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Thursday, 30 July 2009

Have We Reached a Top?

By James Kostohryz

It's never been my position that the flow of fundamental news would turn from positive to negative overnight and in a total fashion. The world simply doesn't work that way.

When I terminated my core long position a couple of weeks ago for reasons explained in�Ten Reasons the Countertrend Rally May Be Over,�I outlined a series of factors I believe may manifest in the later half of 2009 and the first half of 2010. Indeed, most of these factors will be more back-end loaded, as negative factors tend to build on one another and gain momentum in time through the medium of psychology and social mood.

It's my view that the flow of economically relevant events�-- and perceptions of these events --are in the early stages of a transition. In this case, a transition means the flow of relatively good news will tend to wane somewhat while there's an uptick in relatively bad news. This is what one would expect at a top.

However, it's to be expected that during the transition (or topping process), the distribution of news flow between good and bad will even out for a while.

Let's take recent data for an example. On May 14, I wrote an article positing the prospect for a short-term rebound in housing prices. At the time, I was roundly criticized for even suggesting the possibility. Well, since the article was written, we've witnessed 3 consecutive months of increases in home sales, and today we got the first month-over-month increase in home prices. This is very bullish.

Also bullish was the Richmond Fed number today as well as most of the recently released PMIs. Leading indicators have been telling us for over a month that a recovery of some sorts was right around the corner. And earnings have been beating the socks off consensus estimates.

Yet it's not all a bed of roses. The revenue numbers in the earnings reports have been underwhelming. Positive and negative surprises for revenue are running about even. However, there have been quite a few massive misses, which put a negative tinge on the revenue data overall. Some bearish analysts have started to spin this revenue data into a complaint about the bad "quality" of earnings.

Perhaps even more ominous for the future is the turn in consumer sentiment. Today's number registered 46.6 versus an expected 49 � a significant miss. This is the second straight month of declines after the index reached an intermediate term peak in May at 54.8. This is a very pronounced shift in reported sentiment in such a short time frame. Remember, psychology is the filter through which human beings see the world. This is critical at a time like this.

As I've mentioned before, it's my belief that the key metric to look at as a proxy for consumer and business confidence is President Obama's approval ratings. They've steadily declined despite a strongly rising stock market. This brings up a most worrisome query to keep in the back of our minds as we go forward: Where would�the ratings�be if the market�was declining? Where will they be if the market�begins to decline?

The most disturbing thing reflected in the polling is the sharp rise in the unfavorable ratings for the new president. According to pollster Scot Rasmussen, only 32% of Americans "strongly approve" of Obama's presidency where as 40% "strongly disapprove." The latter figure has increased by over 10 points in little over a month. It's the worst reading for a president so early in his first term. Perceptions of Obama as being an extreme liberal have also skyrocketed: 48% of Americans classify him as "Very Liberal" which is up 20 points since he was elected.

All of this signals future political polarization, gridlock, and a souring social mood. Most importantly, it's signaling an erosion of confidence in the government's ability to lead the nation out of its current economic crisis.

After earnings season is out of the way, the market will necessarily focus its attention on macro factors. I don't expect the data to give definitive answers in the debate between bulls and bears. To the contrary, we should expect confusing and contradictory signals.

This is to be expected when the market is undergoing the first stage of a transition --�from mostly positive news flow to equally positive and negative news flow and then to mostly negative news flow. And, remember: The news isn't just about the cold hard data. It's�also about the�way the data is interpreted. In this regard, keep an eye on Obama's poll numbers. They should serve as a good proxy for social mood; they'll give us clues as to whether economic data will tend to be perceived positively or negatively.

The trading stance? Some bearish positions include a put on Deutsche Bank (DB), a short on Banco Santeander (STD), long PowerShares DB Crude Oil Double Short ETN (DTO), a put on Market Vectors Russia ETF (RSX), short Freeport McMoRan (FCX), and short iShares MSCI Emerging Markets Index (EEM). Long positions include Apple (AAPL), Palm (PALM), Google (GOOG) and Bank of America (BAC). I am probing with a net short position gingerly, on a trading basis, with tight stops. I short SPDRs (SPY) and/or go long UltraShort S&P500 ProShares (SDS) to build net short exposure. I do not have a core net short position. I don't have a core short position; I have a trading net short position, and the distinction is important.

On an intraday basis, I'm even willing to go net long�-- particularly when support levels are tested. My hypothesis is that this is a top. As such, one must be cognizant that it can blow to the upside.

The time for more aggressive shorting may come in the latter part of the year as some of the factors I mentioned in�Ten Reasons the Countertrend Rally May�Be Over begin to manifest�-- particularly with regard to events in Europe. It's my view that the market is in a transition�-- there are currents flowing both ways -- and my trading stance reflects this.

Nothing contained in this article is intended as a solicitation for business of any kind or for investment in the firm.

Wednesday, 29 July 2009

The secrets behind china real estate boom

While the real estate market appears to be is in the midst of a boom, defaults among developers are also beginning to rise. Small and medium developers are resorting to faking sales to get bank loans to relieve their funding pressure.

Statistics show that from May 1 to July 24, which seemed to be good days for Shanghai's real estate market, many housing projects were seeing over 30% cancellations, and the cancellation rate of some projects was as high as 125%. Behind the "boom" of the housing market are irregular behaviors such as getting bank loans by cheating and making fake housing purchasing contracts.

Among the top ten housing projects with the highest cancellation rates, 60% are developments by small and medium real estate companies. "In fact, it is still difficult for small and medium developer to get credit support from banks," said a sales manager of a medium real estate company.

Now it is common for developers to sell an apartment to an employee as a "reward" and then secure a loan from a bank with the housing purchasing contract signed by the employee. "There's a window between the sale and the issuance of housing ownership certificate, during which employees can decide whether to keep or cancel the contract," the sales manager added.

In 2008, when credit was tight, many small and medium developers sought to gather money in this way. "Every developer is doing this. The only differences are scale and method," said the sales manager.

The high housing contract cancellation rate has also occurred in Nanjing. July statistics show,...

According to figures from Centaline China Property Research, between January and June new residential housing sales in six key cities totaled 55 million square meters, up 88% over the second half of 2008. June, housing sales in Guangzhou, Shenzhen, and Tianjin all saw a decline, but Beijng and Shanghai were still seeing month-on-month growth. Housing sales in Shanghai in June reached 2.84 million square meters, up 6%, month on month, the highest among all the six cities.

Yin Bocheng, director of the Real Estate Research Center of Fudan University, thinks the boom is a mirage. "This is only fake prosperity." This ploy has been used before to simulate growth in the real estate market. Developers getting bank loans with fake deals will add to credit risk in a long run

Singapore govt says ready to stop any property bubble

SINGAPORE, July 29 (Reuters) - The Singapore government stands ready to step in to prevent a property bubble after signs of speculation in the real estate market, state media quoted a cabinet minister as saying on Wednesday. National Development Minister Mah Bow Tan told reporters it was not clear if the buying momentum of new private homes in the past few months could be sustained and the government was keeping a negative growth projection for such demand this year. "I wouldn't say there's excessive speculation at the moment, but there is some element of speculation involved. I think some of the practices that you saw in the last property boom are starting to come back. So I think we'll have to be careful," Mah was quoted as saying by state radio 938LIVE's website. Property and stock prices in Singapore and elsewhere in Asia have jumped in recent months after central banks and governments pumped cash into the ailing global economy, but Asia's monetary authorities may be set to ignore frothy markets. "I would say that there is more than sufficient supply over the next couple of years and it's a bit too early to say whether there is a speculative bubble or property bubble building up," the Straits Times newspaper's website quoted Mah as saying. Cautioning buyers not to be lured into buying a home beyond their means, Mah said the government would step in should the situation get out of hand. He said the government could bring back its suspended land sales programme if necessary, the Straits Times reported. Private home sales have soared since February as prices fell. Singapore leapt out of recession in the second quarter and the government raised its 2009 forecast for the economy to shrink by 4 to 6 percent, from a previous forecast for a contraction of up to 9 percent.

