Free to Trade (22 page)

We finally made it to the hotel. I threw down my bag without bothering to unpack it, and flopped into bed. I fell asleep immediately.

I wasn't due at Bloomfield Weiss until ten o'clock, so I could linger over the excellent Westbury breakfast. One of the great pleasures of being away from the office was the opportunity to have a long, leisurely breakfast, instead of cramming down a stale bun at my desk at half past seven in the morning. The Westbury is Manhattan's 'English' hotel. I had been booked in there because it was the hotel Hamilton usually stayed in when he was in New York. It had elegance without opulence. A tapestry in the foyer, Regency furniture and nineteenth-century landscapes could almost persuade you that you were in an English country hotel and not in an eight-storey block of stone in the middle of Manhattan.

Finally sated, I caught a taxi, Haitian driver this time, and bucketed down to Wall Street, a local French-language radio station blaring in my ears.

I was a few minutes early, so I asked the taxi-driver to drop me off at the top of Wall Street so I could walk the last few blocks to Bloomfield Weiss's offices. Walking down Wall Street was like descending into a canyon, with huge walls shooting up on both sides. Although it was a sunny day, the giant buildings threw the street into shadow, and at this time of morning it still felt cool. Halfway down the street I turned left and then right, down narrower streets, the buildings coming ever closer together, the shadows ever deeper. Finally I came to a fifty-storey black tower, which looked more sinister than those surrounding it. The words 'Bloomfield Weiss' were printed in small gold lettering above the entrance.

I had been told to go up to the forty-fifth floor and ask for Lloyd Harbin, the head of high yield bond sales. I waited in the reception area for a couple of minutes before he came round to get me. He was of average height, but had a very compact frame. His shoulders were broad and his neck bulged with muscle. He strode across the room, hand outstretched and voice booming, 'Hi Paul, how are you? Lloyd Harbin.'

I was prepared for the iron handshake. I had learned at school that if you pushed your hand hard into the joint between thumb and forefinger of your adversary, it was impossible for him to grip your hand tightly. I had developed this technique so that it was not obvious, but was still very effective against the American marine types. It momentarily put Lloyd Harbin off his stride.

But Lloyd was not going to be disconcerted by a young wimp of a Brit and recovered himself in a moment. 'Have you seen a Wall Street trading floor before?' he asked.

I shook my head.

'Well, come and see ours then.'

I followed him through some grey double doors. Bloomfield Weiss's trading floor was not quite the largest on Wall Street and certainly not the most modern, but it was the most active. Stretching out on all sides were hundreds of dealing desks. Large electronic boards proclaimed the latest news, stock prices and the time all round the world. Milling around the desks were an army of men in regulation Brooks Brothers white shirts, interspersed with a few women, mostly wearing tight dresses, lots of make-up and elaborate hair-dos. Trading floors are still male-dominated, the women were nearly all assistants and secretaries.

The floor was alive with the urgent buzz of voices, passing information, arguing, abusing, ordering. Standing on the edge of that room, I found myself in the throbbing heart of capitalist America, the place from where all the money was pumped around the system.

'Here, come over to my desk, and I will show you our operation,' Lloyd said.

I followed him through the trading room, picking my way through the jumble of wayward chairs, papers and rubbish bins. Lloyd's desk was in the middle of a close-knit group of men in white shirts. I felt conspicuous as the only man in the room wearing a jacket, and so took it off. I still felt conspicuous as the only man in the room with a striped shirt, but there was nothing I could do about that.

Lloyd pointed out the two groups of people involved in trading junk bonds, the salesmen and the traders. It was the salesmen's job to talk to clients and try to persuade them to buy or sell bonds. It was the traders' job to determine at what price these bonds would be bought or sold. The traders were responsible for managing the bond positions owned by the firm. Traders bought and sold either from clients or from other traders at other brokers, collectively known as 'the Street'. It was generally much more profitable to trade with clients, and it was only by talking to clients that the traders could get the information on what was going on in the market, which was so important to running a profitable position. Thus the salesmen needed the traders and the traders needed the salesmen. However, this symbiotic relationship had its rough side.

An argument was in progress right then.

