Chapter 11: A Hard-Nosed Prick

September 11, 1983, Chicago, Illinois

"Rich, it's Jonathan," I said when I called the FX desk after returning from the Bears 17–10 victory over the Bucs.

"What's up?"

"I need you to buy 3,000,000 currency Ƶ immediately at market, please, to cover the puts I bought on Friday."

"I saw that! An amazing call!"

"Yes and no," I replied. "I saw the opportunity based on the fundamentals, then had Murray Matheson lead the herd to force the issue!"

"I don't see an active market on Ƶ at the moment. This will likely be a Central Bank transaction. Let me place a call to Hong Kong. Do you want to set a maximum price?"

"What's the last price of any trade?"

"0.035," Rich replied.

"I'm selling at 0.14 SDRs, so I'll pay up to 0.04 SDRs."

"OK. Maximum is 0.04. Let me work."

"Thanks, Rich."

"I'll call you with a confirmation once I find someone to sell you the dog-shit currency!"

"That 'dog-shit' currency netted the FX desk about sixty mil, so speak kindly of it!"

Rich laughed, said 'goodbye', and we hung up.

"Problems?" Keiko asked.

"No. It's just that there isn't an active market in the currency. Someone will sell it to me, and I'm willing to pay a bit above market price to close out the position. I could wait, but I want to lock in the profit. There's no sense in being greedy! Someone will take the trade because anyone holding that currency risks losing even more, or the central bank will, to get hard currency reserves."

"What happens if they can't improve their economy?"

"Bad things," I replied. "Did you ever study what happened in Germany after World War I?"

"Only briefly."

"That's too bad because what happened from 1918 to 1934 is what brought Hitler to power. One of those things was a collapse of the currency, the Mark. Because of massive debt and reparations payments, combined with economic collapse, a loaf of bread in Berlin that cost around 160 Marks at the end of 1922 cost 200,000,000,000 Marks by late 1923."

"WHOA!" Keiko gasped. "Two hundred billion?!"

"Yes. By November 1923, one US dollar was worth 4,210,500,000,000 German marks."

"Trillion? You're not joking?"

"I'm not joking. That's what Zaire is in for, though probably not to that extreme. I suspect the currency will devalue by half again over the next few years, then accelerate. It's a pattern. And there won't be a market in the currency because nobody will want to hold it for more than a few seconds if they can help it. The currency could devalue so fast that your pay for a day could be worthless by the end of the workday."

"How do you fix it?"

"Germany instituted a new Mark backed by assets. In their case, it was pegged to mortgage bonds priced in gold, then got the economy in order. But Zaire is not Germany. Germany had a stable economy until they foolishly went to war, and on two fronts, to boot. Zaire did not have anything even remotely resembling a stable economy.

"Zaire also suffers from the fact that it's a one-party totalitarian military dictatorship run by Mobutu Sese Seko, who seized power via a coup in 1965. That was about five years after Belgium granted the Belgian Congo independence. Being a former colony, their economy was necessarily tied to their colonial masters. A former colony with a weak economy and military dictatorship is not a recipe for success."

"How did you learn all that? We certainly didn't learn much in geography in eighth grade or world history in ninth."

"My research. In order to understand currencies, I've had to learn about the countries, so I've prepared fairly extensive research reports on countries like Venezuela, the Philippines, Zaire, and others. Australia is also an interesting situation, as they still have a fixed exchange rate. Mostly those cannot survive in the modern world of relatively free international trade."

"I remember seeing dollars that could be redeemed for silver."

I nodded, "Silver notes. They were discontinued in 1963 and could be redeemed for silver in some form until 1968. They weren't pulled from circulation, and there are enough of them in the hands of collectors that they don't have much value above face. I occasionally saw one at work while I was in High School. I saw plenty of 'Wheat' pennies, and I actually found a silver quarter, which surprised my boss, who allowed me to keep it. Those were last struck in 1964."