Good post by CNA Forummer Colby

Its true we have not seen the bottom. Nobody has come out with concrete evidence of bottom, only vague blind firing called green shoot is called bottom.

If the water is purposely muddy, how do you know if it is shallow or deep. Likewise, the economy is muddied with bailouts and stimulus so nobody could know the depth of abyss recession, what more to point the level of bottom.

Its almost like a replay of late economic crash of 1920s, early 1930s. The economy was crashing, but like a vortex, it attracts more victims seeking profits and greeds from the crash. This was why the Great Depression lasted a long time.... cos there was steady supply of victims for the economic failure.

Notice the eerie similarities, asset property bubbles, people addicted to high-life and overspend even with business prospects collapsing around.

The China central bank knew the cheap bank loans to help their economy recovery is funneled into the bubble stock markets. This is why the govt notify their local banks, but its too late to stop because the regulation body is not ready to control the bubble. This is China's first recession, so nothing will go according to plan.

All desperate investors in China rather take cheap bank loans and quicky punts on stocks than use it to create industries which they have seen folded by the thousands. It took years to build industries in China only to maybe see it fold in weeks and months, but stock play takes only a short time to get started.

This high octane stock bubble will burst when the stocks cannot produce return because there is no critical mass in industries to generate the profit.

Goldman Sachs and their cohorts are doing pump and run on emerging markets, and since they see the bubble burst is inevitable, they'll rather be part of it to squeeze profits from winners and losers alike. They'll rake in gains on the bull rally, and run and short on its bear run.

Since it may be the last time before the banks combust under towering debts, their bold desperation for bonuses is understandable.

Tuesday, 28 July 2009

Mum and dad’s tips for home buyers

Parents may not be property experts but their advice is sound in a commonsensical way, so here are their tips for first-time buyers

The current property boom reminds me of the time I bought my apartment about seven years ago. The year was 2002 and the Government had relaxed one key regulation concerning property purchases.

Instead of having to put down a 20 per cent cash down payment on a home, buyers now needed to come up with only 10 per cent cash, and could take the rest of the down payment from their CPF savings.

It was a major change for young working adults like me who had worked for a few years and accumulated some savings, but not enough to comfortably stump up say, $100,000 on a $500,000 home.

Suddenly, smaller and reasonably priced apartments appeared on my horizon. My job prospects seemed certain, so I went house-hunting with my parents in tow. A few weeks later, I had signed on the dotted line and was preparing to move into my new studio apartment.

When the rule changed in 2002, I met many first-time buyers like me at showflats around the island. Some were scouting for a good investment with good rental yield, but many were singles or young couples who were looking for a place to live.

Many in the latter category were already renting apartments, which was a drain on their monthly cashflow. Buying made sense because they would be freed from paying rent and could withdraw from their CPF savings instead to pay the monthly loan instalments.

These are the sorts of reasons for buying that I am hearing now from my friends and colleagues, many of whom are also house-hunting.

The property boom in 2006 and 2007 had passed them by. Many apartments launched were huge and located in prime areas, costing at least $1.5 million.

If your budget was $500,000, the only way you could get in on the action was to take a gamble with some co-investors on a swanky District 9 four-bedder that you could never afford to live in.

Many ordinary working executives might have wanted to invest in property but didn’t want to take that sort of gamble, so they stayed on the sidelines.

These people are out in droves this year, attracted by a good selection of smaller or more affordable suburban apartments. We are seeing more genuine demand from investor-occupiers.

Some friends and colleagues have asked me for my advice on buying property. I always tell them that I am no expert, though I can give them some arguments currently being propounded by analysts who are bullish or bearish on the market.

Bulls point to the fact that there is genuine demand from buyers who have money saved up from four good years of economic growth from 2004 to 2008. There will also be more foreigners in Singapore and they are both renting and buying homes.

They also say that the problem of oversupply in the market has been reduced by developers delaying some launches and that when these homes come onstream in 2011 or later, an economic recovery will have taken hold to cushion the blow.

Property bears will tell you that prices haven’t fallen very much from the peak and are still way above the last trough.

The oversupply of homes (there are more than 60,000 units in the pipeline) may have been postponed, but will still need to work its way through the system. An economic recovery is starting, but will be weak for a number of years.

After presenting both sides of the argument, I warn them that all these macro factors are notoriously unreliable in any case.

Very few analysts or economists predicted the strength of the current property boom, which saw the highest number of homes on record sold last month. Who is to say they will do any better going forward?

For people who have decided to take the plunge, I pull out the things my parents told me when I first started to look for a house. They are not experts either, but they have had more experience with buying property and have been through more boom and bust cycles than me.

I found the advice to be sound in a commonsensical way, so I repeat it to people who ask me about buying property.

The first principle that my parents taught me was that as a first-time buyer, I should never buy any apartment priced above $1,000 per sq ft (psf). In their minds, these prices were paid only by ‘rich people’ or ‘big investors’.

Of course, times have changed. When they were buying property, $1,400 psf could get you a flat in Cairnhill. Now we are talking about Novena or Bukit Merah. But the $1,000 psf barrier is still an important one because it goes to the affordability of a home.

A two-bedroom apartment will be at least 900 sq ft. Going beyond $1,000 psf means that the apartment will cost a single buyer or a young couple about $1 million – which is quite a lot of debt to take on.

The second principle my parents taught me was to buy the cheaper of any two equally attractive apartments.

I remember deciding between two apartments which were quite close to each other. One was more glamorous and built by a big-name developer, the other was smaller and more modest-looking.

I could see myself being happy living in both apartments but the first one cost $200,000 more.

My dad asked me: ‘If you can live with a smaller loan, why not?’ At the time, I thought he was just being irritatingly conservative, but I took his advice nonetheless. I was glad for it months later when the interest rates on my home loan started to rise with the economic boom.

Finally, the third piece of advice: Location, location, location. First-time buyers are very unlikely to live in a flat they have bought for the rest of their lives, so the ability to resell it is key.

Many older-generation Singaporeans will tell you that if you can see HDB public housing flats from the window of a condo unit, don’t touch it with a 10ft pole because other buyers won’t either.

I wouldn’t agree with that sort of thinking any more, but what I do take away from that is the principle that plenty of other people must also see value in the house you are buying.

My own view is that homes that are within walking distance of an MRT station will remain the most saleable for the future.

With the expansion of Singapore’s rail network, particularly within the city and other office hubs islandwide, more and more executives – local or foreign – will be able to take the train to work.

