Free Death Benefit by Robin Cook Page B

sounding upset, and said he wanted to come over immediately to talk about something important. Russell had a habit of insisting on talking about anything sensitive in person. Back at Morgan Stanley, when they worked together in asset-backed securities, their calls had been recorded in case either party misremembered the terms of a trade later on. Edmund doubted very much that anyone was listening in nowadays but the old habit lingered with Russell. He was a worrier and he always had been.
    Edmund opened the door and greeted Russell. His partner was a tall, lithe man with a sweep of blond hair tinged with gray. He was wearing tennis whites with a sweater thrown over his shoulders. For a man who was usually quite a dandy, he looked thoroughly bedraggled. When he wasn’t in a suit, Edmund preferred to wear old T-shirts and shorts, even in winter. He was thicker in the body than Russell, but not overweight, and he kept his hair short and neat with weekly trips to the barber in town.
    Edmund could see that Russell had haphazardly parked his Aston Martin DB9 in the driveway and not over by any of the garages as Edmund preferred. The Aston Martin was a fine piece of automotive engineering but it was too ostentatious a machine for everyday use for Edmund’s taste. The garish crimson paint job only exacerbated the feeling. Edmund preferred the in-your-face statement he made in his black Escalade, but for driving enjoyment, he loved nothing better than taking his Morgan runabout on the back roads deep into Connecticut. His true pride and joy he drove only rarely: in his garage was a Ferrari 250 GTO that had cost him millions back in the days when that didn’t seem like such an extravagance.
    “We’ve got a problem,” Russell said as he entered the atrium.
    “So I gather. Let’s go into the kitchen,” said Edmund, who preferred to keep business discussions out of the house if he could help it. This was going to be one of those days he didn’t have any choice.
    Russell and Edmund had both worked as derivative traders at Morgan Stanley. Edmund was one of the best traders there, agile and decisive and brilliantly able to find someone to take the other side of a position he was holding. He knew Russell had some limitations as a trader, but he had a quant’s mind that could calculate risk quickly, and Edmund could rely on him to tell him if something he was planning was feasible. Russell had seen the potential for making money in CDOs—collateralized debt obligations—exotic financial products that took advantage of the subprime mortgage market to create apparently risk-free investments that could make billions in profits for the company and tens of millions for the traders. With property prices on their seemingly unstoppable upward curve, the investments were safe as houses, as people in the know liked to say.
    Eventually it turned out that many of the executives at the brokerages selling CDOs and at the financial institutions here and in Germany and Japan and elsewhere who bought them were completely ignorant of what a CDO actually was. They knew what asset-backed securities were, but the assets here were mortgage bonds packaged together and sliced up and sold in bundles. Many of the individual loans the bonds were backed by were subprime loans that would never be paid off, and only a few loans needed to fail before the whole package defaulted. It was inevitable that this would happen.
    When Russell explained to Edmund precisely what the subprime loan crisis was going to mean to CDOs and other financial products and for the system as a whole, Edmund was unnerved and excited at the same time. He immediately, and secretly, used his own money to short his own firm and made bets on the failure of other companies exposed to CDOs. He continued to sell the doomed bonds even when disaster was inevitable. He made staggering amounts of money and after a while he told Russell, a loyal company man who’d never dreamed of acting that way,