A Fatal Debt (28 page)

“Turn on the television. Try CNN.” His voice sounded strained and I hurried across the room to obey him.

It felt like being transported back to my gym that Sunday morning. There was no helicopter this time, but the anchors were babbling just as incoherently about a death, and the scene was similar as well—a street in a Long Island beach town where a reporter stood, her back to a cordon. There was a ticker at the bottom of the screen, this time with the headline
SELIGMAN TRAGEDY
. I sat down unthinkingly and found I was still holding the phone. My brain couldn’t make sense of it.

“What happened? What’s going on?”

“Have you heard of this guy? Felix Lustgarten,” he said, pronouncing the second half of the name with a soft
t
, like garden. “He worked with Shapiro, they say he was a friend. He just killed himself, walked into the sea off Southampton. They just fished him out. I got a call at dawn from Baer. He’s gone crazy.”

“Oh God,” I said weakly.

“Ben? … Are you there?”

I’d slumped forward with my head in one hand and the phone in my left, and I heard his voice only faintly. It felt as if someone had blown a dog whistle nearby, sending a high-pitched whine through my brain.
I should have known it. I should have stopped him
, I thought.
He was close to suicide. Of course he was
. I remembered how I’d walked out of his apartment in a fit of pique because of what he’d done, without stopping to help as my profession required. Why hadn’t I stayed to save him? He’d sat in front of me, drinking, confessing. How much louder could he have cried for help? Then I had another thought.
Suicide? Last time, it was a murder. I went through this with Harry and he came back to life
. I tried to believe that Felix would rise again, too.

“Ben!” It was the distant voice of Joe in the receiver, yelling so loudly that he finally broke through.

“I’m fine,” I said, struggling to pull myself around. “It’s a bit of a shock. I knew him. He was the one who came with me in the Gulfstream. I saw him a couple of days ago. He was a decent man.”

“Where did you see him?” Joe said, sounding tense. His estimation of me as a client had clearly tumbled farther, if that were possible.

“In his apartment on the Upper West Side. He asked me over for a drink.”

“Do you know why he did this? Did he tell you anything?”

As he asked the question, I saw from the corner of my eye the television screen turning another color, and I looked up to see them playing the tape of the hearing in Washington. Felix’s face had been circled in red to identify him as he sat behind Harry and Greene.
That’s how he’ll be remembered
, I thought—the man in the background. I recalled his defeated expression as he’d raised his glass to me.
Faithful servants
, he’d said.

I wondered if I should tell the truth, but I excused myself with the thought that it would defile Felix’s memory without doing me any good.

“Nothing important,” I lied. “He seemed okay.”

That might have been it but for Gabriel, who was waiting for me when I left my office for lunch three days later. He sat on the sofa by the elevators, under a notice board on which some guides to mood disorders were pinned. He drew my attention because he was lounging easily—not like an anxious patient or a parent who was waiting for a child in treatment—and because I vaguely recognized him. As I walked by, I saw him scan my badge and look at my face, appraising me with narrow eyes. Then he got to his feet.

“Dr. Cowper? My name is Gabriel Cardoso. We had a friend in common, I think. Felix Lustgarten.”

He spoke unhurriedly, in a rich voice with an accent I wasn’t sure about—it sounded Spanish.
Gabriel, that’s it
. I remembered him standing on the balcony of his TriBeCa apartment at his party on the night of Greene’s death. I’d been talking to Lucia before we’d left
together, and she’d pointed him out. I recalled his air of detachment, as if he didn’t know most of the guests but enjoyed having them fill the place.

“I was saddened by his death,” he went on. “We were not close friends, I would say, but we were once colleagues. He was a man I liked.” He gave the impression that he didn’t say it lightly: he had standards.

“I’m sorry, too. I’d just gotten to know him. Shall we?”