Of course, one must keep an eye on overall travel times, such as distance from the city centre and whether there is a need to change lines.

But in general, as long as the train arrives at one’s doorstep, does it really matter if the flat is located in the heartland amid other HDB flats?

So there, you have my recommendation for first-time buyers: flats under $1,000 psf, located next to an MRT station and costing significantly under $1 million.

Do they exist? You bet they do. Happy hunting!


Selling point

First-time buyers are very unlikely to live in a flat they have bought for the rest of their lives, so the ability to resell it is key.

Source : Sunday Times – 26 Jul 2009

Sunday, 26 July 2009

Commercial real estate

The government's last-ditch efforts to prevent a $1 trillion collapse in commercial real estate are doomed to fail.

But a 372-year-old investing technique could not only work to protect your wealth... but could also make you a fortune during this crisis!

Dear Reader,

It's been around for the last 20 years.

And even though the U.S. Government won't officially acknowledge its existence, it's about to make you an absolute fortune.

It's called the Plunge Protection Team -- and the secretive committee's primary responsibility is to manipulate the U.S. financial markets and prevent devastating collapses.

But here's the critical part:

The Plunge Protection Team - at this very moment - is pushing the U.S. market artificially higher... but not for much longer.

You see - they've exhausted nearly every trick they know just to push the Dow back toward 9000... in search of a solution for an imminent market collapse that could have a devastating effect on the U.S. economy.

But the fundamental collapse of one market in particular is as close to a sure thing as there can be.

It's the Commercial Real Estate Market. And there's nothing anyone in Washington can do to prevent its complete demise.

The potential exists for not only $1 trillion worth of damage and defaults - but also a collapse of the banking system... a stock market crash... and soaring unemployment rates.

The cracks in the foundation of the commercial real estate market are simply too deep for anyone - including the famous "Plunge Protection Team" - to prevent a total disaster.

I've got the numbers and scary details to prove it. But I also want to make one thing abundantly clear...

This crisis doesn't have to wipe YOU out. As a matter of fact - as long as you see it coming and take a few simple steps - you'll actually see it as one of the biggest profit opportunities of your lifetime.

How is it possible for you to actually make a fortune as a direct result of a historic market collapse?

The answer lies in a special type of investment that has been in existence for 372 years. It's a simple investment that allows you to not only survive a market disaster - but also collect double- and triple-digit profits all along the way.

I've just put the finishing touches on four new research reports that spells out exactly how you can take advantage of this centuries-old investment to capitalize on...

I'll show you how you can claim your copy of these reports - FREE of charge - in just a moment.

First, though, I need to tell you why...

The Commercial Real Estate Collapse
Could Cripple the Markets
Listen - I'm no doom-and-gloomer. Not by any stretch. I love a roaring economy and a fast-moving bull market in stocks as much as anyone.

But I have to call things the way I see them.

And there's nothing that can prevent the commercial real estate market from an historic collapse. You see, the potential damage of a catastrophic drop in commercial real estate values could total more than $1 trillion.

"Losses from commercial real estate are the next economic shoe to drop."
- TIME, 4/22/09

"Next Crisis: Commercial Real Estate"
- Fortune, 2/23/09 At best, we're a few months away from this market explosion. At worst, it could be happening even as you read this letter.

But don't just take my word for it. Here's what one of the most respected commercial real estate strategists in the U.S. said on national television recently...

"When you talk about the banking sector, we're talking about a major impact, another blow to the belly of the banking sector when commercial real estate really hits. We've just seen the tip of the iceberg so far." - Phillip F. Blumberg, chairman and CEO of Blumberg Capital Partners on CNBC 5/14/09

It's vitally important that you take the steps needed to prepare yourself now.

Failure to prepare for this coming disaster could lead to devastating losses in the stock market or your retirement account.

But by taking a few simple steps - which I'll tell you all about below - you can position yourself to receive large payouts while the commercial real estate market nosedives. Best of all... these payouts are 100% legal and potentially unlimited in size and number.

Here's what I mean...

Because of a lethal combination of soaring vacancies... declining property values... and an inability to refinance - commercial property owners are in deep, deep trouble.

And with a commercial real estate market currently valued at more than $6.5 trillion - it's easy to see why the U.S. Government is highly motivated to prevent a collapse.

A collapse of the commercial real estate market would serve as a final "death" blow to the nation's banking system (which has nearly $2 trillion worth of exposure)... crash the U.S. stock market... and effectively cripple the operating capacity of the Obama administration.

They've done a fair job of holding things together for the moment... but that's about to all come crashing down in a huge way.

The Commercial Real Estate Collapse !!!

Dear Fellow Investor,

Before the bulls break out the champagne here, I would warn them not to get too far ahead of themselves.

After all, euphoria in these or any other markets is a dangerous emotion that can lead to big losses.

And as for Dennis Kneale's breathless prediction that the "recession is now over", the picture on that score is about as clear as mud... murky to say the least.

What is crystal clear, however, is that our problems are actually getting worse... not better. Fundamentally, things are as bad as they've ever been - especially in commercial real estate.

It's one of the brewing disasters the bulls just don't want to talk about as they break out the party hats, insisting somehow that the markets really can grow to the sky.

Of course, we know otherwise. If only it were so...

What they don't tell you or refuse to recognize is that commercial real estate is following the same exact path as the housing bubble - the exact same path!

And we all know how that one turned out.

In fact, losses on commercial loans could reach as high as $30 billion by the end of the year as property values plummet, rents decline and defaults reach record levels.

All of this is a recipe for disaster as industry leaders have estimated that 200,000 businesses and 10 percent of the nation's shopping malls will shut their doors over the next year.

That means that we're maybe only in the second inning here as the crisis unfolds.

Fortunately, my colleague Steve Christ has a profitable answer to it all. And it might not only save your portfolio during this $1 trillion crisis... it could also make you a small fortune along the way.

Traders Profit With Computers Set at High Speed

Seth Wenig / AP
Traders work on the floor of the New York Stock Exchange Wednesday, July 19, 2006, in New York. Stocks rallied Wednesday on remarks from Federal Reserve Chairman Ben Bernanke that economic moderation "now seems to be under way" and that inflation remains contained. (AP Photo/Seth Wenig)

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense.

These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk.

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.

And when a former Goldman Sachs [GS 165.45 --- UNCH (0) ] programmer was accused this month of stealing secret computer codes — software that a federal prosecutor said could “manipulate markets in unfair ways” — it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage.

Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.

“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”

For most of Wall Street’s history, stock trading was fairly straightforward: buyers and sellers gathered on exchange floors and dickered until they struck a deal. Then, in 1998, the Securities and Exchange Commission authorized electronic exchanges to compete with marketplaces like the New York Stock Exchange. The intent was to open markets to anyone with a desktop computer and a fresh idea.

But as new marketplaces have emerged, PCs have been unable to compete with Wall Street’s computers. Powerful algorithms — “algos,” in industry parlance — execute millions of orders a second and scan dozens of public and private marketplaces simultaneously. They can spot trends before other investors can blink, changing orders and strategies within milliseconds.

High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits — and then disappear before anyone even knows they were there.

