Chapter 8: "The Target Is Destroyed"

August 26, 1983, Chicago, Illinois

On Friday, after I completed my usual morning routine and handed in my daily analyst report, I called our contact at Goldman Sachs.

"Waterston," he said when he answered.

"Kane at Spurgeon Capital. I'm looking to line up funding for two commercial real estate purchases."

"You, or your fund?" he asked.

"Me. A pair of two-flats. I'd guarantee the loans by using my carried interest as excess collateral. What's the rate?"

"So long as your carried interest is in excess of thirty percent of the loan amount, prime plus a quarter on a five-year balloon, with zero down. The origination fee is only a half-point."

That meant paying only interest on the note, which was typical for commercial loans. I could pay down the principal at any time during the term, or refinance some or all of the principal at the end of the term. That wasn't a problem, but a mortgage rate of around 12% was tough, especially when combined with an origination fee equal to a half percent of the purchase price.

That said, I didn't see rates coming down significantly in the next five years, and I didn't want to wait for five or possibly ten years for them to return to more historical levels of around 6%. I'd have to evaluate the purchase price, the rents, the property taxes, and the estimated maintenance to determine if it made financial sense.

"Would you send me a term sheet, please?"

"I'll fax it to you with a list of requirements. Send me a fund statement, please."

"Will do."

"Talk soon," he said, and hung up immediately, which was typical in the industry.

I replaced the handset in the cradle, printed a fund statement from the IBM mainframe, and then faxed it to Will Waterston using the speed dial button on the fax. I waited for the send confirmation, then went back to my desk. About ten minutes later, Anna brought me the term sheet. I scanned it and the requirements, then called Bill Wyatt about the two-flats he'd identified.

"All four of these look like good candidates," I said. "Let's start with the one in Wrigleyville and the brick construction in Rogers Park."

"Great! When would you like to see them?"

"I could do it any afternoon next week after 3:30pm. I'll just get into the office early. Monday would be best, as I don't have class that evening."

"I spoke to the listing agents for the two properties I'm not representing, and any afternoon should work," Mr. Wyatt said. "Let's meet at the Wrigleyville unit at 4:00pm. We'll see that, then head to the one in Rogers Park."

"Sounds good. I'll see you there."

"Before I let you go, do you have financing lined up?"

"I spoke to my prime just before this call, and it won't be a problem. I'll need to do a complete financial analysis to see if it makes sense, but I want to see the properties first. I'll need to see lease documents along with maintenance records."

"I'll get the information right away."

"Thanks."

We said 'goodbye', I hung up, and returned to my usual analyst work. I left the office at 3:30pm, as I had all week, so I could go to the hospital to drive Keiko home. Once she was settled, she again insisted I go out with Jack and Kristy, so despite my inclination to stay home, I found CeCi in the great room, and we left to join Jack and Kristy at Giordano's for pizza.

August 29, 1983, Chicago, Illinois

On Monday I had gone into the office early so that I could leave at 3:30pm to see the buildings Bill Wyatt had identified. As we had agreed, I met him in Wrigleyville to see a stone walkup on North Wilton Avenue, about four blocks from Wrigley Field. The building was well maintained, and had two long-term renters who, according to the listing sheet, had consistently paid their rent on time for the previous two years, and there had been no criminal activity at the address.

The rents being charged were a bit low, but that had to be counterbalanced by the fact that the renters were long-term and reliable. That counted for quite a bit, given having the property vacant for any amount of time would offset any minor deficiency in the rents being charged. The problem was, with interest rates at the level they were, I'd just barely break even when everything was taken into account.

That was something I expected, and the property's value would certainly appreciate, given the close proximity to Wrigley Field. Considering my timeframe, I felt I could fairly easily pay down the principal during the interest-only term, and that would reduce the monthly outlay. The worst-case scenario, as I saw it, was that I'd sell it for the capital gains.

