Ghosts of Manhattan: A Novel(50)

Freddie looks around the room a few times, checking and rechecking for invitees to the meeting. I develop my own conspiracy theory that Dale Brown wants as few people as possible to witness his exposure to this information. Nobody wants a piece of this meeting, and I wonder why the hell I’m here. Dale also gives me just a passing glance, then stares at Freddie. I don’t know Dale very well. We were in a golfing foursome once about five years ago, and we were at a twenty-person dinner once. With a prompt he might remember me. “Take a seat.” Preston points to seats on the opposite side of the table from Dale, then he also sits across from us.

Freddie pulls a stack of copies of his report from his bag and passes one to each of us, and the remaining copies lie in a pile on the table as a reminder of his unmet expectations of attendance. He clears his throat and begins. “Gentlemen, thank you for—”

“Listen, Freddie,” Dale interrupts. “I don’t want a big preamble. Let’s just get started and get through this.” He already knocks Freddie off balance. Dale would have said this no matter how Freddie started.

“Yes. Well, thank you for coming.” Freddie picks up the report and turns back the cover page. I pick it up and fan the pages. It’s seventy pages of charts and graphs and block paragraphs of analysis.

Dale’s arms don’t leave the armrest of the chair. His eyes don’t drop to the report on the table in front of him but stay locked on Freddie.

“As you can see in the executive summary—”

“Freddie, I don’t have time to turn pages on your report with you. Let’s bottom-line this.”

Freddie’s hanging on by a thread. To his credit, as with many analytical minds, his anxiety forces him to slow down rather than speed up. “Okay.” He closes the report and slides it forward a few inches and releases it. “I have developed a framework for analysis.” His words are slow and plodding. “The result is a risk scale from one to ten, one being the least risky and ten being the most risky. The optimal level of risk to return for our firm is five point three.” His words are starting to come faster as he talks about his risk engine, which has become a living and breathing best friend to him.

“Fine.” Dale plays along. Preston is leafing through the pages, stopping at parts and reading closely, not listening to Freddie.

“The only thing I have yet to correct is that the one to ten isn’t exactly to proportion. Meaning that if you move from a six to a seven, that is more than just ten percent additional risk. It’s exponential. Like an earthquake on the Richter scale.”

“Why didn’t you fix it?”

“I just, well, I haven’t gotten that part right yet.”

“Continue.” Dale looks bored but happy he’s been able to make a criticism already.

“So moving higher than five point three can be significant. To use the analogy of a car, a score of six five would be redlining the engine.”

Freddie stops and looks over at Preston, who is focused on a page of the report. There are crinkles of concern on his forehead. He seems to notice the room has gone silent, and he looks up at Freddie, then over at Dale. Dale looks like he is about to ask Preston a question, then changes his mind. “Continue, Freddie.”

“Last year we were at a nine point one.”

Dale scowls. I think he was ready for a high number but I see real surprise that it is this high. “What the hell does that mean, Freddie?” He likes to say the name Freddie in a mocking tone like it’s a disparaging word. “You tell me nine one and I’m supposed to use that information to manage the firm? You want me to act because we’re a nine one on the Freddie scale?”

“It’s all in the report, Dale.”

“I don’t care about the goddamn report!”

Freddie is silent. We all are and we take turns looking at each other.

“Holy crap. Just keep going, Freddie.”

“Well, this year the scale can’t account for the risk.” He quickly realizes his phrasing will lead only to more criticism of the model itself. “What I mean is, we’re off the scale. We’re higher than ten.”

“What in God’s name does that mean?”

“It means that given external market conditions, the positions of the other firms, and our own positions, we’re leveraged through derivative instruments to such an extent that the scale can’t fully capture the risk. It’s like trying to divide a number by zero.”

“I still don’t know how you expect me to interpret this information.” Dale is staring at Freddie, ready for a duel and positioning for his denial that he learned anything here today. Preston is back to poring over the report and has a concerned look like he is trying to wish away the facts.

“Dale, the conclusion here is that this strategy could wipe out more than just Bear. Other firms are doing this too. Once we have a dip in the market, this will magnify the problem because there isn’t anyone healthy to absorb the mess. There’ll be no place to hide. The whole system is at risk.”

Preston keeps his eyes down on the paper, but he doesn’t seem to be reading anymore. Dale smiles, and this time it’s a friendly smile, as if to a child that doesn’t understand and that he wants to help. “Freddie, that seems a little fantastic. You can’t expect me to react to statements that the sky is falling.”