you fucking Jew-boy intellectual. Abrams. Minsky. Greenspan. They were all the same. But then he remembered that Minsky was a Polish Catholic. The punk must be a convert.

  “It just means that we only recognize eras once they’ve passed.”

  Harris pushed himself up off the couch and walked to his desk. He picked up the Morningstar analyst’s report on Relative Growth Funds and waved it at Minsky.

  “Hasn’t Abrams ever wondered why we’ve never missed a dividend,” Harris said, “never did worse than break even, even during the crashes?”

  “He thinks it’s just chance or good luck,” Minsky said, and then grinned. “And it’s not as if we’re transparent.”

  Harris frowned. He didn’t like hearing the word. It made him uncomfortable enough just to be on the board of an offshore hedge fund, much less be reminded of the secrecy with which it operated. If it hadn’t been for the other two ex-U.S. presidents who’d taken seats on the board before him, he wasn’t sure whether he would’ve done it. And they wouldn’t have joined unless George H. W. Bush hadn’t already blazed the trail to the Carlyle Group.

  Minsky. Everyone had been talking about this genius Minsky. How he’d made his first billions short-selling the franc the year before France adopted the euro. Borrowing and borrowing and borrowing and selling and selling and selling, driving the price down, the international banks and foreign corporations and governments dumping their reserves, forcing the French Central Bank to buy more and more and more to support the currency, then having to cave in at the end and devalue it. The price of bread d
oubled in a day, the price of gasoline tripled, and the French economy free-fell. Minsky then paid back the expensive francs he’d borrowed with the cheap ones he’d contrived, and Relative Growth pocketed five billion dollars.

  Every central banker in Europe knew that sooner or later Minsky would make a move on the euro, they just didn’t know when, or how he’d conceal his approach-and neither did Harris.

  Harris caught a view of himself in the mirror behind the row of liquor decanters. For a moment he felt more like an oblivious lemming than the Lewis and Clark of the financial frontier. He cringed at the recollection of what his wife had once said about hedge funds: They were like tapeworms living in the intestines of a host, absorbing what they’d made no effort to capture and profiting from what they hadn’t earned.

  Minsky walked to the bar, poured two bourbons, and handed one to Harris.

  “You really want to explain to Abrams how we do what we do just so he’ll stop talking about us?” Minsky asked.

  Harris’s face flushed. “I don’t know how we do what we do. It’s all gibberish to me. Fractals and scaling and string theory and entanglement.” He took a sip of his drink, then held up the glass and smacked his lips. “This is real. You can see it. You can taste it. It can get you drunk and make you act like a fool.”

  Harris lowered the glass and stared into it. “The problem with financial theory is that you get intoxicated with the idea that you can control the world, and then the world makes a fool of you.” He sat down in his desk chair. “What was that punk’s name? Levenstein? The guy whose jet you ended up with.”

  “Levinson, Mitchell Allen Levinson.”

  “Take a lesson. Look what happened to him.”

  Minsky smiled at Harris as if at a child. “What makes you think-“

  “Don’t take that pedantic, patronizing, schoolteacher tone with me.” “