The Leading Indicators

by Gregg Easterbrook

  Margo sometimes thought about the downshifting alternative, which held obvious appeal. “Tom and I talk about the small-town existence; it’s attractive,” she said. “But suppose we lived in some idyllic Berkshires town, I’d worry constantly we weren’t giving every possible opportunity to the girls. Plus if I ever actually felt content, that itself would worry me.”

  She laughed, and looked prettier when she did so—her pretty laugh was among the things that had attracted Tom. “When we’re on vacation and the stress stops, for the first few days I feel great. Then I feel like I’m missing something—like I’m supposed to feel stress.”

  Lillian had recently attended a lecture on this very point. “Natural selection designed you to be discontent,” she said. “Stress is nature’s way. The wary of the primordial past, the ones always scanning the horizon for predators and never satisfied no matter how much they accumulated—those are the ones who survived and passed their dispositions down to us. Our happy-go-lucky ancestors stopped to smell the flowers and got eaten by something. If we are descended from the stressed-out of the past, then evolution has been encouraging nervous tension.” The Galápagos finches got ever-sharper beaks. People get ever more stress.

  Margo laughed anew; she was pleased when her friend sounded like a college professor. Too often, Lillian seemed not confident about who she was.

  “So you’re saying that in natural-selection terms, I pass my melancholy along to my daughters, who will evolve it into a more complex form of discontentedness?”

  “Today’s complaints are much more elaborate than the complaints of our distant ancestors,” Lillian said. “This is one of the achievements of Western civilization.”

  “Natural selection wants us to be nasty—I like that,” Ken said, jumping to an entirely different conclusion. “I can use that at the emerging-markets conference. The business world is kill or be killed, just like a PBS nature special. To feel content is a bad strategy, a competitive disadvantage. Render the competition extinct. Good stuff.”

  Nicole was dismayed the conversation was turning philosophical. At the country club, that never happened.

  “If you feel constant discontent, aren’t you only cheating yourself?” Tom asked. “So many people—they’ve got a nice house, they’re healthy, and all they think about is what they don’t have. Or about some imagined slight or trivial grudge. Who are they harming but themselves? People spend too much time discussing material things, not enough appreciating this life we grasp so briefly. At the ends of our lives, will we even remember what we possessed?”

  Ken: “Absolutely!”

  “Lillian may be right about the quiet college-town life. I wish I watched the sun rise more often,” Tom said. When she started spending the night at Tom’s place, Margo had been charmed that he sometimes rose early, to watch the dawn.

  Tom asked Ken, “How often do you watch the daily miracle of the sunrise?”

  Ken hated when Tom sounded like this, though knew Tom’s pensive side helped close more than one deal. Endowment funds loved the way he talked.

  Normally Ken would change the subject when Tom grew reflective, but he couldn’t stand to be perceived as having lost a debating point. Ken said, “Now you want me to feel thankful there’s sunlight? How about oxygen and nitrogen, people should feel thankful for them? And magnesium, let’s see a little gratitude for the daily miracle of magnesium.”

  Nicole blanched on the word “magnesium.” Saying, “Normal people do not discuss science at parties,” she went into the den and turned on the television, choosing a popular show on which magazine-cover fashion models competed to find faults in one another.

  In the current episode, the task was to damage the other models’ reputations. At the end of each episode there were two audience votes via an 800 line—ubiquitous texting hadn’t quite yet happened. The first concerned which model would be thrown off the show for being revealed to have a fault. In the second vote, whichever model had been perceived by the audience as “too nice,” for not being sufficiently heartless against the others, would also be expelled from the show. That was Nicole’s favorite part. Focus groups run by the network showed viewers really liked that part too.

  Margo and Lillian continued talking in the kitchen. Ken and Tom took their wine out onto the deck, which Tom had added during the deck fad. He was thinking of adding an outdoor fireplace, the current high-end home fad.

  “I had lunch with Gresham Cooper yesterday,” Tom said. “He’s been named senior partner. We made a bet on which of us will retire before fifty.”

