In the Light of What We Know: A Novel Read online

  A few days later, I asked Zafar if he’d heard anything. I called him from London, and I can now picture him, as he must have been, sitting there at work, leaning back in his seat, facing an array of screens, with his headset on, the microphone hanging by the side of his mouth. He explained that Doug had come over to him that morning and had asked him what he, Zafar, thought of me.

  What did you say?

  I said I wouldn’t recommend the work to you if I didn’t think you’d take to it.

  What did he say?

  I’ll tell you what he said: If that’s what you think, then it’s good enough for me.

  Wow. They must think highly of you.

  He’d already decided to hire you. He was just banking a favor from me.

  That’s a bit cynical, don’t you think?

  He’s a banker. It’s a free option.

  If he was at your desk, everyone could have heard him.

  He’s a smart guy. He doesn’t want people to think he can’t judge a good hire from a bad one and has to rely on a relatively new recruit.

  Exactly. So why say it?

  Because he knows that everyone else knows what he really means; everyone knows how stupid it would be to rely so much on the word of a newbie, and a friend of the applicant to boot. He wants me to think he’s doing me a favor. And he thinks I’m naïve enough to buy that or smart enough not to show I’m offended because I don’t.

  You make the place sound like some kind of psychological theater.

  Know a place that isn’t, do you? Anyhow, you got the job because he wants you.

  Thanks.

  Don’t thank me. I get a thousand dollars from the firm because I introduced a successful applicant.

  Two weeks later, when I arrived in New York for orientation (before returning to join the London office), Zafar and I had supper in the West Village, around the corner from his apartment, at an Italian restaurant where he seemed to be known to the waitress. Once he’d answered a few questions I had about the firm, a silence opened up between us. Zafar seemed to drift off, his eyes apparently settling on the waitress, who smiled at him. But when he failed to return her smile, I perceived that he was somewhere else altogether.

  How about you?

  How about me?

  How did you get into it?

  Interview, like you.

  But what was the process like? What put you on to it?

  Call from a headhunter in the final year at Harvard, interview with a banker, and a job offer.

  Interview with a banker? Doug Hendricks?

  Zafar seemed to consider his response.

  Not Hendricks. A huge man—he’d been a linebacker in college—this huge man strode into the office, fell back into the sofa, and looked at me for an eternity without saying a word. I’ve seen your résumé, he said, and you can do this shit. Question is, do you have the fight in you? Do you?

  What did you say? I asked.

  I have more fight than anyone needs for any job, I said. I’ve come a long way, from a mud hut in the rainy season in a part of the world you only know as a basket case of misery. I spent a year of childhood in the basement of a derelict house in two rooms and an outside lavatory, and when I try to remember the kitchen, I can only picture the half that didn’t have rats. I’ve grown up in some of the worst projects in London. I’ve been kicked and spat at because of my race, I’ve had teachers send me to remedial classes because they thought I was stupid when I was just silent, I’ve been beaten black and blue my whole short life and I’ve made it here. Have I got the fight? You tell me.

  I was astonished. Once again, I felt, as I have often felt in his company, a strange feeling of envy. It doesn’t make sense to envy another human being for his hardships, but envy is what it was. I can find nothing heroic in my own story.

  Did you seriously say that? I asked.

  Zafar was smiling.

  No.

  What did you actually say? I asked.

  Well, he didn’t actually ask me much. Instead he wanted to show me some things about his work, so we talked finance for a couple of hours.

  A two-hour interview?

  More like a tutorial.

  You mean he was trying to sell it to you?

  Not really; he was testing to see if I could pick up the stuff.

  * * *

  Within three years, Zafar left the bank and returned to Britain, in order, he explained, to practice law. He had made up his mind, even if it meant training for the English bar. I admired that in him, the speed with which he made and executed life decisions.

  * * *

  Oswyn Hapgood was certainly tiresome, to put it mildly. A year earlier, I would happily have discussed the question of bankers’ pay without the slightest discomfort. But this was the end of September 2008, the markets were in turmoil, and the effects of the financial crisis were spreading into the economy. My firm, though by no means the worst affected, had suffered some losses, and not just in the United States. As was the case at a number of American firms, almost all European business was dealt with through London. It was London, in fact, that picked up most of the work outside the Americas and Asia, and all that added up. The U.K. had witnessed significant bank failures and, in ways I could never have predicted, much of the distress came back to my desk and the group I headed, though by then only nominally; effective control had passed, against my protests, to the head of the division, to the firm’s chief financial officer and the firm’s risk officers.

  There are at least two questions here, explained Nathan Littwack.

  When not speaking, he sat perfectly still, his elbows resting on the table, his hands clasped together and, it appeared, his thumbs pressed, nail-side, against his lips. I did not know this young man, but I knew already certain things about him. When Nathan Littwack listened, you knew that he was listening to your every word. When Nathan Littwack spoke, his words were inseparable from his body language. And when he articulated something that he had obviously considered carefully, I saw what others in that room would have seen—the precision of a certain kind of academic, one like my father.