'Look, Chris, you can bid higher than 88. My client has to sell. He's been told by his management to sell today. We put him into this bond, we've got to take him out.' The speaker was a blond, youngish man, well groomed with a friendly face. His voice was reasonable but firm. A salesman.

He was talking to a short hyperactive man, who was almost frothing at the mouth. 'Hey, this is the asshole who took me short the Krogers last week, and then went round and lifted the rest of the Street,' he shouted. 'I still haven't been able to buy them back. Let him suffer. It's about time we made some money out of him for a change.'

The salesman turned to Lloyd, 'Do something with this jerk, will you,' he said quietly.

Lloyd walked up to the trader, who was bristling for a fight. 'Where did you make those bonds this morning?' he asked him.

'Ninety to 92, but the market's down.'

'Fine, we will bid the customer 89.'

Howls of protest from the trader, and a disappointed shake of the head from the salesman. Lloyd's voice rose in volume just a touch. 'I said we will pay 89. Now get on with it.'

They got on with it.

Lloyd came back to his desk. We talked for a few minutes as Lloyd explained how his group worked. He then introduced me to the traders. There were five of them, all on edge. Although they were all polite, they couldn't keep their attention on me for long. After thirty seconds of conversation, their eyes would wander back to their screens or their price sheets. There followed a few painful minutes of small-talk at which all the traders said they loved to do business with clients, especially those based in London. Lloyd pulled me over to another desk.

'Why don't you spend a few moments with Tommy here. Tommy Masterson, this is Paul Murray from De Jong.'

Tommy Masterson was the salesman I had seen arguing earlier. Despite that, he had a much more relaxed demeanour than those around him.

'Take a seat,' he said. 'So you are from London?'

I nodded.

'Not many people buy junk bonds over there, I bet.'

'Not many,' I agreed. 'In fact we are just starting. Your traders seemed very anxious to help us get into the market.'

Tommy laughed. 'You bet they are. They can't wait. They will take advantage of you so bad, you'll forget how many fingers you were born with.'

'How will they do that?' I asked.

'Oh, quoting low prices when you are a seller and high prices when you are a buyer. Trying to offload their worst bonds on to you with stories about how great they are. It's difficult for them to get away with that sort of thing with the large US accounts. But a small foreigner? Lamb to the slaughter.'

'Well, thank you for the warning.' I had known I was going to have to be careful dealing in the junk market, but I didn't realise I had to be that careful.

'If you have a good salesman, you should be protected,' said Tommy. 'Who is your salesman?'

'Cash Callaghan,' I said.

'Oh dear. Now, there is a slippery customer. But I'm sure I don't need to tell you that.'

'I have seen him in action,' I said. 'But you tell me what he was like in New York. We hear he was the top salesman in the firm.'

'He was. But that doesn't mean he was the straightest salesman. He was like a good card shark. He would let the punters have some successful trades, make a bit of money, get the hang of trusting him. Then he would persuade them to do very large trades which generated Cash a fortune in sales commissions. The customers lost their shirts. He could fool even the smartest customers. Usually they didn't even realise they were being taken and would come back for more.'

I thought of Hamilton. Cash had even managed to hoodwink him.

'Was any of this illegal?' I asked.

'Not that I know of. Unethical? Yes. Illegal? No.'

'Would you be surprised if Cash did something illegal?'

'Yes, I would. Cash is too smart for that.' Tommy sat up in his chair and smiled. 'Have you got anything specific in mind?'

'No,' I said, although I could see Tommy was not convinced. I changed the subject. 'Cash still does a lot of business with one American customer. It's an Arizona savings and loan.'

'That would be Phoenix Prosperity,' Tommy said. I was thankful for his frankness.

'Oh would it? Does he con them too?'

'I don't know. I don't think so. They have always done a ton of business with him. In fact it's amazing how much business they do for such a small institution. They are pretty aggressive. They used to be covered by a fellow called Dick Waigel. He developed them into his biggest account, and then Cash took over when Dick moved to Corporate Finance.'

'I've heard of this chap Dick Waigel,' I said. 'What's he like?'

