A Week in December

  He took another softball question from someone Tranter assumed to be a plant from the publicity department of his publisher, and then with a very solemn look began to read the passage in which his alter ego was jilted by the willowy girl. Tranter remembered the sequence from the book, but it was only now that Sedley was reading it that he saw that it was supposed to be emotional – ‘moving’, perhaps.

  Leaning back in his chair, he let out the loudest yet of his yawns – a sort of roar. Then he flung his arms wide and looked all round him, making urgent gestures at his wristwatch, as though to suggest that some people had jobs to go to, lives to live, thanks very much, rather than listen to any more of this.

  Then he pushed his chair back so that its feet squealed on the wooden floor, stood up and walked slowly down the aisle to the doors onto the street. He pushed them open violently and allowed them to swing unchecked behind him, allowing in the greatest possible noise of rush-hour taxis and lorries as they laboured up Rosslyn Hill.

  John Veals was on the Tube, going home, thinking with some surprise about how dismissive he had been that morning in his talk with Simon Wetherby about ‘Moregain Sucks’ and ‘Goldbag Lunch’. He had once loved banking. After ten years trading futures, he’d been headhunted, in 1990, by a New York investment bank that viewed itself as the smartest on the planet and had statistics to support its claim. Others of the big banks might dispute the title; Veals did not, and he felt the time was right to move.

  The American brokerage for whom he had been selling futures in London had had a rogue trader and had called in management consultants. In the New York office, young men in rimless spectacles rose unspeaking in the bank of elevators that lay beyond the security gates. Their pale faces and watery eyes reflected their hours of study; box after box of paper documents were wheeled into stripped offices by porters dressed like the old Red Caps on the Chattanooga Express. Veals had been glad to leave.

  Like everyone else who worked there, he referred to his new employer simply as ‘the Bank’. Started by three Latvian Jewish refugees in 1885, it had in its early days brought together investors and capital, enabling businesses to grow and new merchant ventures to be undertaken; but by the time John Veals joined it in 1990 it had become, in all but name, a hedge fund that thrived by trading its own capital. Veals was slightly contrarian at this time in that he still believed the client had an important role. And the function of the client in Veals’s view was a simple one: to provide a flow of information on which the Bank could more efficiently trade its own money.

  In theory, Chinese walls were intended to separate those trading on behalf of the bank from those acting for clients, and this usually worked. While one arm of the Bank was underwriting a rights issue for a cash-strapped company, the ‘prop’ desk was short-selling the same company. But the rights issue was public knowledge and no one had had to breach a confidence; it was simply considered by some outsiders to be ‘distasteful’. No one at the Bank cared about ‘taste’.

  At other times the Chinese walls were too thin. Veals and everyone else at the Bank knew that if two men met for a drink after work it was impossible to police everything that was said. It was laughable, really, Veals thought: it was too easy. On the other hand, it was against the law, or against the SEC rules. The fact that everyone knew what went on didn’t mean to say that it was all right, that it was risk-free, and Veals preferred at this stage of his career to take his edge in a way that was, in the jargon of the Bank, completely kosher.

  His first job at the Bank, on the energy desk, coincided with the time that many East European and African governments were denationalising their energy supplies. The fledgling private organisations that emerged all wanted to buy protection against future price fluctuations. They could do so on an open exchange, but Veals preferred to steer them towards the ‘over the counter’ method, where deals were made privately, between consenting adults.

  He loved it. It was like playing poker with a guy whose hand was all face up on the table. With these ingénus, Veals had found an edge again, but more valuable than anything he’d enjoyed on the market floor. On listed markets there were algorithmic trading engines that kept prices boringly close to fair value at all times; but over the counter, he could act like a tailor’s master cutter, providing for Messrs Mbungwe and Radninski a bespoke product so complex and precise that they had no idea of whether or not it was fair.