  The first, he said, is whether any given bank needs to pay what it pays in order to keep its staff. We have the answer to that, he said, nodding my way. I might be wrong, but it seems to me that that’s not the right question, he continued, not when governments are looking to increase regulation.

  What is the right question?

  Does the industry need to pay its staff what it currently pays them in order to keep them from leaving the industry?

  But, Nathan, I said, it’s not the industry that pays staff but firms.

  So what about a tax on firms, said Nathan, dependent on what the firm pays out in salaries? A flat rate. Wouldn’t that push down bankers’ pay across firms?

  Lauren came in here.

  Have you seen those graphs of bankers’ pay and average pay in the rest of the economy? The NBER, I think, or was it Shiller?

  Not Shiller, Nathan corrected her.

  NBER? said Hapgood.

  National Bureau of Economic Research, explained Nathan.

  Where the hell would bankers go? she asked me. Bankers’ pay was always higher than pay in the rest of the economy, she continued, but not by much until the eighties, when it started to climb steeply. Not coincidentally, median average income in the U.S. is less now than in 2000. Less! The majority make three hundred dollars less now than in 1980, and all the gains in the last thirty years—all the gains!—went to the top zero point one percent. That’s zero point one percent. The top one percent own forty percent of the wealth of America! Today, you’d have to cut bankers’ pay by eighty percent before their jobs were remotely comparable to other jobs. Can you think of an industry where all those bankers can get paid anything like what they get in finance?

  Hapgood, less hapless now and more emboldened by the Americans, piped in.

  Does it not stand to reason, he asked, that the financial industry should foot the bill for getting us in
to this fine mess?

  That’s a horse of another color, said Nathan.

  Hapgood’s bushy eyebrows leaped up like startled rodents, but I couldn’t tell if this was because he was unfamiliar with the idiom or because he understood that he’d just been told that what he was saying was irrelevant.

  The conversation carried on in this vein for part of the evening, and I am forced to admit that my responses weren’t the most robust. Bankers generally, I think, are not given to considering the wider context of things, just as, I’m sure, most busy doctors do not give much thought to the national state of health care and the problems of insuring a whole society. People by and large go about their work, and where hard work is called for, they go about that work to the exclusion of concerns that do not, in the final analysis, further the work at hand.

  Nathan was a very smart young man who evidently had the nous to figure things out for himself, but I daresay he was following the financial news rather more carefully than did most people outside finance. What he was talking about were the same things being reported in the financial press, including a tax on banks to create a reserve for bailouts, a tax on certain financial transactions, and a tax linked to salaries and bonuses but paid by banks. Each of these had its own rationale. All of them drew ultimate justification, however, from the cascading failures of those financial instruments that had come to dominate the financial world.

  These instruments are not understood by most people and, in fact, they are so widely misunderstood that the first thing a journalist writes about them is that they’re widely misunderstood. I can’t be alone in noticing that until recently, even the august Financial Times gave the derivatives and bond markets little more than a passing mention, always regarding it necessary to point out that most trivial fact: that the price and yield of a bond move in opposite directions. Nobody outside the business—and not everyone inside—could get their heads around the new products.

  As I think about this lack of understanding, I am reminded of something Zafar said concerning the teaching of mathematics in schools; it was an obvious point, so obvious I was left wondering why it had never occurred to me, who had also studied mathematics. One bad maths teacher, he explained, can wreak havoc. A bad history teacher, when you’re twelve years old, say, might mean you don’t acquire a very good grasp of the First World War or the Potsdam Conference. It leaves a hole in your education. The next year, you manage. The early deficiency doesn’t hinder you very much when you later study the Russian Revolution, not in those years when you’re not studying any of these things in any great depth anyway. But mathematics is different. If you fail to digest the material prescribed for that year, then everything that follows, in every subsequent year, is next to impossible to take in. Right from the beginning, mathematics education is accretive, a pyramid, each layer of brickwork building up carefully on the last. You can’t understand trigonometry if you haven’t grasped the idea of similar triangles. You can’t grasp calculus if you haven’t understood areas and velocities. And you can’t understand anything at all if your basic algebra is poor. It’s why mathematics professors have such a hard time explaining their work to the public. The great majority of students are vulnerable to one bad teacher. It isn’t enough for a child’s mathematics teachers as a whole to be generally just as bad and just as good as his history teachers. In fact, even if mathematics teachers were generally, which is to say as a group, better than history teachers, the presence of one bad maths teacher early on hampers him mathematically if it doesn’t doom the child to mathematical ignorance.*

  General incomprehension of derivatives, from the bus driver and waiter to the classics professor and newspaper editor, is understandable: Any decent exposition requires a fair bit of mathematics. My father tells a story about Richard Feynman, who’d been dubbed the Great Explainer because of his talent for explaining theoretical physics. When a journalist asked him to describe in three minutes what he’d won the Nobel Prize for, Feynman replied that if he could explain it in three minutes, it wouldn’t be worth a Nobel Prize. Feynman, I think, is making the wider point that an explanation of something by reducing it and simplifying it over and over, until all that’s left is some familiar metaphor that is actually without content, helps no one’s understanding of the thing itself and is only the repetition of a familiar image.