"Changing topics, how was the game?"

"OK. The Bears managed to win, though I don't have high hopes for the season."

"Is that your last football game?"

"Yes. There are three hockey games between now and the end of the year. I actually have four tickets for the game against the Penguins on October 27th because they suck, and everyone is more interested in games against the Red Wings, Blues, Oilers, or Canadian teams. But I'm happy to go to any games, as is Violet."

"Did you need to do homework?"

"No, I finished it last night."

"Then let's sit in the Japanese room, listen to music, and cuddle."

September 12, 1983, Chicago, Illinois

"Morning, Rich," I said when I walked into the office on Monday morning. "Thanks for finding my currency!"

He'd called me the previous evening and had found enough currency to close out my position at 0.0365, a reasonable price that locked in my profits.

"You're welcome. I've lined up enough to cover the FX fund trades so Murray can close out his positions today if he chooses."

"What price?"

"A range from 0.0365 to 0.0382. There just isn't much of a market outside the Central Bank and a few French banks. Nobody wants to deal in the currency."

"No surprise there," I acknowledged.

"Any other moves?" Rich asked.

"Well, the bet against the Philippine peso is still waiting to play out, but I have until the end of November before those contracts settle. I still feel good about it. Other than that, I'm keeping my eyes on Australia."

"You think they have to float?"

"Yes, but they also have sufficient reserves to fight it off unless there's a coördinated effort. Even Mr. Matheson and his friends in London and Hong Kong can't force that one by themselves. The timing will be tricky because we want to beat the herd but not telegraph such that Australia could defend. The thing is, internally, I think they know it's coming because they have better info than I do. It's just a matter of domestic politics when they pull the trigger."

"Murray is friends with the Deputy Finance Minister and knows Joe Dawkins, the Minister."

"Interesting."

"You've seen his Rolodex! There are an almost unbelievable number of cabinet ministers, high-ranking bureaucrats, and politicians in it."

"I'm working on building my own, but he's had a twenty-year head start!"

"Congrats on your new role."

"Thanks. And I have a ton of work to do to get the new department up and running!"

I went to my desk and began my morning analysis. I completed it, put it on Mr. Matheson's desk, and then went up to 30 to Personnel to sign my new employment contract.

"Congratulations, Jonathan," Trish said. "I couldn't talk you into drinks after work, could I?"

"Let me check with my wife," I said with a smile.

"No fair!" she pouted. "You aren't wearing a ring!"

"Yes, I am," I replied, holding up my right hand. "My wife is Japanese-American, and their tradition is to wear it on their right hand."

She frowned, then said, "Mrs. Peterson is expecting you. Go on in."

"Thanks."

The new contract was a manager's contract, which allotted a few extra benefits — my vacation would accrue at 1.8 days per month for five years, and then 2.2 days per month. That meant I'd now have three weeks of vacation, of which two had to be Sensitive Leave. In five years, I'd have four weeks of vacation.

In addition, my basic life insurance would be four times my annual salary, which meant if something happened to me, Keiko and my baby with Bianca would be well taken care of. More importantly, at least for me, was that any funds I put into the Spurgeon Select Fund would be matched at 50¢ on the dollar of any amount up to 10% of my base salary.

The downside of the match was that it vested over five years. That wasn't a change from my previous benefits plan, but the increased match tightened the golden handcuffs even further. Leaving voluntarily would leave a lot of money on the table. I had no plans to leave despite both Bianca and Jack encouraging me to think about it.

"Any questions?" Mrs. Peterson asked.

"I've never managed anyone before," I said. "I'm going to need advice."

She smiled, "The fact that you came right out and said that bodes well. I know the directions Mr. Spurgeon has given you, so when you complete your evaluations, come see me before you communicate anything to anyone, including Mr. Matheson or Mr. Spurgeon. In one sense, you have it easy, given all the analysts are white males under forty, except for Bianca Pérez, and I can't imagine she'd be on your list of cuts."