I gestured at the sofa and took a seat—I didn’t know how long I would want to stay. Gabriel reached into a jacket pocket and pulled out an envelope with his name and, I assumed, address scrawled on the front. Inside were two sheets of paper, well thumbed, and a small metal block: a computer flash drive.

“I got this in the mail yesterday,” he said, frowning. “It’s a letter from Felix, and he’d enclosed this.” He held the drive between thumb and finger. “There are a bunch of documents on it. I looked at them last night and found them interesting. Disturbing, in fact. Felix asked me to show them to you. Just you, no one else.”

I looked at the drive, now nestling in Gabriel’s hand. Felix had given no indication of having this in mind, and I couldn’t understand why he had sent an emissary from beyond the grave.

“If he wanted me to see them, why did he send them to you?” I said.

“Ah, well … They require some explanation.”

It dawned on me then. When Felix had talked of Greene trying to hide the losses in the Elements, he’d said they were hard to grasp. He’d sent Gabriel to help me, I realized. I was touched by his posthumous gesture: he hadn’t just written me off after I’d walked out on him. Yet it worried me to be entrusted with this legacy.

“You’re a rocket scientist?” I said, remembering Felix’s words.

“I am indeed,” he said, beaming. “Do you have some time to talk? Maybe somewhere private. I will need a computer for this.”

I hesitated for a few seconds, but I didn’t really have a choice. I owed it to Felix in death, no matter what he’d done in life.

I could have wasted hours in Gabriel’s apartment just looking around. Maybe that’s how he spent his time, since he seemed to have plenty to spare. In the sunlight, with the view of Manhattan I’d seen from his balcony only at night, it was captivating. It was long and wide, with a dovetailing maze of rooms into which light spilled from high windows. A couple of rooms seemed devoted entirely to art, with blinds drawn to protect his collection of drawings. There was no sign that he shared it with anyone: it was just him in his monument to Wall Street wealth.

“You have an unusual name, Mr. Cardoso,” I said, making small talk as he slotted the flash drive into a computer in his study and tapped at the keyboard, manipulating a baffling array of numbers.

“It’s Portuguese,” he said, smiling. “I am originally from Brazil, you see. I came here to teach mathematics at NYU. Wall Street head-hunters kept calling me. Trading is all mathematics now, based on models. Traders don’t understand it properly, so they need people like me. Rocket scientists, like you said. Most traders don’t have a clue what they’re doing.”

He sounded pleasantly amused by the idea rather than outraged. I began to realize why he looked so bemused by his surroundings and his wealth. They had been handed to him through a twist of educational fate.

“You worked at Seligman?”

“Used to. I was pushed out last year by Marcus Greene, before Harry killed him.” He chuckled as if Harry had meted out retribution for him. “I wasn’t in Greene’s clique, eh? And I said some things he didn’t like, too loudly. But I was there long enough to be comfortable,” he said, waving to his apartment. “That’s how I know Felix, and Lauren Faulkner as well. Felix mentioned her, I think?”

I didn’t reply, but my silence didn’t seem to bother him because he kept talking as if he hadn’t noticed.

“You want to know how we became friends? I had a nice office off
the floor at Seligman. Just a glass box, but I had a very comfortable chair in there, a leather armchair. You couldn’t see who was in it from outside, and Lauren would come by to take a nap. They work stupid hours, bankers. They don’t get enough sleep.”

“That’s funny,” I said. I tried to imagine the ever-alert Lauren curled up on Gabriel’s chair. It would have been a more relaxing time, I imagined, when she hadn’t been under such strain. It made her seem human—not the woman who’d threatened me.

“I remember us talking one evening, before the merger. She said she was looking at the Grayridge books. I told her to be very careful. Things were becoming difficult in the markets and I’d heard rumors. It was very complex stuff, you know. I offered to take a look with her, make sure it was all okay. I had the feeling something might not be right. A couple of days later, she was gone.”

“Didn’t you find that odd?”