High-frequency traders also benefit from competition among the various exchanges, which pay small fees that are often collected by the biggest and most active traders — typically a quarter of a cent per share to whoever arrives first. Those small payments, spread over millions of shares, help high-speed investors profit simply by trading enormous numbers of shares, even if they buy or sell at a modest loss.

“It’s become a technological arms race, and what separates winners and losers is how fast they can move,” said Joseph M. Mecane of NYSE Euronext, which operates the New York Stock Exchange. “Markets need liquidity, and high-frequency traders provide opportunities for other investors to buy and sell.”

Saturday, 25 July 2009

Hello everyone!

I have displayed some books on the blog's side bar which I am reading or considering buying to read. They are really good books offering timeless advice in view of the current financial crisis.


The Stark Reality In U.S

Years of state and federal neglect have hobbled the nation’s unemployment system just as a brutal recession has doubled the number of jobless Americans seeking aid.

In a program that values timeliness above all else, decisions involving more than a million applicants have been slowed, and hundreds of thousands of needy people have waited months for checks.

And with benefit funds at dangerous lows even before the recession began, states are taking on billions in debt, increasing the pressure to raise taxes or cut aid, just as either would inflict maximum pain.

Sixteen states, with exhausted funds, are now paying benefits with borrowed cash, and their number could double by the year’s end.

Call centers and Web sites have been overwhelmed, leaving frustrated workers sometimes fighting for days to file an application.

While the strained program still makes more than 80 percent of initial payments within three weeks — slightly below the standard set under federal law — cases that require individual review are especially prone to delay. Thirty-eight states are failing to make those decisions within the federal deadline.

For workers who survive a paycheck at a time, even a week’s delay can mean a missed rent payment or foregone meals.

Kenneth Kottwitz, a laid-off cabinet maker in Phoenix, waited three months for his benefits to arrive. He exhausted his savings, lost his apartment and moved to a homeless shelter.

Luis Coronel, a janitor at a San Francisco hotel, got $6,000 in back benefits after winning an appeal. But in the six months he spent waiting, there were times when he and his pregnant wife could not afford to eat.

“I was terrified my wife and daughter would have to live on the street,” Mr. Coronel said.

Labor Secretary Hilda Solis said: “Obviously, some of our states were in a pickle. The system wasn’t prepared to deal with the enormity of the calls coming in.”

The program’s problems, though well known, were brushed aside when unemployment was low.

“The unemployment insurance system before the recession was as vulnerable as New Orleans was before Katrina,” said Representative Jim McDermott, Democrat of Washington, who is chairman of a House panel with authority over the program.

Now the number of unemployed Americans has doubled since 2007 to 15 million and the program is more than tripling in size. About 9.5 million people are collecting benefits, up from about 2.5 million two years ago. Spending is expected to reach nearly $100 billion this year, about triple what it was two years ago.

Given how suddenly the workload has increased, some analysts say the delays might have been even worse.

“Payments are later than they should be, and later than they used to be, but states have been overwhelmed,” said Rich Hobbie, director of the National Association of State Workforce Agencies, which represents the program’s administrators. “Considering the significant problems in the program, unemployment is responding well.”

The recovery act passed in February provided states an additional $500 million for administration. It also suspended interest payments through 2011 for states paying benefits with federal loans.

Unemployment insurance began as a New Deal effort with dual goals: to sustain idled workers and stimulate weak economies. States finance benefits by taxing employers, typically building surpluses in good times to cover payments in bad.

In 2007, the average state paid about $290 a week and aided 37 percent of the unemployed.

As downturns over the last 20 years proved infrequent and mild, states cut taxes, and the federal government, which pays administrative costs, reduced its support by about 25 percent. The states’ performance sagged.

In a recent report to the Department of Labor, Ohio said its computer problems “kept the system performance at a snail’s pace.” Louisiana said its call center was staffed with “temporary workers, with little knowledge” of unemployment insurance.

North Carolina said a wave of retirements had left it “unable to maintain pace or volume of work.” Virginia wrote “performance continued to be very stagnant” and called the odds of improvement “bleak.”

By 2007, 11 states were paying benefits so slowly they violated multiple federal rules, up from just two at the start of the decade.

While most eligibility reviews can be done by computer, about a quarter require a caseworker — to ensure, say, the applicant was laid off, rather than quit.

In the last year, states processed just 61 percent of these cases within three weeks — well below the federal requirement of 80 percent. More than a half-million cases, 6 percent, took more than eight weeks, and 350,000 took more than 10 weeks.

Of the 12.8 million eligibility reviews that have occurred during the recession, 4.6 million took more than three weeks. That is 2.1 million more than federal rules allow.

Appeals take even longer, with 28 states violating timeliness rules, many of them severely.

Perhaps no state is as troubled as California, which has not met timeliness standards for nine years. As in most other states, its 30-year-old computer runs on Cobol, a language so obsolete the state must summon retirees to make changes.

Yet a major overhaul in California has been delayed for five years, with $66 million in federal funds still waiting to be spent. In part, the shelved project was meant to upgrade the call centers, which were “completely swamped” last winter, a legislative analyst wrote, with “desperate unemployed Californians dialing and redialing for hours.”

Deborah Bronow, who runs the state’s unemployment insurance program, said, “The systems were antiquated to begin with,” and “we were unprepared.”

In April, Gov. Arnold Schwarzenegger declared a state of emergency, saying the failure to efficiently process checks posed “extreme peril to the safety of persons and property.”

California has not met federal standards for adequate reserves since 1990. Still, it cut taxes and raised benefits in the last decade. It is now paying benefits with federal loans, with its debt projected to reach nearly $18 billion next year.

Among those hurt by delays was Mr. Coronel, the San Francisco janitor who lost his hotel job in January. With the phone lines jammed, it took him two days to file an application and a month to learn it had been denied.

Then the waiting really began, as Mr. Coronel filed an appeal and heard nothing for three months. Luckless as he applied for new jobs, he borrowed to pay the rent, then moved in with his mother, and joined his pregnant wife in skipping meals.

“The worst day was when my daughter was born,” he said. “I had no clothes for her, and no car seat.”

While federal rules require states to decide 60 percent of appeals cases within a month, in recent years, California has met that deadline for just 5 percent. A report by the state auditor last year found the appeals board rife with nepotism and mismanagement.

Mr. Coronel won the appeal, but is soothing a marriage strained by a six-month wait. “It’s extremely stressful when you don’t know how you’re going to support your family,” he said.

Nationally, the program is the worst financial shape since the early 1980s, when back-to-back recessions left more than half the states borrowing from the federal government. Tax increases and benefit restraints gradually rebuilt the funds, then states changed course and pushed taxes well below historical levels.

From 1960 to 1990, the tax rate averaged about 1.1 percent of overall payroll. Over the last decade, it fell to 0.65 percent. That represents a tax cut of 40 percent.

Measured against a decade’s payroll, that saved employers $165 billion. But by 2007, when the recession began, the average state had just six months of recession-level benefits in reserve, half the recommended sum.

“The attitude became, ‘We don’t need a firehouse — we can buy hoses when the fire starts,’ ” said Wayne Vroman of the Urban Institute, a Washington research group.

Some analysts defend the tax cuts, saying they helped both employers and workers, by spurring the economy and creating jobs.