  “Cooper is a terrific lawyer. I didn’t even know I had legal problems until I hired him,” Ken replied. “Except his plastic surgeon did too good a job. You can’t tell he had his eye wrinkles removed.”

  “Isn’t that the desired outcome?”

  “When a woman has cosmetic surgery, the point is to look better. For a man, the point is to announce to the world that you’ve got the bucks to afford cosmetic surgery and you’ve reached the kind of power position in life where simulating youth gives you an advantage. So you need the facial fixes to be obvious. Otherwise, how will anyone know?”

  Ken sipped wine from the new bottle. “This is nice; write down the name for me and I’ll get a case.” He had just purchased a SubZero wine-storage unit and needed to fill it. There was space for 147 bottles, different temperatures for Burgundy and Bordeaux. Six thousand dollars, plus installation cost. The unit was so heavy, installers had to reinforce the floor.

  “How much do you think our stock price will go up when the numbers come out?”

  Ken tried to raise other subjects, including sports, cars and babes, the perennials of male conversation. Finally he said, “Investors—they’re capricious. Anyway, we put too much score by Wall Street. We should get back to what originally made this country strong, like land speculation.”

  “You are awfully downbeat when we’re about to announce a record quarter.”

  Ken had a way of seeming bitter and cheerful both at once: a good mix for business success. “In this day and age we’ve become too good at being phony,” he said. “We’re so efficient at phony, people are suspicious when something is real. Plus the bigger a faker you are, the higher your take. Because society rewards phoniness, we get more of it—I mean, that’s textbook economics.”

  Tom was not sure why matters such as this should be on Ken’s mind. Ken had seemed distracted in the last few days, but everyone has phases like that. Yesterday, Tom mentioned to him what seemed like a potentially lucrative acquisition and Ken hadn’t been interested, which was like a bear not being interested in salmon.

  Ken gave Tom a distressed look and asked, “Did you ever break it off?”

  Tom didn’t know what Ken meant.

  “Ask some chick to marry you, choose the date, meet the ’rents, start making arrangements, then have to go say, ‘Sorry, cupcake, I found somebody better-looking, I’m breaking it off.’”

  “I never did any such thing,” Tom said, as if answering a homeroom teacher.

  “Well, I did three times and I am here to tell you it’s no walk in the park. And that’s how I feel right now.”

  The deck was a pleasant place on which to stand; you felt elevated. Every ninety seconds a jetliner arced overhead, inbound to the airport. Early in the morning and early in the evening—rush hours occur at airfields, too—in good weather the planes were only thirty seconds apart, the minimum safe separation. Americans need to get where they need to go. Each plane, landing, had to turn off the runway onto a taxiway the moment it was capable of doing so, to prevent the next arrival from overrunning the previous.

  Tom demanded that Ken say what was on his mind.

  “It’s time I was totally frank with you,” Ken replied. Then he spoke in a synthetic tone, the way powerful people speak to a congressional committee when they’ve done something bad but know they will never be punished in any way: “There were regrettable oversights and inadvertent misstatements. There
were lapses of judgment. Insufficient disclosure may have occurred. Monies may have been improperly diverted. Non-nominal transients may have eventuated. Mistakes may have been made. Frankly, I am going to be totally frank. Mistakes, in fact, were made.”

  Tom got it immediately. “So we’re not about to announce record profits—we’re about to announce a huge problem.”

  “The problem is we’re bankrupt. The company is finished.”

  “But just last quarter our cash-on-hand—”

  “Our cash reserve was a bookkeeping fiction, like most of our assets.”

  “But our accounts receivable, they were worth—”

  As if reading a statement prepared by an attorney, Ken said, “Regrettably, certain amounts may have been misdirected into special offshore entities that are unlikely to withstand regulatory scrutiny. Certain members of our board may be involved. I may be involved.”

  “Stop talking like that! Tell me what’s going on.”

  “What’s going on is that the directors and I looted the investors blind. I’ve lied to keep the investigators at bay for as long as I could. They found out. We are toast.”