  At the peak it seemed that every day would bring a new wide-bodied jet full of clients to New York, serious men taking their first uncertain steps in the capitalist world. After taking their money, Veals taxied them, with Steve Godley to do the small talk, to lengthy dinners at overpriced midtown restaurants and afterwards provided hookers. These men were desperate for the Bank’s expertise; its name alone was a guarantee of financial sophistication and power: they wanted to be able to take it home and show their bosses and their governments. They took off from Kennedy on the Saturday night and went back to their countries with a smile on their faces, dreamily grateful to have been shafted by such an august name.

  In his own mind, Veals wasn’t really trading CDS’s or other fancy options: he was trading Polish credulity; he was trading Czech naivety; he was trading stupidity.

  Yet still he was not quite satisfied. It was like going to one of the famous bankers’ whorehouses in Geneva and finding the prime hookers, the prettiest girls from Prague and Vilnius, all bent over naked in a row for the visiting fund managers. Veals yearned for something with a bit more challenge and a bit more edge.

  In London, in the second part of the 1990s, the Bank asked Veals to concern himself with the question of debt, and Veals responded enthusiastically. Debt could be traded as bonds, on an exchange, but bank debt was not subject to insider trading rules. One of the tasks of Veals’s department was to raise money that was not seen by the credit rating agencies as debt, and to achieve this they invented new instruments, with deceptively sunny or simple-sounding names. Who wouldn’t want to buy a Fiesta or a High Tider? (‘Tider’ stood for Tertiary Interest Deposit-Enabled Revenue. ‘High’ referred, in an extremely private joke between Veals and Godley, to the Bank’s margin. ‘Still a fucking debt, though,’ as Veals admitted to Godley.)

  Later, they immortalised the private joke in the name of their hedge fund, High Level Capital. ‘Twenty fucking per cent of the client upside, plus two per cent management fee,’ said Veals. ‘The industry norm! What an industry! What’s Latin for twenty fucking per cent? We should put it as the motto on our coat of arms.’ Viginti copulantes per centum. Godley looked it up, but didn’t send it to the printer.

  Then they decided to go for three and thirty anyway. It showed they meant business.

  The compliance regime in the Bank emphatically met the modern requirements. What this meant in reality was one hour a year training, largely concerned with money-laundering pre-cautions similar to those used by a high-street clerk when taking on a new customer: photocopy of passport and recent utility bill. Veals had once sat a compliance ‘exam’ in which the first question was ‘In what year did the Singapore Stock Exchange open?’ He and others at his level were required to go on a further one-day course each year in a country house hotel. After they’d signed the register, most of tHe’students’ spent the morning trading or e-mailing as usual on their mobile devices. Veals liked to take bets on his own arithmetical prowess. He would bet one of the young tigers that he could get an answer to a complex sum before his opponent with the palmtop computer and made thousands this way in quiet moments.

  In his bright, clean office in Pfäffikon, Kieran Duffy had had a long day. He was a man of strong carnal appetites and a naturally short attention span; for many years his weekends in New York had involved Long Island, much golf, some cocaine, French wine and as many girls as he could manage without alienating Mrs Duffy.

  When a large trade was on, however, Duffy could think himself into a kind of trance, in which he would stay for as long as it took. After a vigorous morning
encounter with his Italian girlfriend Marcella, he showered, dressed, told her he might not be back till the following day and drove his blue German sports car at speed over the freezing roads to Pfäffikon. He had told his trading assistant and his secretary the night before to be at work by eight, and when he opened the office door he could smell espresso and croissants.

  He fired up the four large flat screens at his desk and rubbed his hands.

  The markets opened at nine, Swiss time, and he spent the morning on the phone to the main option market-makers in the London banks. One by one, the bids and the offers came back to him, and one by one Kieran Duffy agreed the transactions, over the counter, by a simple phone call. After each trade was agreed he wrote a ticket and gave it to his assistant, a tall, elegant Englishwoman called Victoria Gilpin, who entered it via computer into High Level’s back office and risk systems.