“Lower tax rates make it easier to attract business,” said Doug Holmes, president of UWC, a group that advocates on behalf of employers. “We don’t want to spend a whole lot of time beating ourselves up because we didn’t raise taxes enough. Nobody anticipated a recession this size.”

A big reason the reserves fell, Mr. Holmes said, is that the jobless now spend more time on the rolls — 15 weeks in recent years, up from 13 weeks several decades ago. Each extra week costs the program about $3 billion a year. The solution, he said, is stronger job placement provisions.

But others see an irresponsible past that now promises future pain.

“Workers who had nothing to do with the funds becoming insolvent are going to be asked to pay for that with benefit cuts,” said Andrew Stettner, an analyst at the National Employment Law Project, a workers’ rights group. “That’s the worst thing states can do — it takes money straight out of the economy.”

Among those who say timely benefits are essential is Mr. Kottwitz, the Arizona cabinet maker, who lost his job just before Christmas. He filed a claim and promptly received a debit card, with no money on it. It took him weeks to reach a program clerk, who told him to keep waiting.

“They said, ‘We’re behind — be patient,’ ” he said.

With little savings, no family nearby, and a ninth-grade education, Mr. Kottwitz, 42, had limited options. He got $100 a month in food stamps, collected cans and applied for jobs. When his landlord put him out, he moved to a shelter so overcrowded he spent his first few nights on the ground.

“I felt like I was the scum of the earth,” Mr. Kottwitz said.

In March, the shelter referred him to Ellen Katz, a lawyer at the William E. Morris Institute for Justice, an advocacy group, who secured his benefits. By the time the money arrived, Mr. Kottwitz had lost nearly 40 pounds. His first stop was an all-you-can-eat buffet.

Now back in an apartment, he said he was sharing his story in the hope that someone might read it and offer him a job.

“You think that someone would have seen this coming and been more prepared,” he said.

This story originally appeared in the The New York Times

The Economy Has Hit Bottom

by Alan S. Blinder

How's the economy, you ask? I have the proverbial good news and bad news, but in this case, they're exactly the same: The U.S. economy appears to be hitting bottom.

First, the good news. Right now, it looks like second-quarter GDP growth will come in only slightly negative, and third-quarter growth will finally turn positive. Compared to the catastrophic decline we recently experienced -- with GDP dropping at roughly a 6% annual rate in the fourth quarter of last year and the first quarter of this year -- that would be a gigantic improvement.

Furthermore, there is a reasonable chance -- not a certainty, mind you, but a reasonable chance -- that the second half of 2009 will surprise us on the upside. (Can anyone remember what an upside surprise feels like?) Three-percent growth is eminently doable. Four percent is even possible. Surprised? How, with all our economic travails, could we possibly mount such a boom? The answer is that this seemingly high growth scenario isn't a boom at all. Rather, it follows directly from the arithmetic of hitting bottom.

Bear with me for two paragraphs while I do some numbers. In recent quarters, several critical components of GDP have declined at truly astounding annual rates -- like minus 30% and minus 40%. You know the culprits: housing, automobiles and business investment. (Also inventories, about which more later.) Eventually, those huge negative numbers must turn into (at least) zeroes. Notice that the move to zero doesn't constitute a boom, not even a dead cat bounce, but merely the cessation of catastrophic decline. In fact, hitting zero growth and staying there would be a disaster scenario. We'll almost certainly do better.

But watch what happens when -- and remember, it's when not if -- the arithmetic of bottoming out takes hold. Housing, which is down to 2.6% of GDP, will serve as an example. In the first quarter, spending on new homes declined at a stunning 39% annual rate. If that minus 39% number turned into a zero in a single quarter, that change alone would add a full percentage point to that quarter's GDP growth (because 2.6% of 39% is about 1%). If the move to zero were to happen over two quarters, it would add about a half point to each. Many people think housing may in fact bottom out in the third or fourth quarter. Autos may already have passed their low point. And business investment will follow suit.

Now back to inventories. Recent quarters have seen an almost unprecedented liquidation of inventory stocks, which means that American businesses were producing even less than the paltry amounts they were selling. That, too, must come to an end. As inventory change turns from a large negative number into just zero, GDP will get another a big boost.

Now the key point: None of these events are probabilities; they are all certainties. The only issue is timing, about which we can only guess. But if several of these GDP components happen to bottom out at roughly the same time, we could be in for a big quarter or two.

Feeling a little better? There's more.

Remember the fiscal stimulus that everyone seems to be complaining about? One of the critics' complaints is that little of the stimulus money has been spent to date. OK. But that means that most of the spending is in our future.

And remember all those interest-rate cuts the Federal Reserve engineered in 2008, in a futile effort to stem the slide? The Fed's efforts were futile largely because widening risk and liquidity spreads negated any impacts on the interest rates real people and real businesses pay to borrow. Now those spreads are narrowing, which allows the Fed's rate cuts to start showing through to consumer loan rates, business loan rates, corporate bond rates, and the like. In short, monetary stimulus is in the pipeline -- a pipeline that was formerly blocked.

So why, then, is everyone feeling so blue? That brings me to the bad news: The U.S. economy is hitting bottom.

If things feel terrible to you, you're not hallucinating. Economic conditions are dreadful at the bottom of a deep recession. Jobs are scarce. Layoffs abound. Businesses scramble for penurious customers. Companies go bankrupt. Banks suffer loan losses. Tax receipts plunge, ballooning government budget deficits. All this and more is happening right now, in what looks to be this country's worst recession since 1938. At such a deep bottom, few people have reason to smile. (Bankruptcy lawyers maybe?)

What's more, GDP is not terribly meaningful to most people. Jobs are -- but they will take longer, maybe much longer, to revive. The last two recessions, while shallow, illustrated painfully that job growth may not resume for months after GDP bottoms out. And the unemployment rate won't fall until job growth rises "above trend" (say, 130,000 net new jobs per month). That's a long way from where we are today. So, even though the economy may be making a GDP bottom about now, the unemployment rate will probably keep rising for months -- which is bad news for most Americans.

One last, obvious, but unhappy, point: The bottom of a deep recession leaves the nation in a deep hole. Our economy now has massive unemployment and vast swaths of unused industrial capacity. It will take years of strong growth to return to full employment.

After the last big recession bottomed out at the end of 1982, the U.S. economy rebounded sharply, with a remarkable six-quarter spurt in which annual GDP growth averaged 7.7%. That spurt induced President Ronald Reagan, running for reelection in 1984, to declare "It's morning again in America." Nobody thinks we can repeat that today, hampered as we are by a damaged financial system, decimated household wealth, rising foreclosures, and traumatized consumers who have suddenly learned the virtues of thrift.

So, yes, the good news is also the bad news. The economy is hitting bottom, but it's a long, uphill climb to get out.

Mr. Blinder, a professor of economics and public affairs at Princeton University and vice chairman of the Promontory Interfinancial Network, is a former vice chairman of the Federal Reserve Board.

Buffett to CNBC: Invest in Stocks Even At Dow 9000

Warren Buffett tells CNBC that the economy still isn't showing any signs of life but that doesn't mean investors should stay away from stocks for the long-term.

In a live interview on Squawk Box this morning, Buffett says "business is still flat." But he stresses that doesn't mean he's negative on stocks, predicting the market will revive before the economy does.