  Tom tried to make himself think rationally, to avoid becoming emotional. “How did you get this past the accountants?” he asked.

  Ken answered, “That was the easy part.”

  Tom’s mind was reeling. Not only was his business partner a highwayman—bankruptcy would wipe out the value of his shares. “You’re a thief,” Tom said, not without difficulty. “You stole from our investors, who trusted us.”

  If he had a mustache, Ken might have twirled it. But Ken was not sorry to have broken the law: sorry only to have been caught. In this, he took the prevailing view embraced by white-collar criminals, corporate titans and government insiders.

  “All I’ve done is what half the CEOs and Wall Street lions do,” Ken said. “The members of the best clubs in Manhattan or Boston, the big political donors, the grandees on the Council on Foreign Relations—they got where they are by stealing from investors. It’s the modern way! Plenty of America’s corporate leaders belong in jail. But they’re not, are they? They’re in Aspen or Davos or a suite at Lake Tahoe with two honeys from a high-end Internet escort service. I’m just trying to emulate their success—I’m working within the system! The only difference between me and the business leaders who get invited to the White House is that they stole enough to become patrons of the arts. Anyway, I can still dream.”

  “I’ve been living a lie.”

  “Not you. You’re so naive, you think so highly of human nature, you never guessed.” Something repulsive flashed in Ken’s eyes. “There were millions of dollars of other people’s money in our investor accounts and it never occurred to you that the money might grow legs and walk away. That would be dishonest—that couldn’t happen!”

  Tom was speechless. Ken was bitter and cheerful.

  “It’s amazing how many people fall for this basic scam,” he said. “Contractor tells the Pentagon that shipping supplies to Iraq will cost ten billion. Just never occurs to anyone that once that cash is in the account, most of it will be stolen. Some guy claims to have a miracle investing formula that guarantees outsized returns. People with big bucks hand over their dough, it never occurs to them that the money will be stolen. They never ask themselves, ‘If this guy actually has a miracle wealth formula, why the fuck would he share it with me?’ People with big bucks, you’d think they would be smart about money. They are the easiest ones to fool! They want to believe the system is rigged in their favor.”

  He paused, then continued: “You were easy to fool. Worked alongside me for years and had no clue.” Ken was pleased that he had duped Tom so thoroughly—it made him feel like a master criminal. “Look on the bright side,” he added. “You walk away an honest man.”

  “I was about to cash out—we would have made eight, maybe nine million dollars.”

  “By deceiving investors! Give me some credit, I saved you from that.”

  Now it dawned on Tom that if the firm’s chief officer had been stealing all along, he would not have allowed the company to collapse without first getting his share. “How much did you divert to yourself?”

  “I’ve never claimed to be burdened by ethics,” Ken said. “I’ve never bragged about tipping the pizza guy.”

  “How much?”

  “It is a fallacy that there are right and wrong levels of executive compensation. My compensation reflected market forces.”

  “But if the numbers were phony, you were—”

  “Awarding myself huge bonuses for performance that was imaginary. That, my friend, is called vision! When artists become wealthy based on sheer imagination, this is admired. Andy Warhol made a killing by photocopying a soup can. That’s vision! He had a dream, a dream that people would pay him lavishly for obvious crap. He made his dream come true. Why shouldn’t we admire the businessman who achieves the same?”

  Then Ken added, “I had the vision to sell most of my shares last year. You hesitated.”

  “You talked me out of selling last year!”

  “Which was my fiduciary responsibility. If more shares had come onto the market, our stock price would have declined.”

  “When I get to the office Monday, the first thing I’m going to do is go to the files and—”

  “You won’t be in the office Monday,” Ken said. “A few hours ago the board fired everyone except me. They invoked a clause in your contract that forbids you to step on company property. Can’t have you making photocopies, pal. Security will call the police if you try to enter the office. Don’t take it personal or anything.”

  Years of work gone in an instant, and Tom had never guessed what was happening.

