Shall We Kill the President?
Mr. Harding paced in his plush office on the top floor of Greasy Palms Inc, the investment bank he had worked in for the past twenty five years. He was now the CEO, and had for the past five years, taken home an eight figure salary. The Board was pleased with his efforts to bring Greasy Palms to the standing of the bulge bracket firms, and he had a tidy sum in his retirement account in Cayman Islands. Life was good, but Mr. Harding was not happy.
Harcourt “Hardball” Harding was a hard man. He had started out as a lowly analyst in the firm, and had fought his way up to the top job through sheer tenacity and brute force. By the time he reached the top, he had no friends left in the firm, so he fired the whole lot and brought in his own people. The shareholders grumbled, but five years of record profits had silenced them. Mr. Harding was worried because the outlook for the sixth year did not look too rosy.
It was June 2006, and the American Joe was feeling quite satisfied with himself. The economic outlook was rosy, risk-hungry investors were fooling about with wild abandon, grubbing about in the mortgage cesspool for the extra buck. Investment banks were having fun, gathering up armfuls of muck from the above mentioned cesspool and handing them over to white haired Grannies, telling them it was the safest thing to put their pension money in. Securitization, they called it, and it made them very very rich.
Mr. Harding was worried because he felt that Greasy Palms was not making as much money out of the whole thing as it rightfully should have. Moreover, he shrewdly felt that there were only so many mortgages that banks could securitize, and that business there would dry up soon. Greasy Palms needed to securitize something new, and just that morning, he had had the glimmering of a brilliant idea…
Harcourt Harding picked up the telephone. ‘Get Miss Corners in here,’ he said briefly. Less than a minute later, Miss Corners entered. ‘Sir?’
Ku Ting Corners was perhaps the most brilliant recruit he had hired for the firm. He recognized her keen intelligence right away, as well as her natural ability to tread the borders of the nice and legal with the dark and murky with finesse, and had taken her under his wing. Miss Corners wasn’t much to look at, angular and thin, with a pinched face. He had helped her smuggle her entire family out of North Korea, and she was a die-hard Harding loyalist.
‘Miss Corners,’ he began. In Greasy Palms, people were addressed on a strict last name basis. An associate who’d dared to address him as ‘Hardball, old boy’ had found himself booted out the next day. ‘What do you think about insurance securitization as a new business to get into?’
‘Insurance securitization?’ Miss Corners raised an eyebrow. ‘Issanchou’s been doing it for a while now. There’s hardly any money to be made from the reinsurance business these days. Besides –‘
‘Not reinsurance,’ Mr. Harding waved a hand impatiently. ‘What if we can offer our clients the opportunity to take a view on… say the number of people who’ll die in a car crash in the United States over the next month? Something completely new. We can do this by grouping maybe a thousand insurance policies together and tranching them. People can buy the safe senior tranche to receive the steady stream of insurance premiums, while the mezzanine runs a risk of having to bear the costs of paying out the claims. So a person having a view that car accidents would reduce over the next month would-‘
‘Buy the mezzanine tranche to earn the higher rate,’ breathed Miss Corners. She gazed at Mr. Harding with utmost respect. ‘That’s a brilliant idea Mr. Harding!’
‘I know,’ he replied, without the slightest trace of arrogance. ‘The only issue is that the people might find it rather… morbid to buy into products such as this. There could be bad publicity if we do launch this product.’
‘I’ll take care of it.’ Miss Corners said brusquely.
Miss Corners took care of it. Fervent lobbying in Washington ensured that their insurance securitized products, if launched, would be legal and above-board. A number of strategic press releases raised the issue in the newspapers, where it led to a frenzied debate regarding the ethics of the financial product in question. While the issue was still hot, Greasy Palms talked to a number of major corporations regarding ‘a demographic hedge’ whereby companies could protect themselves against their target consumer class shrinking, by investing in insurance-backed products which would make them money if there were excess deaths in their target consumer base. Greasy Palms talked to insurance companies and convinced them that they could take excess risk off their books by pooling their insurance policies and selling them on to the risk-hungry investors. Greasy Palms talked to everyone who could potentially form a market for the products.
