“I thought hedge funds were all about security. I thought hedging meant like hedging your bets. You invest it in ways such that whatever happens, we’ll still make money.”
The shorter of the quants was snorting in his coffee cup, elbowing his partner, who was stifling a grin.
“That’s what the term may have meant at some point,” I allowed. “At some point in the early modern period. But for a long time now, hedge funds have been about helping investors who have a lot of money, like enough money that they can afford to lose some, to make more than the other forms of investing would make them, assuming things go well. It’s high risk high reward, with some actual hedging going on to reduce the high risk.”
Charlotte was nodding like she knew this already. “And each hedge fund manager makes different choices in that regard, that are like their trade secret.”
“That’s right.”
“And you work for WaterPrice, and are good at what you do.”
“Yes.”
“You look like you are,” Amelia Black tossed in.
“You do too,” I said, realizing too late that this could perhaps be understood as a way of saying You look like you would be good at hanging from blimps without your clothes on. That didn’t seem quite right, but she must have heard versions of this compliment before, as it was kind of true, and in any case she only smiled her lovely smile.
Charlotte aimed a look at Amelia, like, Don’t encourage him. “So,” she said, “if you were in charge of the boys’ money, what would you do with it?”
“Again, what do they want? And why would you do it this way?”
“What we’re ultimately hoping for is that this might allow us to protect the building from any kind of hostile takeover. And for that, we were thinking that four billion dollars might not be enough.”
“To buy this building?”
“We own it already.” She too could be just a little patient. “But to keep it from being bought by a bid so large that the majority of the co-op would take it.”
“Ah,” I said. “No, four billion isn’t enough to do that.”
“Because there’s a lot more out there?”
“Right. Several trillion dollars changes hands every day. Or every second.”
They all gaped except for the two quants. The smaller of them said, “It’s fictional money, but still.”
“Fictional money?” Charlotte asked him.
“Paper,” he explained. “Loans beyond actual assets. Futures and derivatives and instruments of all kinds. Lots of paper that supposedly would convert to money, but that couldn’t happen if everyone tried to do it at once.”
“That’s right,” I agreed. “So you guys are the two quants who disappeared?”
“We’re coders,” the smaller one said.
“We’re quants,” the taller one said.
“Stop it,” Charlotte said.
“Welcome back,” I added.
She went on: “So, Frankolino, are you saying that no matter how much we grew this four billion, there would be people who had so much more that they could swamp our amount?”
“Yes.”
She gave me a look like it was my fault, but I judged it a mock look. She said, “So what would you advise us to do?”
“You could buy the co-op yourselves. Buy it, go private, do what you want. Someone wants to buy your building, you tell them to fuck off.”
“Well, okay. That’s nice to think there is some kind of an option. Some kind of anti-community privatizing asshole option. Any others?”
“Well,” I said, warming to my task. “You could start a hedge fund yourself, leverage the boys’ money, and then you’re playing with hundreds of billions. Which you invest in targeted ways.”
Charlotte stared at me as if trying to comprehend some kind of mystery. “And that’s what you do.”
“Yes.”
“I like that,” Amelia Black said.
Charlotte shook her head hard: Quit encouraging him! “Any other methods you can suggest?”
“Sure,” I said. “New instruments are always getting devised. Real estate is always popular, because it isn’t vaporware. Although in the intertidal maybe it is. That’s my big question right now. The floods Case-Shillered a tenth of all the real estate in the world to zero, but now my index shows it’s almost back to par. So that’s been encouraging, maybe even bubble-istic.”
Charlotte frowned. “So what do we do in this situation?”
“You short it.”
“Meaning what?”
“You bet the bubble is going to pop. Buy instruments so that when it does pop, you win. You win so big that the only worry you have is that civilization itself collapses and there’s no one left to pay you.”
“Civilization?”
“Financial civilization.”
“Not the same!” she said. “I would love to bring down financial civilization!”
“You would need to get in line,” I told her.
I liked the way she laughed. The quants were laughing too. Amelia was laughing to see the others laugh. She did in fact have a beautiful smile. As did Charlotte, now that I finally saw it.
