by RD Gupta
Lemontov had answered the same question at least once an hour for the last two days. But he did not protest, for the hooded eyes that stared back at him possessed the severity of an executioner. The little humanity that might have once been there had long since been extinguished by an ocean of blood.
Basayev struck a match and fired up a forbidden cigarette that illuminated the brown fedora resting on his bald scalp. He was always given to distinctive headgear, whether it was a fatigue cap, a military beret, or a peaked hat.
“We will hurt them this time, Lemontov. More painful than anything they could imagine.”
Lemontov nodded, having heard this before, too.
Basayev picked up the binoculars again. He could make out a flashlight bobbing in the far distance along the pipeline, causing Basayev to sneer. Just like the Russians to entrust such a crown jewel of an asset to pitifully tiny protection. So much the better. He would have Lemontov extract the heart from the lone soldier, a personal trademark he’d developed during the prolonged wars in Chechnya.
He’d spent the last six years looking for the right weapon to take the head off the Russian bear, and though he’d tried, nuclear weapons remained beyond his grasp. But now he had found a way to cripple their economy in a way they never saw coming. So much grander than hostage taking. And when he was done here, he would crush the infidels of Israel the same way. The West had turned a blind eye as the sacred land of Chechnya was defiled by the Russians, instead, always providing protection to their handmaiden, Israel.
But now he had found the jugular of the infidels, and he intended to slice it to ribbons.
*
New York City
Jarrod leaned against the pillar beside his office window, watching the boats plying up and down the Hudson. The sun was heading toward the horizon in its late afternoon descent. Ordinarily the scene imbued him with the feeling that he’d finally arrived. But now it offered little comfort. He was procrastinating, he knew. Putting off the confrontation he feared would leave his career in tatters. He took a deep breath and then put on the jacket that had been sculpted for him by his tailor in Milan. Might as well be in proper attire for the execution, he thought.
He walked past Gwen, saying, “I’ll be in William’s office.”
“OK,” was all she said.
He took the elevator up to the next floor, then down the hall to the terminus where Rosita sat as a Praetorian Guard of one.
Jarrod looked down at her and confirmed that Gwen had been correct; Rosita did look white as a ghost. Nodding, he said, “I need to see William.”
Blankly she returned his gaze. “I…I’m sorry Jarrod, but William left specific instructions not to be disturbed.”
“Announce me, please.”
Tentatively she reached for the phone and murmured into it, then set the receiver down and said, “He can’t see you now.”
“I’m afraid he will.” He walked past her and through the double hand-carved teak doors.
“Jarrod, no!”
He entered and closed the doors behind him.
Stepping into William Blackenford’s lair was like stepping into the sunshine after watching a movie matinee. You had to squint and take a moment to get your bearings. In the case of William’s office it wasn’t darkness to sunlight, it was the matter of scale. To say it was baronial didn’t quite get it, for initially you felt like a Lilliputian stepping into Gulliver’s living room. William’s office took an entire quarter of a floor, and the one above it, providing a cathedral ceiling that went on forever. His working area included a desk that had been purchased from the Earl of Haversham’s estate, while Heriz rugs covered the hardwood floor of the living area. There was a Georgian dining suite for private lunches with clients and portraits on the wall of dad, granddad, and his Preakness winner (which always generated a whispered speculation on which picture was the biggest horse’s ass). Everywhere you turned was the memorabilia—autographed photos of William with a mayor, senator, president, Hollywood starlet, jockey, and Luciano Pavarotti. On the credenza was a model of the Gulfstream, and at the center of the coffee table was a handcrafted model of the Valkyrie.
William Blackenford was sitting at his desk, phone in hand, when he looked up, startled at the intrusion.
“Jarrod? I told Rosita I absolutely can’t see you now. I have to--”
“We need to talk, William, and it can’t wait.” He strode toward the desk as William rose in defiance, seething that his edict had been ignored and his private lair violated. “Now see here, Jarrod,” came the Vesuvian voice.
