by Davis Bunn
“What is this about?”
“Have you been watching the news?”
Esther huffed a humorless laugh. “Pretty much all the time. That’s part of my job description.”
“We’ve all been talking about what you said. Craig feels . . .”
She brightened at the sound of his name. Which was silly of course. “What?”
“Craig insists that you are someone we can trust to get it right.”
Esther did not know how to respond.
Patricia said, “There are some people we want you to meet.”
“Well, I suppose—”
“Great.” The words came at a rush now, as though Patricia feared Esther might change her mind. “It’s a potluck. Bring whatever. Veggies or salad would be nice. And we tend toward informal on Sunday afternoons.”
That night Esther watched a movie starring Cary Grant, her all-time favorite actor. He played a jewel thief on the Riviera and drove a convertible roadster and never got caught by anyone except the beautiful blonde.
Esther thought Craig Wessex resembled the star to a certain degree. She was surprised at her disappointment that he had not called. Esther felt like a teenager as she carried the phone with her into the bedroom. She was a grown woman. An executive with a regional powerhouse. She could get his number from Patricia and make the call herself. But the last thing she needed right now was another failed romance.
As she drifted off, Esther realized she had not checked the monitors in her office since returning home. She decided it could wait until she arose in the middle of the night. But she fell asleep almost instantly and slept until morning, as well as she had in years.
10
SUNDAY
Esther drove along wet and windswept streets. The Carolina spring was astonishingly beautiful, even in the midst of a storm. This time of year, the rainfall carried a softly apologetic note, as though regretting the need to disturb the day. Esther felt no closer to finding an answer to her quandary. Even so, there was an odd sense of comfort in knowing she had at least identified a new compass heading.
Providence Presbyterian Church was one of Charlotte’s oldest. The first log structure had been erected in 1767. Entering the compound gave Esther the feeling of being anchored to the city’s early days. The structures resembled the church of her childhood. Esther smiled a greeting to Patricia and her husband, accepted their quick embraces, and allowed herself to be guided to the row where Rachel and her husband sat.
Today’s service was lost to the sweep of memories. Esther stood and sat along with the congregation, but the intensity of her recollections dominated everything. She had loved her early Midwest upbringing. Their family had lived twenty miles west of Minneapolis, near Lake Minnetonka. Many of her fondest memories were about numbers. At age three she had made a secret pet of the number nine. At six, she had tested out at high-school-level mathematics. The instructor responsible for supervising those tests had never seen anything like her. He designed a pair of logic questions to determine if she could derive the fundamental concepts of calculus. Esther offered him the correct answers before he had finished writing out the problems.
Esther’s parents had been both proud and supportive of her gift. That was how they described it. Her gift. The children at her school were kind and nasty in turn, but most of the time Esther was content with her own company. Church had been a weekly delight back then.
Two years later, her parents died within nine months of each other. Her life, quite simply, fell apart.
Her grandparents saw her passion for numbers as a childhood oddity. They wanted her to behave. They wanted her to disturb their silent calm as little as possible. Her presence was already an unwelcome fracas. She was a perpetual stone thrown into the still waters of their existence.
As a result, Esther’s attitude toward numbers underwent a drastic shift. Gone was her passion for the purity of math. She knew she was gifted. That at least had not been lost along with her parents and her home and her church. By age eleven, Esther had already taken aim. She decided to use this gift and fashion a way out for herself.
She took the state exams at twelve, four years earlier than normal. This was followed by SATs at thirteen, for which she received a near-perfect score. With Nathan’s help and support, she applied for early admission to four universities. She was accepted by all of them. At fourteen she entered the University of Chicago because they offered her a full ride and because it was the farthest removed from a house that had never been a home.
Esther’s grandparents had belonged to a church as stifling as they were. At university, she stopped attending. She did not forget how to pray. But the tyranny of the urgent, the sense that God had abandoned her, all reshaped her perspective.
Nowadays the pressures of her upwardly mobile job left her content to spend a few hours on Sunday communing with her past, then leaving. She often wondered if she ever really had a faith of her own.
Esther was mildly surprised when the church service ended. She rose and followed the others to the Sunday school classroom she usually attended. The majority found seats in a wide circle that held twenty. Esther took her customary position in the second row. People had long since grown accustomed to her silent presence.
Craig’s words echoed through her mind The transcendent truth. Esther wondered what that might possibly mean to her own life.
Esther stopped by her home to change clothes and pull a bowl of endive salad from the fridge. When she arrived at the Saunders home, the driveway was already full with more cars lining both sides of the street. So Esther left her car farther down the block. Three couples by the front door turned to stare at her. She could see others watching through the home’s front windows as Patricia rushed down the brick walk. Esther shifted her bowl so that the larger woman could embrace her. “What’s going on?”