  Even the basic elements of financial derivatives are mathematical. But quite apart from the mathematical content, the other problem is that to understand derivatives requires, I think, an understanding of other more basic ideas in finance, whether or not they in turn have some mathematical content. It’s accretive, to use Zafar’s language. Perhaps this is not exclusive to finance. As far as I can tell, medicine is just the same, as well as the law.

  Reading over all this, it sounds like the beginnings of a kind of defense. And that it might be. I know that my own lawyers will draft something to submit to the congressional committee and that this should form the basis of my oral submissions. They’ll also groom me in fielding questions. And the firm will doubtless make available its own lawyers, even to a former employee, but on them, needless to say, I won’t be relying. There is defending to be done, I know. But the attack, more than likely, will take the form of that imprecise populist haranguing that politicians excel in. Lynching has a civilized form. But while there’s plenty to apologize for, apologizing wholesale for some vague offense of “getting us into the mess we’re in” can’t be one of them. It doesn’t stand up. Back in September 2008, at supper in my parents’ home, I was already quite defensive. These days I’m even more so. I have a dialogue going on in my head, a defense I’m crafting in pieces.

  * * *

  In the midnineties Zafar left the industry for law but I remained in banking, joining the Structured Products group in London. The group had been newly established to explore opportunities for the firm in a field where others had taken the lead, notably a team at JPMorgan headed by Bill Demchak and Peter Hancock. In late 1994, I had been asked to look at a deal JPMorgan had recently closed with the European Bank for Reconstruction and Development. The deal had created a buzz, but there’s no doubting that as much as the deal, it was the glamorous and spunky deal maker at the center of it who had set tongues wagging.

  The background was an environmental disaster five years earlier. In 1989, the oil tanker Exxon Valdez ran aground off the Alaskan coast, releasing a massive oil slick. In a class action suit four years later, Exxon was fined $5 billion. It’s true that on appeal in 2008, the U.S. Supreme Court would cap the oil company’s liability at $500 million, one-tenth of the jury’s award back in 1994, but at the time Exxon faced the prospect of making a massive payout. It turned to its banker, JPMorgan, for a credit line to draw on as need arose. But providing such a large credit line would have hefty implications for JPMorgan.

  Every time a bank makes a loan, it runs the risk of the borrower not paying back. Moreover, a bank relies on loan repayments in order to run its own business, to repay depositors who want their money and even to make payments to its own creditors. So the risk of a borrower defaulting entails a risk to the bank, its customers, depositors, and creditors and, if the bank is big, a risk to the financial services sector. Regulators, who, in theory at least, are looking out for customers and the industry, step in here and require a bank to set aside capital every time it lends—just put it in a reserve account where the bank can’t touch it. With this reserve, barring the catastrophic default of a large number of its borrowers, the bank ought to be able to take a few knocks without going down and damaging the sector in the process.

  If JPMorgan ran a credit line to Exxon, it would be huge, and JPMorgan would have to reserve a huge amount of capital, capital which could not be put to any use, not even to earn interest. Of course, banks don’t like this; they want their money to be making money. That’s where Payne came in.

  I met Meena, as I’ve mentioned, on the training program in New York, fell in love, courted her, and wooed her. I remem
ber I even cooked for her—or tried to, balls of spinach and pine nuts or something, which fell apart in my hands and had me stabbing the phone with my forefinger in search of a decent restaurant near Wall Street that would deliver in half an hour. With training over, Meena and I returned to London. More and more, I stayed over at her small apartment, even as week by week the contents of her wardrobe migrated to my house, where they garlanded the furniture. On a very cold night in December, when I’d persuaded her to come for a walk on the Albert Bridge to see its famous Christmas lights that didn’t exist, I proposed. Two weeks later, on a bright Monday morning in January, I saw Payne, for the first time, in a breakfast seminar at the Guildhall in London, sitting on a panel with two men. When it came her turn to speak, Payne sprang to her feet, this slim, beautiful woman, her chair taking the force of the recoil, and in a dozen bold strides, with legs that went, as they say, all the way to the ground, she crossed the stage to the lectern. She wore knee-high boots, black leggings, and a tartan skirt, her hands free of any notes. Payne had bright blue eyes—with flecks of gray, she would insist—and long blond hair, sometimes tied up in a bun. Descended from an old Boston family of jurists and commercial men—two ancestors, I learned, had sat on the state Supreme Court and another, one Josiah Edgerton, a business associate of John Quincy Adams, had boasted the largest agricultural holding in the Commonwealth of Massachusetts—Payne was as blue-blooded as they come in America, and yet she had little to show of the genteel manners you’d imagine would come with high birth. For one thing, having the certain knowledge of what she wanted, with not one sinew of self-restraint or inhibition in that body to hold her back, she did not hide her intention to get it, and for another, as financial journalists have noted, she swore like a trooper. In the world of finance she had acquired the sobriquet House of Payne. I think she took pride in it.