  As Victoria went to work (she had an old-fashioned touch-typist’s style in which the wrists were static and only the long fingers moved quietly over the keys), Duffy received in turn: an e-mail request for confirmation from each bank he had traded with; a notification from High Level’s prime broker in London (the shiniest American investment bank) that each trade had been accepted on their books; and an adjustment to his own on-screen trading position. This figure was made up from a constant recalculation of all High Level’s many positions. Because of the size of the trades he had done in the course of the morning the slightest variation in ARB’s share price was causing huge movements in his own trading figures. It was exciting.

  At noon he had a conversation about risk limitation with Teddy Robinson, the deceptively relaxed Californian who looked after most of High Level’s business at the prime brokerage in London. Then, after a tomato sandwich on rye bread at his desk at one o’clock, Duffy turned his attention to gilts: loans to the British government, in return for which it issued ‘gilt-edged’, or guaran-teed, bonds. If British banks got into trouble to the extent that John Veals believed they would, the government would have to borrow huge sums of money to refinance them and the tradable value of British debt would consequently fall to sub-Italian levels.

  The London office of First New York bank contained a gilt specialist Duffy had had his eye on for a while: a young man who had made money throughout the previous twelve difficult months and was beginning to believe himself infallible. Duffy rang and asked him to make a two-way price in ten-year gilts for settlement in seven days’ time. As he waited to hear back, Duffy rechecked his calculations, and when the spread came down the line to him, he sold short $10 billion worth of UK debt.

  Victoria entered details of the gilt trade into the system and watched as they departed for their numerous electronic locations. None of these involved a proper exchange or a regulated forum of any kind. While the people with whom Duffy spoke by phone understood that High Level was the ‘end client’, the actual counterparty they faced in the market was the legendarily strong American investment bank that, as prime broker, managed all the trades.

  Problems began to arise mid-afternoon. The market in Allied Royal shares was too thin for Duffy to be able to trade further: there was simply not enough activity in it for him to put on positions of the magnitude he needed, and at four o’clock he called John Veals’s cellphone to report his decelerating progress.

  ‘OK, Kieran. Leave it with me. I’ll see what I can do.’

  That evening, in his mezzanine study overlooking the garden, John Veals was scrutinising a screenful of figures. He thought he could already see the faintest trace of O’Bagel’s fingerprints.

  So far so good, but Veals was worried. Anxiety was the staple of his work: night after night. His immediate problem was that the markets were so skittish, so nervous of financial collapse, that even the minimal movements he had seen might be noticed by others. The financial world was in a kind of suspended animation. On October 31, only seven weeks earlier, financial firms on Wall Street had lost $369 billion in a single day. The writing was smeared in letters ten feet high across the wall, but still people were trying to ignore it. The party was still on; the hard core, drunk on risk, unable to believe the gold rush might ever end, would not go home.

  In this atmosphere, Veals doubted he could make the end of the week without a keen analyst somewhere spotting that simple UK health indicators – currency and gilt values – were down, and then making a connection with ARB.

  The second problem was the one Duffy had rung about at teatime: that the market, as it stood, was too thin for him to put on a position of the size he wanted. Veals needed to spark some buying that he and Duffy could then sell into; before the ARB stock crashed, it must first therefore rise. The only way both to insure against others cashing in on ARB before he did and to create the market activity he needed was to do a Rothschild.

  During the Napoleonic Wars, the Rothschild brothers had the fastest communication system in Europe: a pigeon post. Every-one in Lombard Street was aware that Nathan Rothschild would be the first to know how the Battle of Waterloo had ended, and this made it impossible for him to trade on his knowledge; his competitors would copy him and no one would want to be on the other side. So, with exaggerated furtiveness designed to draw attention to itself, he began to sell small amounts of government bonds. The herd followed, and the bond market crashed. Unknown to his rivals, Rothschild had, by using intermediaries, accumulated huge long positions in government bonds. When victory at Waterloo was announced, the patriotic rally in bond prices delivered him the largest fortune the City had ever seen.

