Rigged

by Ben Mezrich

  “Glad to see you survived the trading floor with all four limbs still attached,” she said by way of a greeting. Instead of a handshake, she offered David a manila envelope. “Here’s your employment package. Nothing too confusing in there, I promise, just a W-2 and a welcome letter. We like to keep things simple up here.”

  Reston patted David on the back. “Harriet will take care of you. She’s like our den mother—none of us would have survived without her. After you get settled—ten minutes should cover it— meet me back at the elevator, and we’ll continue the tour.”

  Reston headed toward a row of doors beyond the cubicles. “Those are the board members’ offices,” Harriet explained as she came around her desk, straightening her suit with quick sweeps of her long, brightly painted nails. “Mr. Reston’s office is next to Mr. Giovanni’s—who, by the way, won’t be in today, as he’s flying back from London this evening. But he’ll be there at the board meeting tomorrow, so make sure you aren’t late. Your first board meeting is an important event, and you’ll want to make a good impression.”

  She spoke much faster in person, the words running together in some places, and David noticed for the first time that she did indeed have a hint of a Jersey accent, something that hadn’t come across over the phone. He let her lead him to one of the cubicles—directly outside of the two doors that she’d indicated led to Reston’s and Giovanni’s offices.

  “This is your desk for now. You’ll be spending most of your time in Mr. Reston’s and Mr. Giovanni’s offices, or running up and down to the trading floor.”

  David took in the cubicle: desk, chair, IBM workstation, and a steel telescoping lamp. He could have been right back at Merrill—except the other cubicles surrounding his seemed to be vacant, no signs of life clearly visible, no pictures tacked to walls or sad little plants trapped in equally sad little pots.

  “Where is everybody else?” David asked.

  “There is no everybody else,” Harriet answered, turning back toward her desk. “The other board members’ assistants have cubicles on the fourteenth floor. The traders live in caves and eat their assistants during the cold winter months. The fifteenth floor is just for board members. And me.”

  She smiled back at him, chasing an errant, oversprayed lock out of her eyes.

  “And now you.”

  David blushed. She saw the color in his cheeks and laughed.

  “You’re cuter in person, David, but don’t get the wrong idea. I didn’t put your picture up above my desk—Mr. Giovanni did. The old man has an odd sense of humor sometimes. Though I really did like the flowers and chocolates.”

  When she was gone from view, David lowered himself into his chair, testing the springs, getting the feel of yet another cubicle. They never taught you about cubicles in business school. Maybe that was because, until a year ago, business school grads didn’t have to deal with cubicles.

  David put the manila envelope on the center of his desk and went to work on the metal clasp. The W-2 came out first, followed by a letter from the Merc, welcoming him and laying out his payment package. He took a deep breath as he searched for the numbers—then exhaled as they hit him like a club to his gut.

  Fifty-eight thousand dollars, plus benefits. Nearly a third less than what he was making at Merrill Lynch. He knew that money wasn’t everything—but hell, with his school loans and his apartment and his girlfriend, it was going to be a tough year.

  Sometimes you gotta move lateral before you move forward, he sighed to himself, repeating one of his dad’s mantras. The thought brought him back to the night before—to the party celebrating his dad’s completed year of therapy. It had been quite a Russo affair: aunts, uncles, cousins, food flying everywhere, little kids running around with snot running down their faces, David’s mother making everyone toast again and again—hell, the whole group would have been thrown out of the restaurant in the heart of Little Italy if it hadn’t been owned by a distant cousin. David smiled inwardly as he remembered how elegant Serena had looked in the midst of all that Russo chaos, sitting right next to his dad the whole time, matching every toast glass to glass. And David’s dad had truly looked so good, it was hard to believe that a year ago he was in that hospital, the panic attacks that had resulted from the accident so fierce that his heart had literally seized in his chest—David shook the thought away. Lateral motion— that’s exactly what his dad had called the monstrous thing that had ended his career at the accounting firm, because, well, it had ended the accounting firm as well. And he truly was moving forward again, putting himself back together emotionally, rebuilding his career at a new company that was kindly letting him work at home until his rehabilitation was over.

  So what the hell did David have to complain about? Fiftyeight thousand dollars was a hell of a lot better than not being able to do the simplest things in life, like get into a compact car or walk down a set of stairs—

  “Is it that ugly?” a voice interrupted David’s thoughts—a damn good thing, considering where those thoughts might have taken him—and David turned to see a smiling face peering over the edge of his cubicle. Midfifties, ethnically Jewish, with a receding hairline graying at the edges and ears that stuck out a little too far.

  “Alex Mendelson,” the man said, extending a hand, which David shook. “Board member. Crude oil was my game until I hung up my trading jacket and took a seat with the brain trust up here. You must be Giovanni’s Harvard boy.”

  David instinctively rolled his eyes. Had Reston made an announcement over the PA or was he using a fucking bullhorn? David may as well have worn his Harvard tie.