“A lot of folks are worried, is what.” She settled an arm on Esther’s shoulders and pressed her forward.
“I don’t understand.” But she did understand, in fact. The stares and Patricia’s obvious tension added up to only one thing.
These people were gathered here because of her.
“The economic news has been so awful this past week, all Donald had to do was mention you and your ideas, and people begged for the chance to meet up. Then Craig had the idea for us to invite some people over for a lunch. But let him explain.”
Eyes followed the two of them as they maneuvered through the crowded rooms and entered the kitchen. Craig was deep in conversation with two couples, but when he spotted Esther he broke off and approached with a small smile. “It’s good to see you. I’m glad you agreed to come.”
When Esther deposited her bowl, he led her outside. Esther waited until they were in the back garden to say, “Who are all these people?”
“A few are friends of mine. Donald and Patricia and Rachel called around. Their contacts phoned others. Did you see the news last night?”
“Yes.”
“Everybody is worried what the markets are going to do this week. I simply made a suggestion. Donald and Patricia offered to set this up.”
The same dual sense of internal pressure and deep-seated need were still with her. And growing stronger. Esther found herself confessing, “I’ve pretty much decided I have to do something. The question is what?”
Craig was clearly pleased by her words. “When did this happen?”
“It’s been growing for some time. But really the actual decision for me came during church today.”
He revealed a warm smile, there and gone in an unsteady heartbeat. “May I make a suggestion?”
“Of course.”
“Don’t talk to them. Talk to me. I’ll ask you some questions.”
“Like the other evening?”
“Just like that. You say what is on your mind and heart. When you’re done, just sit there. And see what happens.”
“I don’t understand . . . what are you expecting from this?”
�
�Two things,” he replied. “First, you’ll realize you are not alone. Second, well . . .”
“What?”
He shared another smile as he said, “You’ll realize what you need to do next.”
11
The size of the gathering actually made it easier for Esther to ignore them. Normally her presentations were restricted to senior traders or bank executives, a dozen at the most. Esther had learned to adapt to the spotlight by researching each listener in depth. She knew them, she understood their backgrounds, she anticipated their aims. This was impossible today. Patricia’s home held over forty people. They filtered in and out of sight. They ate seated in all the downstairs rooms and lined the central staircase and filled the back patio with plates balanced on their laps. Most were in their thirties and forties, but several were quite a bit older. Rachel bustled around one gentleman in his late sixties, who walked with a distinct limp and used a cane. Esther thought she recognized him, but she was swept away before she could fit the face to the memory.
Esther was offered a place at the dining table but opted for a spot in the kitchen, where she could stand by the rear window and focus on the trees and the sunlight. She had no appetite, which was normal for her during such times. And yet she felt no jitters. Craig stood beside her, a silent assurance that he would stay with her and help guide her. Through what exactly, she had no idea. Even so, despite her natural avoidance of public attention, Esther had the distinct impression she was where she should be. She hoped it was not merely because she was glad to see Craig again. She didn’t think so, but she could not be certain.
After lunch there was a gradual shift into the living room. Several couples had brought young children, and they were let loose to play in the backyard. A few kids, however, caught their parents’ somber mood and remained close at hand.
Craig brought in two high-back chairs from the dining room and set them by the fireplace. He placed them at an angle, so that she could look out over the gathering if she wanted or focus solely on him. “What do you think?”
Esther nodded, her throat tight. “Could I have a glass of water?”
“You can have anything you like,” Patricia replied.
“Water is fine.”
The living room became jammed with bodies. They filled the sofas and all the dining chairs. Couples who had changed into casual clothing sprawled on the floor. Others took their places on the window seats, dragging in extra cushions from the television area. When the living room could hold no more people, they crammed into the doorways.
Donald excused himself to switch on the air conditioning. When he returned, Patricia said, “Craig, somebody needs to run this show. You’re it.”
“All right.” He swiftly recapped their dinner conversation, hitting all the salient points. Esther found herself calmed by his professional manner. Craig listened well, and what was more, he remembered. When he completed his summary, Craig turned to her and asked, “Ready?”
“Yes.”
“Okay. You have listed sixteen US banks who have resumed practices that carried us into recession in 2008, which you call dynamics. But these sixteen banks aren’t the only ones who are running such extreme risks, are they?”
“Probably not.”
“These are the ones you’ve been able to confirm. The ones you have hard evidence against, yes?” He nodded in time to her response. “But there’s something more about these sixteen that troubles you, isn’t there?”
“Yes.”
“It’s their size, am I right?” He rewarded her nod with a smile of encouragement. “Where do they stand in the national ranking, Esther?”
“All of them are in the top forty. Three are in the top ten.”
“So if they were to fail, they could have the same seismic impact as the collapse of Lehman Brothers, correct?”