  In the back of his mind it had sometimes seemed too good to be true—revenue gushing in, numbers rising, stock analysts touting the firm; yet what was it, exactly, they created? He had tried not to think about the musical-chairs aspect of the modern financial industry. Presidents, prime ministers, governors, editorial writers, the Harvard Business Review—all were praising the financial sector as the growth engine of the West. But unlike carmakers or farmers who had inventories that could be inspected, financial firms asked you to take their numbers on faith. If the numbers were lies … Tom’s head reeled with the realization that he had been part of such a lie, and too credulous to notice.

  “We’re sort of—delicately balanced, financially,” Tom said. “I don’t have a lot of savings. My contract calls for two years’ salary if leaving the firm for any reason. I want those funds immediately.”

  “Bankruptcy voids financial promises that may have been made. No golden parachute. You can buy back your benefits, though. Keep the executive life insurance, so long as you make the payments. It’s a very generous offer.”

  “Unbelievable.”

  Ken said, “You know, I don’t have any trouble at all believing it.”

  Tom was silent. A few months before, he had been offered a senior position with a great package to join General Electric; Ken talked him out of it. Tom now realized Ken would have known then their enterprise was fixed and sure to fail. Ken didn’t just steal from the investors, he stole from Tom. Wiped out, and a fool to boot.

  “Many business-school success stories lost their shirts at some point—maybe that can be you,” Ken said, trying to sound soothing. “We live in a fast, flexible, kanban, six-sigma economy. To achieve maximum throughout, people must be expendable. Besides, you’ve been expressing qualms about materialism. Now you’ll get a nice break from that.”

  At that moment Tom felt glad there was no rifle in the house, because he would have dropped Ken where he stood. Instead Tom said softly, “I will see to it that you end up in jail.”

  “No you won’t, buddy boy. My tracks are covered. While you were philosophizing, I was taking care of Number One.”

  Tom had not punched anyone since a silly high-school rumpus that barely constituted a fight. He had, however, been in regular attenda
nce in boxing aerobics at his health club: the woman who taught the class was good-looking and hardly wore anything. The haymaker hit Ken with such force, Tom was surprised he had delivered the blow so effectively.

  Sitting by the kitchen island having an agreeable conversation, Margo and Lillian did not hear the sound of a guest falling unconscious onto the deck. Making popcorn to take into the basement for the girls and the sitter, they were discussing how at times like this, life seems perfect.

  Outside the wind rustled pleasantly through the trees as Tom’s chest heaved from the exertion of the punch—every now and then he had a bit of trouble breathing. Ken’s jaw was broken in four places. On advice of counsel he did not press charges, in order to avoid a situation in which Tom could hire an attorney who would receive court permission to engage in discovery. Nicole’s favorite magazine-cover model contestant won the reality show episode by planting an Internet rumor that her rival made a sex tape with her personal trainer at Canyon Ranch. And Margo’s life would stop being perfect.

  Chapter 4

  October 2008

  Dow Jones Index: 8,000.

  Unemployment: 6.6 percent.

  National debt: $10.4 trillion.

  From the office tower the view was of a frenzy of freeways: chock to the lane markers with cars, buses and trucks moving insistently, everyone wanting to be somewhere they were not. Watching so many vehicles in motion might be inspiring if the motion were purposeful. The traffic Tom saw from the office tower window was streaming along close together in space and time, as if someone had planned this outcome. You’d like to assume the traffic was acting out a plan. But there was no design. Each person behind a wheel was on his or her own, and none had the slightest idea what the next was doing, other than exhibiting nervous anxiety.

  The companies and governments of the world—you’d like to assume they are working from a well-thought-out blueprint intended to keep things together. Perhaps that is too much to ask. You might be content to assume they are following a slapdash plan or even a dumb plan, as long as events are happening for a reason later to be revealed. You’d like to assume there is a person in charge in a master control room, turning dials—like Professor Marvel in The Wizard of Oz, or like in a James Bond movie. Maybe that person is the president or a billionaire banker. Maybe it’s someone really powerful, like the CEO of Walmart.