Robert Harris - The Fear Index

He turned and said, ‘We really need to talk to Alex before we put on an override. I mean, when was the last time any of us actually did a trade?’

Rajamani said, ‘With respect, that’s not the point, Hugo.’

‘Of course it’s the point. It’s the whole point and nothing but the point. This is an algorithmic hedge fund. We’re not manned up to run a ten-billion-dollar book. I’d need at least twenty top-class traders out there with steel balls, who know the markets; all I’ve got are quants with dandruff who don’t do eye contact.’

Van der Zyl said, ‘The truth is, this issue should have been addressed earlier.’ The Dutchman’s voice was rich and deep and dark, marinated in coffee and cigars. ‘I don’t mean that we should have thought about it earlier today – I mean we should have done it last week or last month. VIXAL has been so successful for so long, we have all become dazzled by it. We have never put in place adequate procedures for what to do if it fails.’

Quarry knew in his heart that this was true. He had allowed technology to enfeeble him. He was like some lazy driver who had become entirely reliant on parking sensors and satellite navigation to get him around town. Nevertheless, unable to conceive of a world without VIXAL, he found himself rising to its defence. ‘Can I just point out that it hasn’t failed? I mean, the last time I looked, we were up sixty-eight mil on the day. What does the P and L say now, Gana?’

Rajamani checked his screen. ‘Up seventy-seven,’ he conceded.

‘Well, thank you. That’s a bloody odd definition of failure, isn’t it? A system that made nine million dollars in the time it took me to shift my arse from one end of the office to the other?’

‘Yes,’ said Rajamani patiently, ‘but it is a purely theoretical profit, that could be wiped out the moment the market recovers.’

‘And is the market recovering?’

‘No, I accept that at the moment the Dow is falling.’

‘Well, there is our dilemma, gentlemen, right there. We all agree that the fund should be hedged, but we also have to recognise that VIXAL has demonstrated itself to be a better judge of the markets than we are.’

‘Oh, come on, Hugo! There’s obviously something wrong with it! VIXAL is supposed to operate within certain parameters of risk, and it isn’t, therefore it is malfunctioning.’

‘I don’t agree. It was right about Vista Airways, wasn’t it? That was absolutely extraordinary.’

‘That was a coincidence. Even Alex acknowledged that.’ Rajamani appealed to Ju-Long and van der Zyl. ‘Come on, you fellows – back me up here. To make sense of these positions, the whole world would have to crash in flames.’

Ju-Long put his hand up like a schoolboy. ‘Since the subject has been raised, Hugo, could I just ask about the Vista Airways short? Did anyone see the news just now?’

Quarry sat down heavily on the sofa. ‘No, I didn’t. I’ve been rather busy. Why? What are they saying?’

‘That the crash was not a mechanical failure after all, but some kind of terrorist bomb.’

‘Okay. And?’

‘It seems that a warning was posted on a jihadist website while the plane was still in the air. Understandably there is a lot of anger that the intelligence authorities missed it. That was at nine o’clock this morning.’

‘I’m sorry, LJ. I’m being a bit slow on the uptake. What does it matter to us?’

‘Only that nine o’clock was exactly the time we started shorting the Vista Airways stock.’

It took Quarry a moment or two to react. ‘You mean to say we’re monitoring jihadist websites?’

‘So it would appear.’

Van der Zyl said, ‘That would be entirely logical, actually. VIXAL is programmed to search the web for incidences of fear-related language and observe market correlations. Where better to look?’

‘But that’s a quantum leap, isn’t it?’ asked Quarry. ‘To see the warning, make the deduction, short the stock?’

‘I don’t know. We would have to ask Alex. But it is a machine-learning algorithm. Theoretically, it’s developing all the time.’

Rajamani said, ‘Then it’s a pity it hadn’t developed enough to warn the airline.’

‘Oh, come on,’ said Quarry, ‘stop being so bloody pious. It’s a machine for making money; it’s not meant to be a sodding UN goodwill ambassador.’ He leaned his head against the back of the sofa and looked at the ceiling, his eyes darting, trying to absorb the implications. ‘God in heaven. I mean, I’m simply staggered by that.’

Ju-Long said, ‘It could be a coincidence, of course. As Alex said this morning, the airline short was just part of a whole pattern of bets to the down side.’

‘Yeah, but even so, that’s the only short where we’ve actually sold the position and taken the profit. The others we’re holding on to. Which poses the question: why are we holding on to them?’ He felt a tingling along the length of his spine. ‘I wonder what it thinks is going to happen next?’

‘It does not think anything,’ said Rajamani impatiently. ‘It is an algorithm, Hugo – a tool. It is no more alive than a wrench or a car-jack. And our problem is that it is a tool that has become too unreliable to depend on. Now, time is pressing and I really must ask this committee formally to authorise an override on VIXAL and start an immediate rehedging of the fund.’

Quarry looked at the others. He was good at nuances, and he detected that something had just shifted slightly in the atmosphere. Ju-Long was staring ahead impassively, van der Zyl examining a piece of lint on the sleeve of his jacket. They seemed embarrassed. Decent men, he thought, and clever, but weak. And they liked their bonuses. It was all very easy for Rajamani to order VIXAL to be shut down; it would cost him nothing. But they had received four million dollars each last year. He weighed the odds. They would give him no trouble, he decided. As for Hoffmann, he took no interest in the personnel of the firm apart from the quants: he would back him whatever he did. ‘Gana,’ he said pleasantly, ‘I’m sorry, but I’m afraid we’re going to have to let you go.’

‘What?’ Rajamani frowned at him. Then he tried to smile: a ghastly nervous rictus. He tried to treat it as a joke. ‘Come on, Hugo…’

‘If it’s any consolation, I was going to fire you next week whatever happened. But now seems like a better time. Write it down in your minutes, why don’t you? “After a short discussion, Gana Rajamani agreed to relinquish his duties as chief risk officer, with immediate effect. Hugo Quarry thanked him for all he had done for the company” – which as far as I’m concerned, by the way, is sod all. Now clear your desk and get off home and spend more time with those charming children of yours. And don’t worry about money – I’m more than happy to pay you a year’s salary just for the pleasure of not having to see you again.’

Rajamani was recovering: afterwards Quarry was forced to give him credit for resilience at least. He said, ‘Let me be clear about this – you’re dismissing me simply for doing my job?’

‘It’s partly for doing the job, but mostly for being such a pain in the ass about doing it.’

Rajamani said, with some dignity, ‘Thank you for that. I’ll remember those words.’ He turned to his colleagues. ‘Piet? LJ? Are you going to intervene at this point?’ Neither man moved. He added, slightly more desperately, ‘I thought we had an understanding…’

Quarry got up and pulled the power cable out of the back of Rajamani’s computer. It emitted a slight rattle as it died. ‘Don’t make copies of any of your files – the system will tell us if you do. Turn in your mobile phone to my assistant on your way out. Don’t speak to any other employees of the company. Leave the premises within fifteen minutes. Your compensation package is conditional on your abiding by our confidentiality agreement. Is that understood? I really would prefer not to call in security – it always looks so cheap. Gentlemen,’ he said to the other two, ‘shall we leave him to his packing?’