"I intend to hire another data analyst," I replied. "Mr. Spurgeon knows that."

"Which means how many will be cut?"

"I have more evaluation to do, but my initial thought is that we need eight analysts, two data analysts, and me, for a total of eleven. There are seventeen after Mr. Spurgeon fired Paul Jablonski, which means I would cut seven and add one. It's possible one of the other analysts could do the data analysis job, but they would need sufficient computer skills. That's something I'll determine with my analysis in the next two weeks."

"That's a good plan and comes in under Mr. Spurgeon's guidance, which is always a good thing. Be very careful when you speak to people to not make any commitments until you've presented a list of staffing changes. Mr. Spurgeon will give you a relatively free hand but may offer suggestions."

I chuckled, "Which would be like suggestions from a colonel to a sergeant in the Army."

"That is something to consider, but that said, if you can make your case, he'll support your decisions. I believe you've experienced that several times."

"I have. What level of access do I have to past performance reviews?"

"Complete. They're all your team now, so the only thing off limits is the restricted portion of their personnel files."

"What's in that portion of the file, if I'm permitted to ask?"

"Some examples would include divorce decrees which affect assets held by Spurgeon, court orders for wage garnishment, work eligibility documents, Immigration records and forms, medical records, and so on. Basically, anything of a personal nature that does not have a direct impact on job performance."

"OK. I would like copies of their most recent performance reviews."

"Do you want compensation numbers?"

"No. I don't want that to affect my decision. Those numbers are set by Mr. Spurgeon, right?"

"Correct. He'll ask for your input, in addition to the performance evaluations, but he's the sole vote when it comes to compensation of any kind."

"It is his money," I replied with a smile.

"May I give you some private advice not to be repeated?"

"Yes, of course."

"I've seen rapid advancement similar to yours twice in Spurgeon's history. I discussed the one who was blackballed by Mr. Spurgeon after a falling out and couldn't get another decent job. The other one is still here but declared bankruptcy two years ago. There are two lessons — one, don't overspend your base income; two, have a bulletproof exit strategy, even if you never actually intend to use it."

I nodded, "Good advice. I'm not living to my current income, and I don't intend to significantly change my lifestyle. I save a good chunk of my income as it is, using rolling CDs to gain higher returns, given anything else I might do except real estate, life insurance, or annuities has to be in my monitored Spurgeon account."

"Good. I'm sure you've deduced that most of the traders have a high net worth, but it's illiquid, and with their expenses, they live paycheck-to-paycheck."

"That was my situation growing up, though, with almost no money. I resolved to never have to do that again in my life."

"Just be careful of temptation; there's plenty of it here."

"So I've noticed," I replied with a wry smile.

"Yes, that, too, obviously!" she said. "Is there anything else with which I can assist you?"

"Not at the moment."

"I'll have Trish get you copies of the evaluations. Please make sure you lock them in your desk if you aren't actively reviewing them."

"Is it OK to take them home to review?"

"Yes, so long as you ensure they aren't seen by anyone else."

"Thanks."

I returned to my desk and began updating my currency and precious metals research. About twenty minutes after I'd started, the phone rang.

"Kane."

"Nelson here," he said. "I've reviewed all the contracts. The purchase contracts are in the standard form for Illinois and contain the appropriate language to protect you if the inspector finds any problems. The real estate management contract is also fairly standard. Unless you have some specific concerns, I'd say it's OK for you to sign them."

"Good. What do you suggest with regard to titling the properties? I'd like them to be marital property."

"Your best option is an S Corp with you and Keiko as the sole shareholders."

"OK. Set that up under the name Yuusuke Holdings. That's spelled Y-U-U-S-U-K-E."

"Japanese?"

"Yes. It's a composition of two Kanji characters, 'isamu', which means 'courage', and 'yu', which means 'to protect'. When combined, they yield the name 'Yuusuke'. It's the Japanese name Keiko chose for me because there is no actual analog for 'Jonathan'. You'll be able to get that done in time?"