"The market is very, very likely to turn up before business. But I don't try and time stocks. I try to price stocks."

He repeats his advice from his "Buy American" op-ed in The New York Times last fall: don't wait to buy stocks until the economy improves. By then, he says, you will have missed the biggest stock gains.

Even with the Dow hitting highs for the year around 9000, Buffett repeats his belief that stocks will outperform cash investments, such as Treasury notes, over the long-term. "I would much rather own equities at 9000 on the Dow than have a long investment in government bonds or a continuously rolling investment in short-term money."

As usual, he points out he is not making any predictions about what the stock market will do in the next coming weeks or months.

Buffett repeats his belief there are "real inflationary possibilities" down the road, due to the massive stimulus being applied to the struggling economy. But he also repeats his view the stimulus is necessary despite the after-effects, because helping the economy recover should be the nation's top priority.

Buffett again endorses Ben Bernanke as Federal Reserve chairman, saying "I don't think you could have anybody better than Bernanke in the job. He understands all the issues."

Buffett's bearish comments today on the economy echo what he's been saying in recent weeks. Earlier this month, Buffett told us consumer sales remained "very, very soft" and about a month ago he said in a live interview on CNBC that he was seeing no "green shoots" on the economy.

Buffett declines to comment on Berkshire Hathaway's recent move to sell about 17 percent of its stake in the credit-rating agency Moody's (NYSE:MCO - News).

Buffett's live interview was designed to promote a new online animated series called Secret Millionaire's Club in which he voices a cartoon version of himself who helps teach kids about finance and investing.

Friday, 24 July 2009

Return of pay bonanza

NEW YORK - The Wall Street gravy train is gathering speed again as banks only just emerging from financial crisis lavish billions of dollars on their employees.

Announcements over the last week by Goldman Sachs and Morgan Stanley of a return to mega compensation pools are seen by some as a sign of health. For others, they mark a worrying throwback.

When Wall Street tipped into the abyss last year, dragging the country's economy with it, popular and much political anger was directed at so-called fat cat executives - individuals paid fortunes with little regard to their performance.

But Wall Street appears to be on the mend now, with the Dow Jones shares index topping 9,000 and a handful of banks, which survived thanks to government bailouts, emerging as powerful giants.

Goldman Sachs last week reported record US$3.4 billion (S$4.9 billion) earnings for the second quarter - and disclosed that it had set aside a record US$6.6 billion for compensation expenses in that quarter, or 11.4 for the first half of the year.

On Wednesday, it was the turn of Morgan Stanley. The bank reported a third consecutive quarterly loss yet still found a way to set aside US$3.9 billion for pay packages.

Both banks have paid back their emergency loans under the government's Troubled Assets Relief Program, which means they are more free to ignore political pressures.

But the apparent lack of change in Wall Street's compensation culture worries those who argue that irresponsibility and arrogance were at the heart of the meltdown last year.

President Barack Obama, whose administration oversaw the rescue, said in a PBS television interview on Monday that mentalities had yet to change.

'The problem that I've seen, at least, is you don't get a sense that folks on Wall Street feel any remorse for having taken all these risks. You don't get a sense that there's been a change of culture and behaviour as a consequence of what has happened,' he said. - AFP.

Recession hits dead in US

LOS ANGELES - BODIES left unclaimed, cadavers stacked high in morgues and burial rates tumbling as loved ones cut funeral costs: the crippling recession is even haunting the dead across the United States.

In Los Angeles, the local coroner's office has witnessed an unprecedented spike in the number of corpses unclaimed by families who cannot afford the costs of a burial or cremation.

'The reason we are hearing from the families is the economic downturn,' Los Angeles County Coroner's chief investigator Craig Harvey told AFP. 'They tell us they don't have the means to afford funerals.' In the past 12 months, the coroner's office, which is responsible for handling bodies from homicides and suspicious deaths, carried out 36 per cent more cremations than the previous year, jumping to 712 from 525. At the Los Angeles County morgue meanwhile, the cremation figure rose by 25 per cent.

Cremations are usually carried out around one month after death if no-one from the deceased's family comes forward to claim the body. The ashes are then stored for two to three years before being dispersed in a communal grave.

Simply claiming a body from the county costs US$200 (S$289) and can run up to US$452 if the deceased has been cremated. A private cremation can cost up to US$1,000 while the average price of a funeral weighs in at around US$7,300, according to the National Funeral Directors Association (NFDA).

While the recession is by no means the first that California has had to weather over the years, Mr Harvey said he has never known previous downturns to impact the workings of the coroner's office and morgues as severely.

While the overwhelming majority of deceased people in the United States - 2.4 million in 2007 - continue to be laid to rest in traditional funerals, many families are shaving costs from ceremonies.

'We did a survey among our members, earlier this year, and most definitely reported that families were making different choices regarding funerals, because of the economic downturn, choosing less expensive caskets and urns,' said Jessica Koth, a spokesman for the NFDA.

At the same time, the long-term trend of families opting for less-expensive cremations instead of burials has continued to rise.

The NFDA said cremations accounted for 35 per cent of funerals in 2007, compared to 23.6 per cent a decade earlier. Ms Koth noted however that cremations have risen steadily since the 1960s and was cautious about whether the most recent increases could be attributed to the economy. -- AFP

Lower returns on stocks will lead to higher dividends

By Joe Light, Money magazine senior writer

You know that you're supposed to invest with your head and not your heart. But the truth is, a thriving stock market requires a lot of faith - in the economy, in corporate America, and in the promise that your investments will make you money in the long run.

Recently, faith in the economy has rebounded a bit, which explains why risk taking has re-emerged. But short spurts of enthusiasm won't erase the distrust of equities that's developed after two crushing bear markets caused by the misallocation of hundreds of billions of dollars, first into Internet stocks and then into housing.

"Corporate America has proven twice that it can't handle capital well," says Gordon Fowler, chief investment officer at Glenmede Trust, a wealth-management firm. "Because of that, investors will become more conservative." In fact, since the start of last year, about a quarter of a trillion dollars has left stock funds.

This penchant to play it safe could hinder equity returns for decades, just as it did after the Great Depression. The coming era is also likely to echo another post-Depression development: the growing emphasis on dividends - and not just in traditional income-producing areas of the market like financials, where payouts have recently taken a beating.

"Dividends will go up because investors will demand it from companies that have the cash," Fowler says. "I'll demand it." So will the mutual fund managers who run your 401(k) investments. And so will you. After all, which do you believe in now: the ability of corporate execs to reinvest profits at an acceptably high rate of return, or a quarterly cash payment?

Firms are getting the message. While a record number slashed payouts recently, more have increased or initiated dividends this year than have cut them - and that's even if you include financial companies. Strip out the banks, and there have been 75 dividend hikes among companies in Standard & Poor's 500 index, vs. only 29 cuts. Shaken investors will want "the bird in the hand - stable and secure income as opposed to uncertain capital gains," Pimco managing director Bill Gross noted in a recent commentary.

How the investment math is changing

To appreciate why dividends will grow in importance, some market history is in order. You know that a stock's total return is made up of two parts: the dividends it pays out plus or minus any change in its share price. But the role of dividends has changed dramatically over time depending on how the other part of the equation has done.