"What do you think?" Bill Wyatt asked after we left the building.

"It's a possibility," I replied. "I'll obviously want to see the other three. This one is a bit pricier, but given the location, I think the long-term prospect for appreciation, as well as rent increases, is absolutely there. The rents in that building are a bit below market; are there any city regulations about rental rates?"

"No. Chicago doesn't have rent stabilization or rent control ordinances on the books."

"OK. Let's go see the brick construction in Rogers Park."

"I can also call the other one, which is about three blocks from the one we're going to see, if you have time.'

"I think so, yes."

"Then I'll meet you at the house on West Jarvis, though I'll stop to use a payphone."

"Sounds good."

Twenty minutes later, I toured the second two-flat, and while the price was significantly lower, it needed a bit of work, and both tenants had leases under a year old, compared to four and six years at the Wrigleyville property. This one, though, had rents which were slightly above market for the area, and the property would be profitable assuming I could keep it rented. That, of course, was offset by the money I'd need to spend to bring the building up to my standards.

"What do you think?" Bill Wyatt asked when we left the house.

"If I decided on this one, I'd offer at least 15% under the asking price because it needs repairs, and because of the rental history. Let's go see the third one."

"Do you want me to call to see if we can see the fourth one, too?"

"Why not? Let's stop by my house; you can use the phone, and I can let Keiko know."

We left the house on West Jarvis, headed to my house on West Morse, where Mr. Wyatt made a phone call, and I spoke with Keiko and Bianca.

"Are you feeling better after your transfusion this morning?" I asked Keiko.

"A bit, but it'll be better in the morning. It's always about twenty-four hours."

"Did Doctor Morrison have anything to say?"

"Not really. Obviously, my grandmother will take me for my blood draw on Friday, and we'll have the results on Tuesday because of the Labor Day weekend."

"OK."

Mr. Wyatt finished his call and confirmed we could see the building in Lincolnwood. I kissed Keiko, then Mr. Wyatt and I left the house to view a two-flat on West Estes Avenue, about four blocks from the house I'd once rented. It was similar to the previous house, though it had aluminum siding rather than being brick construction.

It was the least expensive of the four, and was in serious need of work, which meant offering significantly under the asking price, as I would for the other Rogers Park house. We left it, and headed for the fourth house, which was on North Tripp in Lincolnwood. It wasn't quite as nice as the building in Wrigleyville, but it was nicer than both the Rogers Park buildings.

"Any thoughts?" Bill Wyatt asked after we'd seen the fourth building.

"I need to crunch the numbers so I can make an offer. I may make an offer on two buildings, as I have enough available capital if I decide to do that. Are there any pending offers?"

"No."

"Give me a week, and I'll have a decision and an offer or offers."

"OK. If any other offers come in, I'll let you know."

"Thanks."

We shook hands, and I headed home. I ate leftovers, then spent some time with Keiko before she went to sleep in her old room, as we couldn't sleep in the same bed until Saturday.

August 31, 1983, Chicago, Illinois

On Wednesday evening, I joined my friends at Jeri's house for our monthly dinner. Once everyone had assembled, I provided an update on Keiko.

"How do my Japanese colleagues at the bank get tested?" Pete asked.

"I'll give you Doctor Morrison's card," I replied. "He'll arrange it, and there's no cost. We really appreciate it."

"Anyone can be tested, right?" Jeri asked.

"Yes. I'll give you all one of the doctor's cards. You, or any friends or relatives, can call to arrange to be tested."

"I was already tested at Loyola," Allyson said. "And I'm encouraging everyone I know at school to be tested."

"Thanks, Allyson."

"How is work going, Jonathan?" Gary asked.

"I brought in some new clients in the past five weeks, and my assets under management are around $50 million."

"Wow!" he exclaimed. "What's your goal?"

"The sky's the limit," I replied, "But I'd like to be at $200 million in two more years. I believe that's doable."