"Yes. It's simply a matter of filing it with the Secretary of State."

"Great! In addition, I'd like you to set up an S Corp for Deanna."

"I can do that, but you'll want to chat with Bob Black or Nancy King because, for an artist, there's a risk the IRS would rule it a 'hobby', not a 'business'. I'll get the paperwork done — it's literally filling out a few forms. If you have time, I'll transfer you to Nancy."

"I'd appreciate it. Thanks."

"What name for the corporation, if it's formed."

"Deanna Haight Creations," I replied. "And she should be the sole shareholder, as she'll take any passthrough income or loss."

"OK. I'll courier the contracts to you. I assume there's a Notary at Spurgeon?"

"Several. Do I need to sign the incorporation papers?"

"I'll act as your agent, so I can file all the necessary paperwork each year, and I'll also receive any notices from the Secretary of State for renewals and that sort of thing. And file the required annual reports. Those are boilerplate for something like what you or Deanna are doing."

"Thanks again."

He transferred me to Nancy King, my tax attorney, and I explained my two requests to her.

"For the real estate purchase, no problem at all. Just ensure Bob has a copy of the incorporation papers, and you keep the necessary detailed records for tax purposes. For your friend, the artist, I have some questions."

"Shoot."

"First, is she actively marketing and selling her art?"

"She displays in galleries three or four times a year. She also has selected works on display for sale at the School of the Art Institute. And she has made some private sales, including to me."

"Does she have other income?"

"She was working at Venice Café but is leaving that role. I'm acting as a patron, providing her with room and board, studio space, and a small stipend so that she can complete her degree at the School of the Art Institute."

"How is she paying for that?"

"She has a full scholarship."

"And she intends for her art to be her full-time job once she graduates?" Nancy asked.

"Yes, she does," I confirmed.

"Does she make a profit?"

"I honestly don't know, and she is going to try to expand the gallery shows."

"I'd say, at this point, go ahead, but let's discuss how she handles any losses that might be reported on her tax returns when the time comes. The main thing that will help her with the IRS is extremely accurate record-keeping, as well as sincere, sustained efforts to turn a profit."

"OK. Let Nelson know he should go ahead with setting up her corporation."

"Just a point — the money you're giving her, as well as the room and board, are not deductible by you."

"Understood. What about the value of the room and board to her?"

"She'll have to report it. The value would be the average of what you're charging your other housemates for rent, utilities, and anything else you provide."

"I'll make sure I keep accurate records."

"Similarly, you should ask the management company you'll be using to provide you with detailed monthly invoices. That'll make Bob's job easier."

"I'll make sure that happens. Thanks."

We said 'goodbye', and I hung up. My next course of action was clear — review all of the evaluations. Once I'd done that, I'd rank everyone based on those evaluations and modify the rankings based on my one-on-one discussions. I would also have to take into account their area of focus, given my initial thoughts about the composition of the team. Two whom I was positive I'd keep were Bianca and Tony. Beyond that, it was a wide-open field.

I spent the rest of the morning doing my usual research, then had lunch with Bianca. After lunch, we went to work out in the gym, and when we returned to the office, the package from Nelson was on my desk. I reviewed the contracts, then took them to Personnel and had Trish notarize my signatures. Once that was accomplished, I faxed copies to Will Waterston at Goldman so he could initiate the loan paperwork. After I'd done that, I called Bill Wyatt to let him know I'd signed the contracts, and he offered to pick them up. I agreed, and mid-afternoon, he did just that.

"I'll order the inspections this afternoon," he said. "The inspector will provide copies for you and send the originals to the lender. If there are any deficiencies, I'll call you right away."

"Thanks. Is there anything else I need to do?"

"Not at the moment. I'll coördinate with Nelson Boyd to ensure everything is set for the closing. Do you have a preferred title company?"