“No one gets much warning on Wall Street, you know. They put a trash bag on your desk for your stuff and escort you from the building in case you steal something. It’s like you’ve been executed. The same thing happened to me. I didn’t know how bad things had been at Grayridge until I saw this.”

“These are the Elements?” I said, looking over his shoulder at the screen. I could see what Felix had meant: it was just a blur of numbers to me.

“This is Radon. Let me explain.”

Grayridge had sold the Elements through the Cayman Islands to investors trying to make money from the housing boom before it fell apart, Gabriel said. The mortgages had been bundled together and then divided into securities with differing amounts of risk in them. It wasn’t even that simple, because they were synthetic CDOs, built out of credit default swaps based on mortgages. They’d been a crazy mash-up of financial risk.

“There were nine deals like this one structured by the CDO desk,” Gabriel said. “They did the same thing each time. Sold the equity and mezzanine to hedge funds and kept hold of the triple-A tranches. They issued the risky paper, the bonds that paid the most, to other
investors. But the yield was very low on the super-senior tranches they kept, so they levered them up to make a return. They held about $120 billion, yielding $160 million a year.”

His explanation reminded me of what Harry had told me on the beach at East Hampton and in Riverhead, and I hadn’t understood that, either. I wasn’t treating Gabriel for depression, though, so I could ask him what I wanted.

“A hundred and twenty billion
dollars
?”

“That’s right. What’s your question, Ben?”

“It sounds like a lot of money.”

“It was, but the paper was supposed to be risk-free, like a government bond. There wasn’t going to be a default even if the mortgage holders stopped paying. They’d built it to take a hundred-year storm. Take a look here. This is the loss on all of the Element deals at the date of the merger. What does it say?” he asked.

I looked at the screen and there were hundreds of figures on it, a grid of numbers. I shook my head as if baffled, which I was, and Gabriel gave me a clue by wiggling the mouse to make the onscreen arrow jiggle by one box.

“Three hundred and twenty-four,” I read.

“A $324 million loss. When the merger went through, Harry thought there wasn’t much of a problem. It seemed like Marcus needed a bit of help, but it would be okay. You want to know how much they’d already lost? The whole $21 billion.”

I frowned at him and looked back at the screen to scan the numbers again. “I can’t see anything like that here,” I said.

Gabriel smiled. “Felix knew I would understand. Marcus told the traders to alter the model, shift the correlations. That altered the figures for long enough for the merger to be approved. He hid the entire thing.”

“Correlations?” I repeated dumbly. “What are they?”

“You’re a doctor. Do you know about broken heart syndrome?”

Gabriel’s question was so unexpected that it took a few seconds for me to respond. I hadn’t expected to be an expert on anything amid this deluge of mathematical finance, but he’d at last mentioned
something familiar. I’d been taught about the condition in medical school, and a widowed patient of Rebecca’s had died from it.

“I have,” I said. “Stress cardiomyopathy. Heart failure caused by chemicals released into the bloodstream after an emotional trauma. It can happen to people whose wives or husbands have died. What’s that got to do with it?”

“It’s a correlation. The first death makes the second more likely. It affects the price of life insurance. It’s the same with mortgages. If some borrowers stop paying, there will be a loss, but you need to know the chance of the defaults being followed by others. If the correlation is low, the loss will be, too. If it’s high, the loss will be, too.”

“So the correlation was high on the Elements?”

“Incredibly high. Like nothing I’ve ever seen. It’s like you have a hundred people outside in a storm. What’s the chance of all of them being struck by lightning?”

“Pretty small, I guess,” I said.

“Unless they’re all together—they’re tightly correlated. Then if one gets hit, they’re all hit. A vast number of mortgage borrowers stopped repaying all at once. The triple-A paper was going to be wiped out. Three months before the deal, Greene found out. He couldn’t admit to it because his bank would have been bust. He got the desk to lower the correlations so the model showed the losses not reaching the triple-A. He knew he couldn’t hide it for long, but he didn’t have to. Just long enough to fool Harry.”