John Gapper - A Fatal Debt

Harry shot Greene an ambiguous glance, half appreciation for the remark and half unease. I thought of what had happened just six months later-the mess that Harry had made of Greene’s body. Perhaps I wouldn’t have noticed the tension if I hadn’t known the outcome, but there was something unnerving in the stiff way they sat next to each other, as if divided by an invisible barrier.

The next senator was a Democrat, a woman in her sixties who was technocratic and stern. She spat out her questions crisply, hardly looking at the witness who was answering, but Greene didn’t appear bothered.

“Mr. Greene, can you explain to some of us who are still baffled exactly how your bank came to need the taxpayers’ assistance?”

“Senator, it’s complicated and I don’t think that anyone here, myself included, fully understood the risks we were taking. As I said before, mistakes were made and I bear full responsibility for those errors.”

“I’m glad to hear you say that-” she interjected sharply, but Greene carried on talking, and she gave way.

“Let me try to explain this as best I can,” he continued. “Our trading desk held mortgage paper that it considered entirely safe. It was triple-A paper that no one believed was in danger of default. Those positions were not reported to the risk committee.”

“You mean you didn’t even know they were there?”

Greene sighed heavily and closed his eyes for an instant, as if the blunder still pained him. “Unfortunately not. There were flaws in the risk management procedures at Seligman. It examined what it believed were risky assets, and it didn’t include any of these CDOs. That stands for collateralized debt obligations, by the way. There are many abbreviations on Wall Street, I’m afraid.”

Greene had something, I thought. Imperceptibly, he’d managed to seize control of the hearing and was overriding the questions to present the story he’d prepared. He had a natural authority that subdued others without them realizing it. It sounded as if he were giving a lesson to an appreciative audience, rather than defending himself.

“What happened to these CDOs?” the senator asked obediently.

“This spring, mortgage-backed securities started to fall along with house prices in a way that no one had anticipated. In May, the senior management was informed that heavy losses were occurring on the CDO tranches. I believe the projection was a $5 billion loss. Our estimate now …” Greene glanced at a sheet of paper on the desk and read out a figure dispassionately: “is $21.6 billion.”

The senator looked at Greene openmouthed. “And you had no idea about this before you lost those billions? You were in the dark?”

Greene held his right hand half-clenched and thrust out to emphasize his words. “Let me address this, because it is absolutely the right question. When I took over as chief executive, I made a complete examination of our balance sheet. I found we had been using too much leverage and didn’t have a thorough grasp of some of the instruments we had been trading. I put a halt to it immediately.”

The senator still looked astonished, but Greene had managed subtly to deflect attention from himself. He’d become an expert witness explaining the financial complexities, not the one who should be answering for the mess.

“Who ran Seligman while it was doing this and crying to the government for $10 billion to stay in business? Who was in charge?”

Greene paused and looked hesitant. He glanced fractionally sideways at Harry, as if not wanting to say it himself. The camera cut to Harry, who looked crushed. He sat upright and his tongue flicked out of his mouth to moisten his lips, like a reptile. Then, with Greene still silent, he leaned forward to the microphone.

“I was, Senator,” Harry croaked.

She shook her head disgustedly. “It sounds as if there was a very good reason why you resigned, Mr. Shapiro. You’d run your bank into the ground.”

I could see Felix’s eyes focus over Harry’s shoulder as he waited to hear the reply. Harry looked on the verge of losing control, but he mastered himself with a visible effort. As he did, and before he could speak, Greene grimaced and reached across the invisible barrier between them. He put a hand on Harry’s shoulder, apparently in sympathy.

“Harry did what he believed was right at the time,” Greene said. “He wasn’t the only executive on Wall Street who made a mistake.”

Harry stayed stiffly in position, and I heard the rustle of photographers in the background grabbing their shots for the next day’s papers. The camera pulled back to show Harry and Greene stand and huddle in separate knots of advisers. Underwood appeared at Greene’s shoulder. Nora moved up to Harry and held his hand as if he were a child who had to be protected from harm, while he gazed desolately into the middle distance.

I reached for my mouse to click off the hearing, but I stopped as the last frames played. A few yards behind Harry, I spotted Anna. She must have gone to the hearing with Nora and Harry, but she hadn’t walked forward. Instead, she was standing and talking to a middle-aged woman I didn’t recognize, with a sharp nose and gaunt face. They were standing close to each other, as if they were well acquainted, and the last thing I saw before the tape halted and the C-SPAN logo filled the screen was her raising one hand to stroke Anna’s arm. It looked like a gesture of comfort.

My father’s lawyer friend kept his office in Rockefeller Center, high above the honking taxis and lost tourists of midtown. A swaying elevator carried me with a whoosh forty-five floors above the gloomy lobby to the light-filled world aloft. I sat in the reception area for a couple of minutes, then heard footsteps and a shout of greeting. A man emerged quickly around a corner and, as I rose, grabbed me in a hug and slapped my back, although we had never met and he was six inches shorter than me.

“Ben, it’s great to meet you,” he cried. “I’m Joe Solomon. You’re the spitting image of your dad. A privilege to meet you. He’s always talked a lot about you. He’s proud of you, you know. Let’s see what I can do for you.”

Up to the neck, he was neatly groomed in a suit and silk tie, but his hair spilled out in gray curls and his blue eyes bulged from a round, ruddy face, suggesting that the clothes were only just holding him in. His accent sounded southern. I’d never heard of him before now. My father had called him a friend, but I didn’t know if that was really true or if it was just his term for someone who might be useful. Yet I still found my father’s reported words touching. I’d never heard them from the man himself.

We walked to Joe’s office, which was on a corner with a view looking south toward the harbor. Whatever he did for a living, it was treating him well. He leaned back in a chair and put his feet on his desk, one leg crossed over the other.

“How much did your father tell you about me?” he asked.

“Just that you were a friend and he trusted you.”

He beamed. “Well, that’s awful kind of him. He’s a gentleman, your dad. We met at a legal conference in Las Vegas a few years back. It was pretty dry stuff during the day, but we had some fun at night, I’ll tell you.”

I smiled politely. That could mean anything in Las Vegas, and I didn’t know Joe well enough to guess-and perhaps not my father, either. I was relieved to be there and by the thought of having someone to protect me, but I was unsure of how much to tell him. I’d been to see my patient in Riverhead, as I was duty-bound to do, and I’d talked to Harry’s wife. Neither of those had been improper. But I’d also done something he’d probably warn me against if he knew. I’d called Anna, responding to her silent invitation by the door of the apartment. Discussing the case with someone who might be a witness and was close to my former patient wasn’t by the legal or medical book, but I’d been unable to restrain myself. I wanted to know more about Harry. Truth be told, I also craved her presence.