  Veals discussed the position at length on the phone to Stephen Godley. There was no sound from the other end, apart from the occasional grunt. After twenty minutes, Godley said, ‘OK, I’ve got it, John. We’ve built up a decent first-innings lead, but the next session’s going to be crucial. I leave it in your capable hands. I’ll make sure everything’s fine in London tomorrow. Give O’Shlo my love.’

  Upstairs, Veals’s son Finbar was settling down to watch the latest live episode of It’s Madness.

  He was feeling fully recovered from his whitey. A deep sleep with two strong ibuprofen tablets seemed to have done the trick. His hand was steady, there was no more cold sweat and he felt sure that he was back in the real world. Only a frightening little twist of anxiety remained in his belly when he thought about what had happened – so he tried not to.

  As a measure of respect, or something, he had decided not to smoke for a couple of days, so was sitting back with nothing more than a can of Pilsner in his hand.

  The contestants were in the Barking Bungalow, where the celebrity panel could watch them go about their business. In addition to Scotty, the bipolar woman (whose real name, Valerie, had been forgotten) and Alan, the schizophrenic, there was a chronically depressed woman in her thirties called Sandra, an old man called Preston, whose diagnosis was unclear, and a youngster called Darren with severe antisocial personality disorder who claimed he was not mentally ill.

  Sick or not, he certainly added something to the mix, as the newspaper reviews had pointed out, with his forthright aggression and willingness to take off his clothes and expose his lightly pixellated genitals to the camera.

  Terry O’Malley now filled the screen, his red cheeks shining in close-up beneath the lights in the studio, which was dressed to look like an upmarket dinner party, with bottles of wine on the table, bowls of nuts and celebrity fruit – mangoes and kiwi.

  ‘OK, ladies and gentlemen,’ said Terry, ‘we’re coming to the business end of the evening. Are we ready for this? Lisa?’

  Lisa nodded over her glass of wine. ‘Count me in, Tel.’

  ‘Let’s do it,’ said Barry Levine.

  With a theatrical gesture of his right arm, Terry pointed out emphatically. ‘Camera three, it’s all yours. Take it away!’

  The dinner-party set dissolved, and with it any sense of jollity. Instead, a steadicam showed the interior of a bare surgery, filmed in black and white, into which, one by one, the contestants were ca
lled for their daily ‘consultation’. They were asked to sit in a chair by a desk, while the large leather seat on the active side of the desk, the ‘doctor’s’ side, remained empty. Every day the consultation contained a new ‘therapeutic challenge’ – or ‘TC’, as it was known. Usually, this was something quite unthreatening: telling the group an anecdote from childhood, or trying an all-fruit diet for a day.

  First in was Alan, the schizophrenic.

  ‘Good morning, Alan. How are we today?’ The disembodied voice – a man’s, portentous – was relayed through a concealed speaker.

  Alan, a thin, half-bald man in middle age, tossed his head back and forth as though against invisible restraints. The camera moved in closer on his distracted eyes and their black sockets, cavernous with fatigue. He was clearly not well enough to play, and before the details of the daily challenge could be outlined to him, the light was switched off while someone went to pull him out.

  The scene switched back to the celebrity dinner.

  ‘Well what did you make of Alan, Lisa?’ said Terry O’Malley, swiftly on top of the situation.

  ‘I don’t think Alan’s really given us the best of himself since they’ve been in the bungalow,’ said Lisa. ‘You know, He’s like such a nice guy, really supportive and that. And I think He’s let himself down a bit.’

  ‘Thanks, Leese. Barry? What do you think?’

  ‘To be honest, I think Alan’s got to give a lot more of himself,’ said Barry. ‘He’s got to show more commitment. He’s got to really want it.’

  Finn went down to the kitchen for another can of lager, and when he rejoined the bungalow, the contestants had gathered in the living room for a karaoke session. This was one of the most popular elements of the entire show, the so-called ‘Loony Tunes’ evening, when Lisa was delivered by helicopter to the secret Barking Bungalow location. A hand-held camera caught her ducking beneath the rotors and running to the front door, accompanied by a security man. A second camera filmed the first cameraman in a blur of day-for-night vérité.