But Stryker would not be dissuaded. He leaned forward on clenched fists atop the overhang of Blackenford’s desk. “I want a straight answer on what’s going on, William.”
William promptly stood up, pounding his own fists on the desk as his voice rumbled with anger “I don’t know what you’re talking about! How dare you waste my time! Now get out of—”
“You sold the Valkyrie,” Stryker said evenly. “And the Pissarro—all in for ninety-seven million. Partners have not received their distribution checks, the firm is in arrears in its dues at the Bridgemount, and the property manager is about to evict the firm from the premises. Seeing how Blackenford Capital had the best financial performance in its history last month, I’m somewhat at a loss as to why this situation exists. So enlighten me, please. Now.”
All defiance evaporated before Jarrod’s eyes. It seemed like a release valve was opened, and Blackenford deflated like a balloon—no, more like the Hindenburg as it went down in flames. His face turned from crimson to white, his knees buckled, and he slowly fell back into the massive leather chair, like a marionette whose strings had been cut. A few moments of silence passed until he mumbled something.
“William? What did you say? I didn’t catch that.”
The older man inhaled deeply, then whispered softly, “It’s over.”
“It’s over? What do you mean, ‘it’s over?’ What’s over?”
He looked up and gazed around his throne room longingly. ‘It’s over. All of it. Gone. I’ll be on the street. We are all done.”
“Street? William, what are you talking about? Between the Valkyrie and the firm’s profits last month, you’re sitting on 200 million in cash from that alone. How could you be on the street?”
The figure made for a pitiful sight. Only moments before Blackenford had been the imperial lord of his domain. Now he was a broken old man with his world in tatters.
Jarrod had never seen him so vulnerable like this and didn’t know how to react. He pulled a chair up to the edge of the desk and said, “William, tell me what’s happened. We’ve always been straight with each other. Remember that racehorse matter I took care of for you? You know you can trust me. Now what is it?”
Blackenford couldn’t bring himself to look the younger man in the eye. “CDOs,” he whispered.
“CDOs? But you strictly forbade anyone in the firm from trading in CDOs. Said it was all smoke and mirrors.”
He nodded. “They were—are.”
Collateralized Debt Obligations, or CDOs, were the Svengali financial instruments that had been cooked up by Wall Street and brought the global economy to its knees. Essentially a promise to pay a debt obligation if the underlying asset went south, the market for CDOs ballooned into the trillions of dollars. And there was nothing wrong with the idea as long as the party issuing the guarantee was actuarially sound and had the financial muscle to make good on the promise. But that wasn’t enough to feed the greedy beast of Wall Street. They started using CDOs that were called…
“Synthetics?” asked Jarrod. “Don’t tell me you got into synthetics?”
Blackenford slowly nodded, and Jarrod leaned back in the chair. He put his hands carefully around the arms of the chair to steady himself.
“Synthetic” CDOs were unfunded obligations. That is to say, it was simply a promise to pay by the issuing company if the underlying asset went south. No earmarked funding behind it. Uncountable bil
lions in synthetic CDOs had been issued on mortgage-backed securities, fueled by the fundamental premise that housing prices would always go up. Wall Street raked in a tsunami of fees based on this flawed premise. Then when the music stopped and the housing market crashed, the pillars of Wall Street fell like dominoes—Lehman Brothers, Bear Stearns, Merrill Lynch, and AIG all tumbled, and even Goldman Sachs got nailed with a charge of fraud by the SEC.
Yet Blackenford Capital had dodged that bullet. William had smelled synthetics for what they were and had forbidden any trader to touch them. So when the rest of Rome was burning, Blackenford Capital had remained intact. It had been his—and the firm’s—finest hour. So the revelation that William had gone over to the dark side was received by Jarrod like a kick in the stones.
“All right, William. From square one. Tell me what has happened.”
Blackenford slowly drew breath and said, “The…the ‘opportunity’ came to me at the Bridgemount. Marlin Kain—”
“Of Middlebury-Kain?” asked Stryker. A mid-sized investment bank.