The day before the big launch, Miss Corners went on air on CNN. She briefly spoke about their new product launch, and answered the ethical questions raised (How could you take a bet that people would die? How could making money when families grieved for lost lives not disgust you? Are you even human?) . She spoke passionately about the free market, and how an American had the right to express his view in today’s world. She spoke about her background from North Korea, and how it would be impossible to launch a product there, due to lack of basic human freedom. She spoke about how coming to America changed her life, and how she finally came to know what freedom meant. She exhorted Americans everywhere to exercise their freedom by investing in the Greasy Palms Insurance Securitization Fund.
The launch was a huge success. The publicity was tremendous. The public was divided in its sense of outrage and admiration. It seemed that the very morbidity of the product attracted clients. Mr. Harding speculated that speculating on the lives of fellow human beings gave the said human beings a sense of power. Greasy Palms won a number of awards for its innovative new product.
A month later, a rival bank tried to launch a similar fund. When he saw their press release, Mr. Harding’s eyes became very hard. A number of calls made out to the largest investors ensured that the new fund had little business. ‘Hard luck boys!’ he crowed. ‘Rather late on the scene, aren’t we?’
Mr. Harding took home a nine figure salary that year.
Soon, problems began to crop up for Greasy Palms. The large volume of business transacted through the single firm put a lot of risk on their books. Soon, the situation arose when the predominant market view was that more people would die in car crashes than ever, while Greasy Palms had a massive position in the opposite view.
Mr. Harding called an emergency meeting of his traders. They were of the opinion that the position could not be reduced at short notice without suffering massive losses. Mr. Harding developed an ingenious new plan. He hired a number of activists to flood the streets carrying slogans like ‘Drive Carefully’, ‘Speed Thrills, but Kills’ and even ‘Your family is waiting at home for you. Better late than never!’
The unconventional plan worked. There were very few accidents that month on the streets of New York. Mr. Harding had found a way to manage the huge risks on Greasy Palms’ books. They did the same thing the week after, and the week after. On the following week however, while the activists were busy handing out pamphlets extolling the virtues of slow driving, the head trader made an urgent call to his boss, ‘Mr. Harding, we have a position on the other side this time!’
Mr. Harding made a few quick phone calls. The pamphlets were burned. The activists began to hand out free beers at traffic stops instead.
Soon, a number of sub-classes of the product were launched. There were Terrorist Insurance Funds, which would pay out huge amounts of money if a ‘substantial’ number of people died from terrorist attacks. There was the Schoolbus Failed-Brake Fund, which took a view on accidents involving school children. But it was the launch of the High-Premium Insurance Fund which led to the eventual shut-down of the very profitable Insurance Securitization business.
The High-Premium Insurance Fund let investors take a view on the deaths of high-premium insured. These included senators, lawyers, Hollywood stars, as well as the bankers themselves. The problem arose when a retail investor named Lee Harvey Oswald took large sizes in a position which predicted record number of deaths in the high-premium category. He became uneasy when the drug addled Hollywood actresses resolutely clung on to life, when the drunk bankers negotiated their way safely home on Friday nights and when no angry clients murdered their lawyers. He therefore decided to take things into his own hands, and through a combination of luck and skill, managed to assassinate the President of the United States. His trade position made him a lot of money, but he spent the rest of his life in jail. He considered it to be worth it.
The incident re-awakened the dormant public conscience, and insurance securitization was banned. Mr. Harding received a tongue lashing in the Senate for introducing a financial product which was against public interest. At the next shareholder meeting, there were a lot of sympathetic murmurs, what the Senators did was not considered to be good form. Did he consider Greasy Palms to be hard done by? ‘Hardly,’ Mr. Harding replied, ‘I do have this other great idea though…’