  Mendelson laughed. “It’s okay, I’m class of ’69 myself. Yeah, that’s right—Summer of Love and somehow I ended up in banking. Thank God I discovered this place before I was too old to throw a good punch.”

  David slid his employment package back into the manila envelope and rose from his chair.

  “You need to know how to punch to get by here?”

  “Hell, yeah. You’ll learn soon enough. This place is a cockfight. Sometimes literally. There are fistfights on the trading floor every now and then. But you look like you can handle yourself.”

  Mendelson started toward the elevators, and David followed.

  “What about up here? Do you have to fistfight to get by up here too?”

  Mendelson grinned at him. “No, up here it’s full-fledged warfare. Armored tanks and AK-47s. You’ll see soon enough. Your first board meeting is tomorrow, right? Well, don’t worry, Harvard, I’ve got your back.”

  He made a pistol with his hand, fired off two faux shots at David’s face, then cut left toward an office on the other side of the room. David watched him go—and realized, for the first time, that Mendelson wasn’t wearing any shoes. His suit was tailored and obviously expensive, he had on a Rolex watch and a tie that could have been Prada or Gucci, but his feet were bare and he was padding along the carpet like a kid on Christmas morning.

  David was still staring after him as he reached the elevators. Reston was already there, a grin on his face.

  “Yeah, Mendelson’s a character,” he said, holding the elevator door open for David. “He made a fortune trading crude. He was so good that some of the other traders got together, made a million-dollar bet with him that he couldn’t make three times that in a single afternoon. Mendelson was so sure he’d win that he even raised the bet by throwing in a pair of his favorite shoes.”

  David raised his eyebrows as he stepped into the elevator, Reston right behind him.

  “Mendelson lost?”

  “By one hundred thousand. He made 2.9 million, had to pay a million of it to the other traders—and he never wore shoes to work again. Still, he came out with 1.9 million for himself, so don’t feel too bad for the guy.”

  The elevator doors slid shut. Again, the digital readout blinked upward. Before David could ask any questions about Mendelson or the traders or his measly employment package or tomorrow morning’s board meeting—which obviously
was a big deal—the elevator was already slowing down. He glanced at the readout and saw that they had come to a stop on the eighteenth floor.

  “You’ve seen the heart and brain of the Merc,” Reston said as the doors slid open. “That only leaves the soul.”

  Chapter 8

  David stepped out into what looked to be a lounge, with a restaurant off to his left and an outdoor patio located through a pair of glass doors straight ahead. There was a long wooden bar off to the right, complete with bar stools and a great pyramid of liquor bottles inside a huge glass cabinet. The lounge, restaurant, and bar area were all decorated in muted colors, with leatherlined chairs and sofas, elegant carpeting, and oil paintings on the walls. The decor was in stark contrast to the garrulous traders who crowded together in cliquish groups, different-colored jackets congregating in different corners of the L-shaped floor. Even though trading was in full swing downstairs on the trading floor, there were obviously enough traders taking breaks to give the upstairs lounge the feel of a rowdy downtown bar.

  As Reston led David through the throngs, he got a few sideways glances, but mostly the traders continued with their conversations. David caught snippets of their dialogue; he wasn’t trying to eavesdrop—it was just that the traders talked so damn loud, probably a consequence of days spent screaming at each other down on the trading floor. He passed one group talking about a weekly poker game with stakes so high David could hardly believe it was real. Another group was talking about where they were going to go when the trading day ended; David caught something about some sort of club that employed women who danced in cages.

  Reston took a seat at a small table by the windows, with a pretty good view of the river and New Jersey beyond. David sat across from him, trying to look comfortable as he sank into the leather chair. David could see tugboats churning through the gray waters eighteen floors below. He wondered how many kids in Harvard ties bobbed up and down in their wakes.

  “So how basic do we have to get?” Reston asked as a waitress brought them each a beer in a tall, frosted glass. “I know this is your first day, but where do we need to start? You know what an exchange is?”

  David wondered if it was a trick question. He thought back to the analogy Reston and Giovanni had given him at Morton’s— that an exchange was like a soccer stadium. To be honest, he wasn’t entirely sure what that meant. If this had been a class back at Harvard, he would have tried to bullshit his way through. Instead, he decided to table his ego for the moment and let Reston lead him wherever the Texan wanted him to go.

  “A place where traders come to trade,” he responded, as simply as possible. “Here they trade oil.”

  “Wonderful.” Reston sighed, taking a long swig from his beer. “So that’s what two years of business school comes down to.”

  David felt a bit of heat rising into his cheeks, but quickly pushed his emotions away. For the moment, he was here to learn; he’d have a chance to prove himself as time progressed. Still, a little attitude never hurt anyone.

  “Pretty much. I also know that oil is what makes cars go fast, but I figured I’d save that for my second day.”

  Reston looked at him, then grinned.