“Yes. He said they were representing the Dubai Concourse. Or rather, the tranche of CDOs their insurer had issued.
Dubai Concourse and CDOs. Stryker didn’t like where this was headed. Dubai Concourse was a gargantuan real estate development in the United Arab Emirates that had built an $8 billion artificial islet off the coast and constructed a utopian city on top of it—just before Dubai real estate went south. Now it was a string of empty see-through buildings gathering a patina of wind-blown sand.
“The Dubai Concourse issued eight billion in bonds to complete construction,” said William softly. “When the real estate market in Dubai melted down, the Concourse project missed its first quarterly payment.”
“I remember that,” replied Jarrod. “Go on.”
“The bond holders turned to the CDO guarantors. The instruments and their obligations had been sold and resold, and it looked like it was all smoke and mirrors. They were all unfunded synthetics. The obligation holders had nothing to pay with. It was all going down. Turkow, VKG, and Redmond were the obligators ultimately holding the baby. They were leveraged on obligations nine to one. They couldn’t cover.”
“That was all over the Journal and Financial Times. Nobody wanted Dubai Concourse paper. Don’t tell me you got in?”
Blackenford looked at him with sad-sack eyes. “Marlin Kain came to me and said the Concourse CDOs had fallen 80 percent—roughly to the value of the underlying real estate less the debt. But what everyone was missing was the tranches of CDOs weren’t bundled, meaning all the obligors weren’t obligated on a pro-rata basis. The way the legal instrument was drawn, each obligor was earmarked on specific bonds within a specific tranche.” In layman’s terms, if you happened to be the last guy in the chain guaranteeing the debt, you could get royally effed.
“And?” prompted Jarrod.
“One tranche was guaranteed by Wilton House.”
Jarrod felt a lump in his throat as he began to uncover the logical chain of unfortunate events. “Oh, no. You mean you…?”
“Yes.”
“Was this before…?”
“Yes.”
Jarrod fell back in his chair and gaped at the ceiling as the whole picture came into focus for him. “Ohhhhhhh shhhhhiiiiittttt.”
Blackenford mumbled, “I even had Skadden Arps review the instrument on the tranches. They said it was ironclad. Wilton House was on the hook for certain bonds.”
“That’s so comforting now,” observed Jarrod. “Wilton House.”
During the financial meltdown of 2008 when the world found out a tiny cabal of bankers had been able to mortgage a planet’s future with something arcane called financial derivatives, a media gadfly named Ostimet Wilton, who was a half-Turkish, half-British, wore thick horn-rimmed glasses, and spoke with a contrived accent, was all over the networks and cable channels lambasting AIG as criminally irresponsible. Waving his trademark foot-long cigar, he would hold court on CNBC or Fox Business News and pontificate that his insurance company Wilton House was actuarially sound, that every potential loss was covered. And if he’d been running AIG, the whole debacle would have been avoided.
The media couldn’t get enough of Ostimet Wilton. He testified before Congress, published a book, and was even on a short list for a major treasury post when his firm filed for bankruptcy. It turned out Ostimet Wilton was selling the same CDO policy to multiple beneficiaries and salting the money away in an offshore account. He was last seen reportedly in Uruguay.
Jarrod said, “So you mean you bought into these Dubai Concourse CDOs because Wilton House was on the hook for the obligation?”
Blackenford nodded and said in a repentant voice, “They were trading twenty cents on the dollar, but the Street hadn’t picked up on the Wilton House fine print. Marlin Kain was excited and we could reap a 300 percent windfall inside of sixty days.”
“But to make sure I’ve got the timeline right, you acquired the tranche of CDOs before the revelations of Wilton House came to light?”
The older man nodded, keeping his gaze on the floor.
“So you bought in on a long position on the CDOs at twenty cents on the dollar, but then Ostimet Wilton became a fugitive, Wilton House revealed itself to be a house of cards, and the CDOs went to zero.”
Another nod from Blackenford.