Between 1980 and 2000, for example, stock prices soared because of two big tailwinds: strong earnings and the growing confidence investors had in the reliability of profits, reflected in rising price/earnings ratios, says Vitaliy Katsenelson, a money manager and author of Active Value Investing. As the S&P's P/E tripled to 25.7, P/E expansion alone accounted for more than a third of the market's returns, making dividends look insignificant.

Conversely, when faith in corporate America is tested, P/Es can stagnate or fall. Between June 1998 and June 2008, earnings grew a respectable 5% a year, but investor faith cratered. The result: The market's P/E, based on trailing 12-month earnings, sank from 25 to 18, and stock prices rose just 1.2% a year. Most of the money you made during this stretch actually came from dividends.

Where will valuations go from here? Based on 10-year averaged earnings - a long-term way of looking at profits that smooths out anomalies - the market's P/E stands at 16, which is about the historical average for the past 120 years. So don't count on P/E expansion to drive prices up as it did in the '80s and '90s, says Rob Arnott, chairman of Research Affiliates. "That isn't there anymore," he says.

If so, a strategy that stresses dividends and total returns over capital appreciation should stage a comeback. In the 1940s and '50s, investors grew so wary of stocks' risks that they focused almost exclusively on dividends. Their concerns, coupled with high payouts, pushed the dividend yield on the S&P 500 index much higher than that of 10-year Treasury bonds for two decades. In other words, there was so little confidence in stocks that investors demanded big upfront assurances from equities.

No one is saying that this will happen now. But neither are we likely to go back to a period when dividends are an afterthought.

How companies are changing

This isn't the first time that a resurgence in dividends has been predicted. After the 2000-02 bear market - and following a tax cut in 2003 that slashed the top rate on qualified dividends to 15% - there was great expectation that companies would reverse the quarter-century trend of lower payouts. But the number of dividend payers in the S&P rose only modestly, from 351 in 2001 to 390 in 2007. Part of the reason: That bear was followed by the second-longest uninterrupted bull run in history. Even so, some parts of the market did change.

Take technology. In the 1990s only a handful of tech stocks paid dividends, because industry executives were certain that they could generate better returns by reinvesting their profits into their businesses rather than kicking money back to shareholders. That was at a time, you'll recall, when tech earnings were routinely growing by double digits annually.

After the crash wiped out 75% of the sector's value, though, many of those firms had a change of heart. Since 2003, there have been more than 100 dividend increases and initiations among tech firms, vs. four cuts. That helps explain how these companies restored investor confidence soon after the Internet bubble burst.

Expect firms in other industries to follow tech's lead. In April the luxury brand Coach announced its first dividend payments ever. "There was no better time than during a period of great economic uncertainty to send a clear and strong signal to investors that our business model is healthy," Coach CEO Lew Frankfort said at the time.

Daniel Peris, co-manager of the Federated Strategic Value Fund, says some CEOs will figure out that this is what investors want. "For others," he says, "the demands for higher yields will come as an unpleasant surprise."

How you'll need to change

You can no longer assume that you'll make most of your money in stocks simply by buying low and waiting for prices to climb. Dividends must play a prominent role in your strategy going forward.

But you don't have to reach for the absolute highest-yielding stocks. In fact, that's risky, since the reason that many stocks sport fat yields is not because they pay out so much, but because their shares have fallen so dramatically. Fortunately, there are plenty of solid bets yielding well more than the S&P 500 (see table, "Yielding more, but safely" ).

As you shift the focus of your portfolio from stock appreciation to total returns, follow these two steps:

Build in a greater margin of safety. The recession taught us that today's dividends aren't guaranteed to be paid tomorrow. A high-yielding stock might look good on paper, but that could be because management has been slow to cut payouts in the face of falling earnings.

So favor companies that have not only raised their dividends consistently for years, but have also boosted payments in the past six months. That's a sign of financial stability. This will bring you to firms like Clorox, which has raised its payments every year for more than a quarter-century. Also, go with stocks whose P/E ratios are below their five-year average, like the spirits maker Diageo. If P/E ratios are about to come under pressure, stocks that are trading at below-average valuations are likely to be less vulnerable because they're already cheap.

Broaden your search for dividends. Stock payments are a more ingrained part of corporate culture abroad. The MSCI EAFE index of overseas stocks, for example, currently enjoys a yield of 3.9%. That's more than a percentage point higher than the S&P 500, its U.S. counterpart. The easiest way to gain global dividend exposure is to buy a broad-based foreign-stock ETF, such as Power-Shares International Dividend Achievers, which is currently yielding 3.5%.

And be willing to look beyond traditional groups. While more than 30 banks, brokerages, and insurers have slashed their payouts, consumer staples, energy, and tech stocks have stepped in with rising payments, a sign they're confident in their earnings stability (see table, "Where dividends are rising").

You may not be used to searching for dividend payers in these areas. But isn't that the point? If dividends become a pervasive trend in the broad market, they're likely to show up in unconventional places.

Thursday, 23 July 2009

Asia to rebound in 2010

BANGKOK - ASIAN economies will likely bounce back from the global economic slump in 2010 but fears remain over the sustainability of growth if there is no wider recovery, the Asian Development Bank said on Thursday.

The bank's chief economist Lee Jong Wha said the outlook for East Asia this year remained 'pessimistic' but foresaw a V-shaped recovery led by China if countries continue to focus on stimulating domestic demand.

'We are optimistic for developing Asia for a V-shape recovery... But the big question is whether it will be sustainable growth - in that part we are rather pessimistic without a full global recovery,' Mr Lee told AFP ahead of the launch of ADB's biannual Asia Economic Monitor in Bangkok. 'It will be very difficult to return to the pre-crisis trend of growth,' he added.

Despite an increasing proportion of export demand coming from within Asia, notably China, countries in the region continue to rely on markets in the US, European Union and Japan for 60 per cent of final goods exports, Mr Lee said.

Those markets are less likely to recover from the global financial crisis so quickly, he said.

The ADB report recommended a continued focus on loose monetary and fiscal policies to stimulate domestic demand, with support for small enterprises and stimulus packages that must be fast and efficient.

'The issue is how effectively they (Asian governments) can mobilise these additional fiscal resources,' Mr Lee said.

The report showed that the pace of capital outflows from Asia had slowed in the first quarter of 2009, and Lee urged large Asian investors to focus more of their capital spending within the region.

While China's recovery has 'gained traction' and the more closed smaller economies such as Indonesia are on course to stronger growth levels, Mr Lee said concern remained for more export-dependent small regional economies such as Hong Kong, Singapore, Malaysia and Thailand.

The Manila-based bank said earlier this month it would update on Sept 22 its flagship Asian Development Outlook forecasts, which predicted earlier this year that developing Asia will see its economic growth fall to 3.4 per cent this year compared to 6.3 per cent in 2008. -- AFP

Sunday, 19 July 2009

What went wrong with economics

From The Economist print edition
And how the discipline should change to avoid the mistakes of the past

OF ALL the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself. A few years ago, the dismal science was being acclaimed as a way of explaining ever more forms of human behaviour, from drug-dealing to sumo-wrestling. Wall Street ransacked the best universities for game theorists and options modellers. And on the public stage, economists were seen as far more trustworthy than politicians. John McCain joked that Alan Greenspan, then chairman of the Federal Reserve, was so indispensable that if he died, the president should “prop him up and put a pair of dark glasses on him.”