  “Okay, the basics it is. Yes, you’re right, exchanges are, as the name suggests, meeting places for people to trade goods for other goods. Historically, exchanges sprang up near ports, where people naturally gathered together with whatever wares they had to hock. The gathering together was important, because being face to face restricted the ability to get screwed; when you could see the transactions going on all around you, you had a sense for what the market rate was, and therefore it was less likely you’d get taken for a ride.”

  David nodded; it was all pretty seventh-grade textbook, but he didn’t want to rush Reston. The chaotic scene he’d witnessed downstairs on the trading floor seemed terrifyingly complex, and he didn’t want to skip any steps that would help him make better sense of how the Merc operated.

  “For a long time,” Reston continued, “exchanges traded in the physical—‘spot’—market. That means, in the immediate transfer of goods for goods. I give you a sack of potatoes, and in return you give me money. Now, that worked fine for commodities with short shelf lives, but as you moved into things that you can store—such as, well, oil—you wanted longer-dated purchase agreements. That’s where futures come in.”

  Of course, David had learned about futures in business school. They were pretty self-explanatory: you contracted to buy or sell items in the future at a price determined now.

  “Sure,” David said. “I agree to sell you one gallon of crude oil in one month for fifty bucks. The current price is forty nine. You believe the price is going higher, so you agree to the deal. I think the price is going down, so I also agree. If, in one month, the price is below fifty bucks, you lose and I win. If it’s above, you win and I look for another job.”

  Reston leaned forward over his beer. “And what if that month goes by, the price of oil tanks to forty bucks, but I say, fuck you, and refuse to pay you the difference? Well, that’s where the exchange comes in. The exchange acts as insurance to make sure the deals go through smoothly. For that ser vice, the exchange takes a clearing fee and a trading fee. The more oil that gets traded, the more money the exchange makes. But the brilliance of the whole thing is that the exchange doesn’t take any of the risk—the risk is all on the traders. They’re the ones speculating on the price, deciding whether to bet that whatever they’re trading is going up or down.”

  “So the exchange is like the house, the casino,” David said, parroting back what he’d heard Reston say earlier. “The traders are the gamblers.”

  Reston nodded. “Though it’s a little more complex than that. As the markets developed, got bigger, faster, and more complicated, brokers stepped in—guys who made it their business to control the transactions for a commission. The brokers represent the people selling the oil as well as the people buying it. The brokers interact with the traders, who are essentially speculators who squat in between the buyers and sellers. A barrel of oil being pulled from the coast of Louisiana—destined for your car’s gas tank—can change hands dozens of times along the way as various people take different views of the short-term price direction. That one barrel of oil, which we’ve bought and sold for fifty bucks, can actually generate thousands of dollars of profit and loss for people in the middle before it gets turned into exhaust.”

  Somehow the basics had gone from seventh-grade textbook to somewhere in the stratosphere, but David was sure he’d get the knack of it all before long. At least, he hoped so; he doubted Reston was the kind of guy who liked explaining things more than once.

  “And that’s what you saw going on down there in the pit. All that yelling is actually coordinated communication. Signals being passed between traders that communicate the prices and sizes of crude oil contracts—buys and sells—based on whatever speculative magic each individual trader brings with him to the floor. Been going on like that since 1983, when crude took over as the main commodity of the Merc. Before that, it was potatoes. Before that, butter and cheese. That’s right, the Merc opened in 1872 as the Butter and Cheese Exchange of New York. After World War II, potatoes overtook dairy—and in ’83, oil trumped potatoes. But even though the commodity that’s being traded has gone from butter to oil, the traders and exchange haven’t changed much in a hundred and thirty years.”

  David leaned back in his chair. The madness he’d witnessed downstairs had been going on for more than a century. And now he was going to be a part of it all.

  “If you haven’t quite figured it out yet,” Reston continued, nursing his beer, “there’s a real divide between the board and the traders. It really boils down to the age-old antagonism between workers and management—between the guys who feel they make the cars, and the guys who wear suits and take credit for making the cars. The traders trade, and we make money off of them— and they hate us for it, even though most of us were once floor monkeys just
like them. Part of your job is going to be bridging that gap—so you’ll be spending plenty of time up here. This is where the upstairs guys and the downstairs guys come to relax. If you can call it that.”

  David finally turned away from Reston and watched two young traders—maybe late twenties, maybe even younger—shoving at each other back near the bar. A third trader intervened just before punches started to fly. David pictured the trading floor downstairs, how all the guys were jammed together, screaming and yelling—Christ, it really did seem insane that an exchange could work this way. David really felt like he had been plunked down in some bizarre nightmare from his youth, surrounded by the tough kids he had grown up with—who had simply traded in their jeans and leather coats for colored trading jackets.

  “You guys weren’t kidding about the ethnic connection here,” David said, thinking back to the night at Morton’s.

  “It’s the culture of apprenticeship,” Reston replied, taking a deep swig from his beer. Even though it was barely ten in the morning, David followed suit. He didn’t think he’d be getting much work done on his first day, considering that Giovanni wasn’t even in the office. Not that he had any real idea what he’d be doing day to day anyway.