"If my math is right, that would earn you a cool million in commission, right?" Pete asked.

"Around that."

"Crazy!" Allyson declared. "I was sure you'd be successful, but a millionaire by the time you're twenty-three? Just wow!"

"I do have to outperform the market, or I won't be able to bring in anywhere near that."

"You're doing great so far!" Jeri declared. "I'm very happy with the returns!"

"Me, too," Nelson replied. "And I know Gary is as well."

"Miss Jeri?" Karl said, coming into the room. "Dinner is served."

We all went to the dining room, where Karl and Karolin served dinner.

"Marcia was hired as Assistant Chief of Staff for newly elected Congressman Hayes," I announced. "She'll be running his district office. I believe it would be to all our advantages to have her join our group again."

"Jonathan makes a good point," Nelson said. "Having what amounts to direct access to both a Senator and a Representative would be a good thing. We have legal, banking, finance, and medicine covered, along with Jeri's ties to the philanthropic class through her mom's foundation."

"I'll think about it," Jeri said.

I could tell she was a bit perturbed by my suggestion and how quickly Nelson had agreed, but it did make sense.

"I think I have to agree with Jonathan and Nelson," Gary said.

"And if Jonathan wants it, I think we should do it," Allyson said.

"Makes sense to me," Pete added. "We've all hitched our wagons to Jonathan's financial prowess, so unless somebody has a really good reason, opposing what he suggested doesn't make any sense to me."

I could tell Jeri was upset, but she handled it like a mature adult.

"Then it's obvious we should invite her. Jonathan, will you let her know?"

"Yes, of course."

"Nelson, anyone in your firm anywhere near Operation Greylord?" Pete asked.

Nelson shook his head, "No. The partners actually called an all-staff meeting and made a clear statement that nobody at the firm was being investigated, and, to our knowledge, none of our clients was involved in any way. From what we can tell, it's mostly sole practitioners or very small boutique firms. If you think about it, it makes sense. A big firm has far too much at stake to even think about something like that."

"What will happen with cases the judges heard?" I asked.

"You can bet every single order and every single conviction will be appealed, and the state will certainly look at trials with suspicious 'not guilty' verdicts."

"Can they do that?" Allyson asked. "I thought 'not guilty' meant they couldn't come after you again, no matter what."

"The argument would be that if you paid the judge, you didn't actually stand trial because it was a sham, and as such, jeopardy didn't attach. The same would be true if you tampered with the jury. But making that case would be difficult, if not impossible, so the usual solution is to stack state and federal charges to put the guy in prison. In the end, the government won't care which way they lock him up. That said, the fixed murder trial might be declared 'not a trial', and they'd try him again, in addition to any new charges."

"What happens to anyone who was convicted?" I asked.

"They'll file for relief, but the bar is very high. They'd have to show that not only was the judge corrupt, but that he was corrupt in their case, and that resulted in reversible error. In other words, you'd have to point to something specific the judge did, and show they were bribed or otherwise corrupted. But all that does is buy you a new trial, and you might lose that one, too. It's a long shot."

"What happens to the judges?" Allyson asked.

"They'll go to prison if the Feds have the goods, which I'd say they do. We won't know until the indictments are handed up, which could be months or even years. The prosecution could take a decade."

"Seriously?" I asked.

"Trials such as the ones we're talking about, especially with undercover investigators and wiretaps, are complex and can take years from indictment to verdict. That's especially true where there are so many defendants who all need separate trials."

"How high could this reach?" Pete asked.

"Who knows?" Nelson replied. "Potentially up to the Chief Judge, the State's Attorney, and the Clerk of Courts. I haven't heard even a hint of involvement from anyone in the Byrne or Washington Administrations. Of course, this being Chicago, Ward Committeemen, Aldermen, and state legislators could easily be involved, along with big name attorneys. All we can do is wait and see."