“Was this a personal investment or for the firm?”
“Firm,” he replied in a whisper.
“And how much did you commit?”
Silence from the general partner. Not good.
“William, I said how much?”
A tremor seemed to go through Blackenford’s corpulent body as he mumbled something inaudible.
“Say again, William?”
He looked at the younger man with a ghostly pallor in his eyes as he said, “Eight hundred and fifty million dollars.”
Jarrod leaned forward and grasped the overhand of the desk. His head swirled as his breath and respiration spiked. When he was sure he would not pass out, he stood and walked aimlessly through the room, rubbing the back of his neck, sweating and freezing at the same time. Finally, he wound up back at the same place and stood behind his chair, holding onto it for balance. After the shock wave and his brain finally reconnected, he couldn’t help but blurt out, “Eight hundred and fifty million! William, the firm doesn’t have that kind of capital! Where did you get the money?”
“Borrowed,” he said simply.
Jarrod rolled his eyes. “Who on earth went for that deal?”
“Euclid Bank. A six-month installment note.”
“And so that’s why you sold the Valkyrie? And haven’t paid the rent? There’s a payment due?”
Another nod.
“How much?”
Being interrogated was not something William Blackenford cared for. Based on William’s scowl combined frequent glances towards the door, it was clear he wanted to exit the conversation. “One hundred and fifty million. It’s the second payment. Due next Tuesday. The first one nearly wiped us out. If it hadn’t been for the Valkyrie sale and your performance this month, I couldn’t make the second payment. But after next Tuesday the well is dry. That is it, there is nothing more to discuss”
Jarrod did the math in his pounding head, and it didn’t square. “William, I’m not done. The firm’s unlevered capital is about $150 million. How did you get Euclid to float an $850 million loan?”
“I…I pledged the firm’s capital and my personal assets”
Jarrod knew William had the lodge in Gstaad, the Park Avenue apartment, the Hampton’s estate, thoroughbreds, art, and so forth.
Even then, the math didn’t square.
“William, after draining the firm’s capital account and hocking your personal assets, and the cash from the energy play, that’s maybe 350 million. Where did the other 500 million come from?”
No answer, and the silence that followed was deafening as Jarrod realized his boss, mentor, and surrogate fath
er had gone and done the unthinkable. Stryker’s knees buckled and he fell back into the chair. Wide-eyed, he asked, “William…did you pledge the client discretionary accounts?”
The trace of a nod.
Blackenford Capital had about $2.3 billion under management. A billion-three of that was in client-directed accounts, which meant any buy-sell trading couldn’t be done without the client’s OK.
The other billion was in Blackenford’s hedge fund in the form of “discretionary accounts.” That is to say, a pension fund might invest $10 million in the discretionary fund, and under the terms of management, Blackenford could do anything he wanted to with the money in pursuit of higher returns. The firm’s equity trading, commodity trading, special situations, and Jarrod’s energy trading divisions were largely discretionary accounts. Blackenford could invest the discretionary funds in pork belly futures, a Russian diamond mine, real estate in Australia, or pledge them in any way he saw fit. The rub being that if the returns were not there, or—worse—loss of capital, Blackenford’s reputation would be smeared and the remaining capital would flee to other management firms.
A $500 million hickey would wipe out half the discretionary accounts, and while it fell within the power of the general partner to pledge those funds, that kind of loss would ruin the firm, and anyone who had fingerprints on Blackenford Capital would be lucky to get a job as a drive-through bank teller.
Jarrod held on to the edge of the desk as he came to grips with the enormity of the cataclysm.
“Let me make sure I understand,” he said evenly. “Next Tuesday you make another 150 million as payment, and that wipes out all the firm’s cash?”
A nod from William in reply, his eyes still on the floor.
“Then it’s thirty days to the next $150 million payment, and at that point, we’ll have to start invading the discretionary accounts?”
Another nod.
“And other than my energy trades, there is nothing in the immediate term to staunch the bleeding?”
Blackenford shook his head.