'He's a real jerk,' said Tommy emphatically. 'He thinks he is the smartest thing on earth. To hear him talk, you would think he was personally responsible for half this firm's income. But he and Cash are good buddies. Go back a long way. Lloyd thought the sun shone out of his ass.'

'Did he? I wouldn't have thought Lloyd suffered bullshit gladly,' I said.

'He sure doesn't. He's not very smart though, so he doesn't always recognise it. But he's tough. He can be a real asshole. He is going places in this firm, and that's because anyone who stands in his way gets mowed down. It's not talent. Management by fear is his style. Every now and then he'll fire someone, just to encourage the others.'

'But not you.'

'No, not me,' Tommy smiled. 'He'd love to. He doesn't like my attitude. Too Californian. Not gung-ho enough. But he can't afford to fire me. For some strange reason, I'm the top salesman on the desk. And I don't even lie and cheat to achieve it.'

I looked at Tommy and could believe him. I had no doubt that his friendly, frank manner encouraged people to deal with him. And, unlike Cash, I doubted whether he would betray their trust.

'We can't sit around here chatting all day,' said Tommy. 'You've got lunch at one o'clock with Lloyd, haven't you?'

'Yes, I think so,' I said.

'OK, well it's twelve thirty now. Tell you what. It's the ten-year auction today. The US Treasury are auctioning nine billion dollars of new ten-year government bonds at one o'clock. Do you want to see the Bloomfield Weiss machine in action?'

I certainly did. Bloomfield Weiss were renowned for their trading muscle in government bonds. He took me over to the other side of the room and introduced me to a grizzled grey-haired man in his fifties.

'Fred, have you got a minute?'

'For you Tommy, always,' he grinned.

'I'd like you to meet Paul Murray, one of our clients from across the ocean. Paul, this is Fred Flecker. He is our head government bond salesman covering New York accounts. He has been in the market for ever. I bet the first long bond you sold matured long ago. Right, Fred?'

'Just about,' replied Fred. He held out his hand and I shook it. 'Have a seat,' he said. I found a small stool, and squatted between him and the other men frantically working the phones around him. I felt a bit like just another rubbish bin, there to get in the way. 'Do you understand what's going on?'

'No,' I said. 'Tell me.'

'OK. At one o'clock our firm, together with all the other investment banks on Wall Street, will be bidding for a certain amount of ten-year treasuries at a certain yield. There are nine billion dollars' worth for sale. The bidder who bids the lowest yield will be sold bonds first, then the next lowest bidder, and so on.

'We will be bidding on our own and on our clients' behalf. Obviously, the more demand we see for the bonds, the more we will bid for on our own behalf. My job is to talk to the major New York clients and reflect their bids to our head government bond trader, John Saunders. He is sitting over there.' He pointed to a thin man frowning with concentration, at a desk thirty feet away. People were constantly hurrying up to him, passing messages and hurrying back.

Just then the squawk-box on his desk crackled into life. 'Fred, what are you hearing?'

'That's John,' Fred said to me. And to the squawk-box, 'It looks good. We've received bids for six hundred million from New York alone. People seem to like the market.'

'Yeah, I'm hearing that from Chicago and Boston,' John's voice crackled.

'Are you going to take this one?' Fred asked.

'I'm sure thinking about it.'

I watched and listened as Fred took calls from several more clients, most of whom placed orders for the auction. Given the sums at stake, I was amazed by the calmness of Fred's voice. Quiet and measured, it inspired confidence and trust.

At twelve fifty-five, only five minutes before the auction, John walked over and whispered something in Fred's ear. He smiled. He looked at me and said, 'What you see now, you keep to yourself. Understand?'

I nodded. 'What's going on?' I asked.

'We're going to make a shut-out bid,' he said. 'We will bid for most of the auction at a yield so low that none of the other dealers will buy any bonds. Most of them have sold ten-year bonds short with the hope of buying them back during the auction. But they won't be able to because we will own them all. As they scramble to cover their short position, and as other customers realise that their orders will not be filled, everyone will be trying to buy the bonds. The market will go up and Bloomfield Weiss will clean up. Now, I must make a couple of calls. We want to cut our friends in.'