“Not any one of them. A number of safety measures have been put in place since the recession, most importantly the financial stress test overseen by the SEC. These new rulings mean the economy is somewhat better protected than it was in 2008.”
“But if, say, three of them were to be hit by a calamity at the same time . . .”
“Then the markets would probably crash.”
“And by markets, plural, you mean the global economy?”
“Correct. This is no longer about a US recession. The world financial markets are too intertwined.”
Craig gave that a beat, as if preparing for a new line of questioning. In the pause, a voice from the room said, “I’m not clear on what we’re doing here. I mean, I was already worried. I don’t need—”
Donald broke in, “For this to work, we need to let the two here finish their analysis. We’ll have time for discussion afterwards. But until they’re done, it’s important that everybody stay quiet.” He nodded to Craig. “Back to you.”
Esther was pleased to discover that the interruption did not faze her. Craig kept his eyes glued to her, and she to him. Craig used the disruption as an opportunity to change directions. “Let’s take just a minute and talk about your background. Where did you study?”
“I did two undergraduate degrees in accounting and econometrics at the University of Chicago.”
“How old were you when you graduated?”
She had the distinct impression he already knew the answer, which was very interesting. Both because it meant he had researched her, and because the knowledge did not trouble him in the least. “Seventeen.”
“Maybe you should explain what econometrics actually means.”
“It’s the mathematical and statistical analysis of factors impacting the economy.”
“But you didn’t stop there, did you?”
“No, I did a master’s and a doctorate at Caltech. My focus was the development of algorithms that could be used to track future economic trends.”
“Which brought you to the attention of CFM. How long have you been with them?”
“Going on nine years.”
“And when did you first begin to grow concerned about trends in the nation’s financial system?”
“My final year at grad school. Then following the 2008 crash I began focusing on what I hoped would never be repeated. I thought . . . it’s naïve, but at the time I thought the banks had learned their lesson.”
“But that hasn’t happened.”
“No. In fact, the trends are now moving in the exact opposite direction.”
“Why is that?”
“Because the decision-makers at these banks are all focused on one factor above everything else, short-term profits. Their goal is to make more money this quarter than last.” The thoughts came more easily now. The lid was off her internal cauldron. She was revealing her fears. At long last. “The biggest impact the 2008 recession had on the financial industry was to raise the size of their bets.”
“Same question, Esther. Why is that?”
“First of all, you need to understand that the investment banking divisions of major banks is a lie. They don’t invest, and they’re not banks. They’re gamblers. They were the cause of the 2008 recession and they are the ones . . .”
“Pushing us to the brink again.”
“I think so. Yes.”
“So these gamblers are betting larger sums. Why do you think that is happening?”
“The margins are smaller. The SEC and similar groups in other countries are restricting their movements. So when a potential source of income is determined, they go at it full bore.”
“They bet the house.”
“Exactly.”
Craig leaned back and smiled. “Do you need a break?”
“No, I’m fine.”
“Okay. For us to understand what these risks really mean, and why they are so dangerous, we need to come to grips with one thing above all else, correct?”
Esther nodded, totally in sync with him now. “Derivatives.”
12
The original usage of the word derivative was in the higher maths. A derivative measu
red the sensitivity to change of one factor when impacted by another. This measurement forms one of the central pillars of calculus.
A financial derivative was actually based on this concept, though most traders had no idea the connection existed. For a trader, derivatives were contracts that derived their value from the performance of an underlying entity. Traders usually referred to these assets as underlies.
The element on which the financial derivative was based could be a paper asset the bank owned like a home mortgage. It could also be a fixed asset such as currency, gold, or bonds. But the most powerful of the derivatives were not based on anything so concrete. Instead, these were based on positions. The structure of interest rates, the measure of economic growth, the future value of an asset that was not actually in the bank’s possession—any and all of these formed the basis for new derivatives. All the bank needed was for someone to measure their value and someone else to buy them. The financial system had a word to describe all such derivatives. That term was exotic.
Esther had another word for them. She called them toxic.
By this point, Esther had become so involved in her explanation that she no longer had room to be nervous. She rose from her chair and took the four smallest photos off the mantel behind her. She then knelt on the carpet and put the photos facedown on the coffee table, four gilt-edged frames around blank felt squares. “Okay, we need an example to show what’s happening in the market. Let’s say these four are derivatives either held or being acquired by a major bank. They are all interconnected. That’s a key element of exotic pairings like this. There must be a logical correlation, something that can be measured.”
She touched each of the felt squares in turn. “So let’s say here we have commercial mortgages. These are normally cross-border, which means they represent buildings in half a dozen different countries. And here we have one block of currencies that are used to value these mortgages, say, US dollars and Mexican pesos. This third group includes three other currencies—the euro, Swiss franc, and yen. And this final block are euro bonds issued by banks and real estate holding groups. Clear so far?”