“Tell me how,” Charlotte said, eyes alight with the notion of destroying civilization.
Which I had to admit was fun. “Think about ordinary people in their own lives. They need stability. They want what you could call illiquid assets, meaning home, job, health. Those aren’t liquid, and you don’t want them liquid. So you pay a steady stream of payments for those things to stay illiquid, meaning mortgage payments, health insurance, pension fund inputs, utility bills, all that sort of thing. Everyone pays every month, and finance counts on having those steady inputs of money. They borrow based on that certainty, they use that certainty as collateral, and then they use that borrowed money to bet on markets. They leverage out a hundred times their assets in hand, which mostly consist of the payment streams that people make to them. Those people’s debts are their assets, pure and simple. People have illiquidity, and finance has liquidity, and finance profits from the spread between those two states. And every spread is a chance to make more.”
Charlotte was regarding me with a laser eye. “You’re aware you’re talking to the chief executive officer of the Householders’ Union?”
“That’s what you do?” I asked, feeling suddenly ignorant. Householders’ was a kind of Fannie Mae for renters and other poor people; the name was aspirational, seemed to me. Some important data from it went into the IPPI, as part of the rating of consumer confidence.
Charlotte said, “That’s what I do. But go on. You were saying?”
“Well, the classic example of a confidence crash is 2008. That bubble had to do with mortgages held by people who had promised to pay who couldn’t really pay. When they defaulted, investors everywhere ran for the door. Everyone was trying to sell at once, but no one wanted to buy. The people who shorted that made a killing, but everyone else got killed. Financial firms even stopped making contracted payments, because they didn’t have the money in hand to pay everyone they owed, and there was a good chance the entity they were supposed to pay wouldn’t be there next week, so why waste money paying them just because payment was due? So at that point no one knew if any paper was worth anything, so everyone freaked and they went into free fall.”
“So what happened?”
“The government poured in enough money to allow some of them to buy the others, and it kept pouring in money until the banks felt more secure and could get back to business as usual. The taxpayers were forced to pay off the banks’ lost bets at one hundred cents on the dollar, a deal that was made because the top people at the Fed and the Treasury were right out of Goldman Sachs, and their instinct was to protect finance. They nationalized General Motors, a car company, and kept it running until it was back on its feet and paid off its debt to the people. But the banks and big investment firms they just gave a pass. And then on it went, the same as it had before, until the crash of 2061 in the
First Pulse.”
“And what happened then?”
“They did it all over again.”
She threw up her hands. “But why? Why why why?”
“I don’t know. Because it worked? Because they got away with it? Anyway, since then it’s like they have the template for what to do. A script to follow. So they did it again after the Second Pulse. And now round four may be coming. Or whatever the number, because bubbles go all the way back to Dutch tulips, or Babylon.”
Charlotte looked at the two prodigal quants. “Is this right?”
They nodded. “It’s what happened,” the taller one said lugubriously.
Charlotte palmed her forehead. “But what does it mean? I mean, what could we do different?”
I raised a finger, enjoying my moment of one-eyedness among the blind. “You could pop the bubble on purpose, having arranged a different response to the crash that would follow.” I pointed the raised finger over my shoulder, at uptown. “If liquidity relies on a steady payment stream from ordinary people, which it does, then you could crash the system any time you wanted, by people stopping their payments. Mortgages, rents, utilities, student debt, health insurance. Stop paying, everyone at once. Call it Odious Debt Default Day, or a financial general strike, or get the pope to declare it the Jubilee, he can do that anytime he wants.”
“But wouldn’t people get in trouble?” Amelia inquired.
“There would be too many of them. You can’t put everyone in jail. So in that basic sense, people still have power. They have leverage because of all the leverage. I mean, you’re the head of the Householders’ Union, right?”
“Yes.”
“Well, think about it. What do unions do?”
Now Charlotte was smiling at me again, eyes alight, really an intelligent and warm smile. “They strike.”
“Exactly.”
“I like this!” Amelia exclaimed. “I like this plan.”