None of that would really affect the FX Desk, though I'd include a synopsis of the conversation in my analyst report in the morning. The conversation turned to other things, and after dinner, I gave Allyson a ride home.

September 1, 1983, Chicago, Illinois

"Holy shit!" Bianca gasped mid-morning on Thursday.

Before the two words had completely left her mouth, I got up and rushed to Mr. Matheson's door, ignoring Mia and Anna.

"The Soviets just shot down a civilian 747 near Sakhalin Island!"

"Bullshit!" he responded.

"George Shultz is on CNN right now, and they have recordings of the communication between the Soviet Air Force ground controllers and the pilot in the interceptor aircraft."

"Holy fuck! Moves?"

"Normally, I'd say gold, but every single sign is bearish, and not just a little bearish. In fact, I was going to short it tomorrow."

"Don't do that."

"Already crossed off my list! Defense stocks, but they're already overbought because of the tension over the Pershing II missiles and the Strategic Defense Initiative. Trading in the parent company of KAL, the Hanjin chaebol, will be halted, and there will be a pullback in airline stocks, though manufacturer stock won't take much of a hit because they're all defense contractors. Oil will spike, but only briefly. My advice is to stand pat. I'll reëvaluate my short of gold and silver next week."

"Stand pat in the face of a major crisis?"

"My analysis is solid. This will cause a diplomatic kerfuffle, but given the temperature outside isn't already ten million degrees Kelvin, we're not going to war over this. That said, it might well heat up the regional conflicts in Central America and western Asia. I'd also keep my eye on Grenada — that would be a perfect thumb in the Soviets' eye when they're on the back foot. I repeat my advice — wait and see."

"A gutsy call."

His phone rang just then, and he held up his index finger, indicating I should stay. He pressed the speaker button on his phone.

"Matheson," he said. "You're on speaker. Kane is here."

"What moves are you making?"

"Kane's advice is to stand pat," Mr. Matheson said. "I think he's right."

"World War III is about to start, and you say, 'stand pat'? What the fuck, Kane?"

Murray Matheson nodded to me.

"Well, as I said to Mr. Matheson, given nobody has launched nukes, this is simply going to be a diplomatic situation. If there's any retaliation, it'll be peripheral. My money is on Grenada, because it's easy pickings right in our backyard. Otherwise? Gold might move a bit, but every single indicator is bearish. The Soviet currency isn't convertible, and trade sanctions aren't going to do much, given anything important is already restricted.

"Defense stocks are already up due to tensions, including SDI and the Pershing II missiles. KAL parent stock is halted, and there will be blips in the other stocks, but that won't last. Oil will spike briefly. That's it. Wait and see what happens. I suspect a loud complaint at the UN and some meaningless trade sanctions. The real response will be around the periphery. My advice is to stand pat and look for opportunities."

"And you agree with that analysis, Murray?" Mr. Spurgeon asked.

"The kid makes good points," Murray Matheson replied. "There isn't even a small selloff, which you could use to pick up cheap shares. Kane did say he'd planned to short precious metals tomorrow, but he's holding off on that."

"The biggest news story of the year, and we stand pat? How will that look?"

Mr. Matheson looked to me and nodded.

"Like the cool as cucumber assassins we are," I replied. "That it takes balls to say our strategy is correct even in the face of a significant event. Panic buying and selling is for the herd, not seasoned professionals. That's the story. Our strategy is sound, and we're going to beat the market by around 50%. I certainly will!"

"The balls on this kid!" Noel Spurgeon exclaimed. "Thanks, Kane. Murray, come see me."

"Be right up," Mr. Matheson said, then pressed the speaker button to disconnect.

"Thanks, Kane. Go look for opportunities."

"On it!" I declared.

I went back to my desk, and Mr. Matheson left the office to go to 32 to see Noel Spurgeon.

"Anything new from CNN?" I asked Tony.

"No. After Schultz finished his press conference, it was just the usual blathering talking heads speculating wildly. What's your take?"