“It could work,” the taller quant said. He looked at his friend. “What do you think? Does it meet with your approval?”
“Fuck yes,” the smaller one said. “I want to kill them all.”
“Me too!” Amelia said.
Charlotte laughed at them. She picked up her cup and held it toward me, and I lifted mine and we clinked them together. Both cups were empty.
“Another glass of wine?” she suggested.
“It’s terrible.”
“I take that as a yes?”
“Yes.”
Early in 1904, three of Coney Island’s elephants broke out of their enclosure and ran away. Gee, I wonder why! One was found the next day on Staten Island, and therefore must have swum across the Lower Bay, a distance of at least three miles. Did we know elephants could swim? Did this elephant know elephants could swim?
The other two were never seen again. It’s a pleasure to think of them skulking around in the scrawny forests of Long Island, living out their lives like pachydermous yetis. But elephants tend to stick together, so it’s more likely the other two took off swimming with the one that was found on Staten Island. Not such a pleasure, then, to imagine them out there together, dog-paddling soulfully west through the night, the weakest eventually slipping away with a subsonic good-bye, then the next weakest. Lost at sea. There are worse ways to go, as they knew. In the end the surviving one must have lumbered up onto the night beach and stood there alone, trembling, waiting for the sun.
g) Amelia
Amelia banged around New York for a few days, too angry and distracted to do anything. At first she liked Franklin from the building, a good-looking man, but he thought she was a simpleton, so then she didn’t like him. She saw a few friends and talked over projects with her producers, but nothing appealed to her, and everyone agreed that she was probably not going to do a very good job of hosting an entertaining program about assisted migration when the main thing she talked about now was capturing and jailing everyone in the Antarctic Defense League, or alternatively killing them dead.
“Amelia, you’ve got to stop with that,” Nicole said. “If you can’t stop feeling it, you at least have to stop saying it.”
“But my audience knows I say what I feel, that’s why they watch my show. And right now I am post-traumatic.”
“I know. So you have to stop feeling it.”
“But I feel what I feel.”
“Okay, I get that. So let’s get you feeling something else.”
So they went ice skating. A polar vortex had struck the area the week before, and it was still cold out. Very cold, in fact it felt much colder in Manhattan than it had on the Antarctic shore, that shore where her ursine brothers and sisters had been most foully murdered. It was so cold that the whole of New York harbor had frozen over. People were now driving trucks on the canals and over the Hudson to Hoboken, and even all the way out the Verrazano Narrows, as the sea surface was frozen about two miles out from there. From time to time the Hudson’s ice cracked, and big plates of it shoved up and tilted at the sky, looking just like the ice in dreadful Antarctica. She couldn’t shed those memories.
The canals of lower Manhattan were frozen so solid there was barely a crack in the ice, so it was as if the streets had come back, this time white, and slippery, and considerably higher than before, but in any case there to walk on, simple as that. Well, nothing was ever simple in the city; there were warm spots where machinery or some other source of heat remained down in the subways or sewers or utilidors of the undercity, and these plumes were warm enough to make the ice over them thin or, in a few well-known locations, not there at all. At these liquid pools in the general ice the harbor seals popped up for air, also the beavers and muskrats and other estuarine mammals, breathing while hoping not to get killed and eaten by predators, human or otherwise. Really the world was such a horrid place. It was so often kill or be killed. Eat some of your neighbors and then get eaten by others.
Nicole was acting weird, like Amelia was some kind of bomb that might go off. And any boyfriend she had ever had in New York had left town, or was too unhappy or unhappy-making to recontact. Really there was nothing to do.
And so there they were, ice skating. Actually it was kind of fun. In her childhood Amelia had learned to skate on ponds and rivers, so she could handle the canals’ rough patches, and skate backward, which was fun, and even twirl a little, although this was not so fun, as it reminded her of when her mom had made her do things for contests. Her mom had been a stage mom, and Amelia supposed she had to be grateful now that she was a performing artist, but she wasn’t. She did however like to ice skate.
So she skated with Nicole, up and down Broadway from Union Square to Thirty-fourth, feeling the chill air in her lungs, nose tingling, feeling all the glorious feelings of being out in winter under a pale sky, the sun just barely clearing the horizon to the south, casting long shadows to the north from all the buildings. It was like they had all been transported to an ice planet somewhere, and yet there were the same familiar buildings and delis and kayak stores, with the only difference being the canals were a solid if dirty white. The city had even put some real buses back on the streets, old buses with new motors. That made the views up and down the steel canyons look like old photos, but with ice skaters replacing taxis. Walkers had to stay near the buildings or risk the fate of inattentive jaywalkers during the old days.
Amelia skated at speed, going faster than the taxis of earlier times would have been able to, because she could dodge through traffic like a motorcyclist. Nicole could not keep up with her. If someone walked in front of her she yelled “BEEP BEEP BEEP” and dodged them with inches to spare.
But then she found herself going so fast that she accidentally skated through a stretch of red tape crossing the intersection of Broadway and Twenty-eighth, and below her the ice got thin, and she thought of her father’s saying, Skate fast over thin ice, but even skating as fast as she could, the ice broke under her. Not only was she dumped instantly into cold water, but a broken chunk of ice caught her righ
t under the ribs and knocked the wind out of her just as she plunged completely under. The shock of the cold would have driven the air from her lungs anyway, but it was already gone, so she choked and in doing so took some water into her lungs, so she coughed and choked again. And then she was drowning.
Flailing, panicking, she swam hard upward and banged into ice—there was a clear ceiling of ice between her and the air! She had slid under the unbroken ice! And now would drown for sure! A huge adrenaline surge shot through her body, turning her blood to fire and making her more desperate than ever for air. She elbowed the ice above her as hard as she could, but it was a weak blow. Now she was only seeing a blur of blacks and grays. She didn’t know what to try next, where to swim next. She knocked the back of her head up against the ice. That hurt, but nothing more happened. She was doomed.
Then there was a loud crashing around her, and she was grabbed and dragged upward by she knew not what. There she was, hanging in the air, dragged sideways, held up by several people moving around her and shouting—she was gasping, freezing, coughing, choking, drowning still although in the air, and being shuffled away from a big jagged wet hole in the ice, which these passersby had apparently bashed to get to her. They had seen her under the ice, they told her loudly, seen the accident and followed her momentum, and smashed the ice with shoes and ski poles and elbows and foreheads, and pulled her out. People were so nice! But she was freezing, really freezing, too cold to shiver even, or breathe, so her gasps were balked as she tried to breathe in, craving the air as she tried to get it in her, but only managing to cough out canal water. The air seemed to stick in her throat. “C-c-cold!” she finally managed to choke out with the water.
“Come on, get her in here,” someone shouted. Everyone was talking at once, she was lifted into a building, even she could tell it was warmer in there, maybe, and then they had her in a ladies’ room, no, a locker room of some kind, maybe it was a gym, a spa, and they were taking her clothes off. Someone remarked very cheerfully that it was just like one of her shows, that it wasn’t every day you got to strip a cloud star to save her life. Everyone but Amelia laughed at that, although she would have too if she could have, because it had of course been a major feature of her shows during those first couple years in the cloud. So it was like old times to get stripped down and thrown in a hot shower, and a few people even got in there with her, not naked, just getting wet in their clothes while propping her up and encouraging her, laughing and talking animatedly, and hopefully enjoying her nakedness, as she would have herself if she could have felt or thought anything. The shower water they kept lukewarm, so that her capillaries didn’t expand and drain her heart of blood, they said, good idea, but it wasn’t as warm as she would have liked, and she was shivering more than ever. Nicole was just outside the shower door, keeping dry but also checking her out and Amelia supposed filming her. The strangers were more blunt about it. “Come on gal, stand up and get that warm water on the back of your neck.” “Someone get this woman some dry clothes.” “Where we gonna do that?” “Here’s a towel, she can dry off and wear it till they find some things.” “Little warmer now, she’s coming around. Not too fast though, don’t kill her like those Chilean sailors.”