In the wake of the biggest economic calamity in 80 years that reputation has taken a beating. In the public mind an arrogant profession has been humbled. Though economists are still at the centre of the policy debate—think of Ben Bernanke or Larry Summers in America or Mervyn King in Britain—their pronouncements are viewed with more scepticism than before. The profession itself is suffering from guilt and rancour. In a recent lecture, Paul Krugman, winner of the Nobel prize in economics in 2008, argued that much of the past 30 years of macroeconomics was “spectacularly useless at best, and positively harmful at worst.” Barry Eichengreen, a prominent American economic historian, says the crisis has “cast into doubt much of what we thought we knew about economics.”

In its crudest form—the idea that economics as a whole is discredited—the current backlash has gone far too far. If ignorance allowed investors and politicians to exaggerate the virtues of economics, it now blinds them to its benefits. Economics is less a slavish creed than a prism through which to understand the world. It is a broad canon, stretching from theories to explain how prices are determined to how economies grow. Much of that body of knowledge has no link to the financial crisis and remains as useful as ever.

And if economics as a broad discipline deserves a robust defence, so does the free-market paradigm. Too many people, especially in Europe, equate mistakes made by economists with a failure of economic liberalism. Their logic seems to be that if economists got things wrong, then politicians will do better. That is a false—and dangerous—conclusion.
Rational fools

These important caveats, however, should not obscure the fact that two central parts of the discipline—macroeconomics and financial economics—are now, rightly, being severely re-examined (see article, article). There are three main critiques: that macro and financial economists helped cause the crisis, that they failed to spot it, and that they have no idea how to fix it.

The first charge is half right. Macroeconomists, especially within central banks, were too fixated on taming inflation and too cavalier about asset bubbles. Financial economists, meanwhile, formalised theories of the efficiency of markets, fuelling the notion that markets would regulate themselves and financial innovation was always beneficial. Wall Street’s most esoteric instruments were built on these ideas.

But economists were hardly naive believers in market efficiency. Financial academics have spent much of the past 30 years poking holes in the “efficient market hypothesis”. A recent ranking of academic economists was topped by Joseph Stiglitz and Andrei Shleifer, two prominent hole-pokers. A newly prominent field, behavioural economics, concentrates on the consequences of irrational actions.

So there were caveats aplenty. But as insights from academia arrived in the rough and tumble of Wall Street, such delicacies were put aside. And absurd assumptions were added. No economic theory suggests you should value mortgage derivatives on the basis that house prices would always rise. Finance professors are not to blame for this, but they might have shouted more loudly that their insights were being misused. Instead many cheered the party along (often from within banks). Put that together with the complacency of the macroeconomists and there were too few voices shouting stop.
Blindsided and divided

The charge that most economists failed to see the crisis coming also has merit. To be sure, some warned of trouble. The likes of Robert Shiller of Yale, Nouriel Roubini of New York University and the team at the Bank for International Settlements are now famous for their prescience. But most were blindsided. And even worrywarts who felt something was amiss had no idea of how bad the consequences would be.

That was partly to do with professional silos, which limited both the tools available and the imaginations of the practitioners. Few financial economists thought much about illiquidity or counterparty risk, for instance, because their standard models ignore it; and few worried about the effect on the overall economy of the markets for all asset classes seizing up simultaneously, since few believed that was possible.

Macroeconomists also had a blindspot: their standard models assumed that capital markets work perfectly. Their framework reflected an uneasy truce between the intellectual heirs of Keynes, who accept that economies can fall short of their potential, and purists who hold that supply must always equal demand. The models that epitomise this synthesis—the sort used in many central banks—incorporate imperfections in labour markets (“sticky” wages, for instance, which allow unemployment to rise), but make no room for such blemishes in finance. By assuming that capital markets worked perfectly, macroeconomists were largely able to ignore the economy’s financial plumbing. But models that ignored finance had little chance of spotting a calamity that stemmed from it.

What about trying to fix it? Here the financial crisis has blown apart the fragile consensus between purists and Keynesians that monetary policy was the best way to smooth the business cycle. In many countries short-term interest rates are near zero and in a banking crisis monetary policy works less well. With their compromise tool useless, both sides have retreated to their roots, ignoring the other camp’s ideas. Keynesians, such as Mr Krugman, have become uncritical supporters of fiscal stimulus. Purists are vocal opponents. To outsiders, the cacophony underlines the profession’s uselessness.

Add these criticisms together and there is a clear case for reinvention, especially in macroeconomics. Just as the Depression spawned Keynesianism, and the 1970s stagflation fuelled a backlash, creative destruction is already under way. Central banks are busy bolting crude analyses of financial markets onto their workhorse models. Financial economists are studying the way that incentives can skew market efficiency. And today’s dilemmas are prompting new research: which form of fiscal stimulus is most effective? How do you best loosen monetary policy when interest rates are at zero? And so on.

But a broader change in mindset is still needed. Economists need to reach out from their specialised silos: macroeconomists must understand finance, and finance professors need to think harder about the context within which markets work. And everybody needs to work harder on understanding asset bubbles and what happens when they burst. For in the end economists are social scientists, trying to understand the real world. And the financial crisis has changed that world.

A Deal with the Devil

There has been a lot of talk lately in the media about Goldman Sachs and how they have corrupted and taken over our government. I would like to throw out a theory of my own and its implications as it relates to trading.

First off, let's examine the charges pundits have been leveling on Goldman Sachs and the main evidences they cite to support their claims. Pundits charge that back in the fall of 2008, former Treasury Secretary Hank Paulson, who also happened to be the the former CEO of Goldman Sachs, let Bear Stearns and Lehman Brothers fail in order to eliminate major competitors to Goldman Sachs. The circumstances behind Bear Stearns' run on liquidity to this day remains suspicious with fingers all pointing to rumor mongering originating from Goldman Sachs. The Feds allowing Lehman Brothers to fail was especially suspicious because 1) the Fed denied Lehman Brothers application to become a bank holding company, hence denying them access to much needed liquidity that could have potentially averted Lehman's insolvency and 2) the Feds bailed out AIG the very next day after Lehman declared Chapter 11. AIG apparently was the counter party to $12-13 billion of Goldman Sach's CDS trades and had they not been bailed out, Goldman would had to have eaten those losses, which may have led to Goldman's own demise. In addition to the above, Goldman's CEO Lloyd Blankfein was in the Fed's AIG meeting. Although the evidences cited here are circumstantial, I believe they are valid and compelling: Goldman Sachs influenced the outcomes of Fed meetings that led to bankruptcy and bailouts of various firms through their connections with Hank Paulson.

After Lehman's demise, it became apparent that other investment banks were also over leveraged with risky assets and would face liquidity problems themselves. Without additional liquidity, these banks too would have to file for Chapter 11, including Goldman Sachs. Regardless of whatever they claim today, these banks were toast last fall. They were, however, able to successfully lobby the Federal Reserve and Treasury to grant them bank holding status, thus allowing them access to needed liquidity through TARP, TSLF, Fed Funds Rate and Discount Window. The circumstance in which TARP was passed itself was suspicious and how the money was allocated and used by the banks is another mystery. But the point here is, when Goldman Sachs needed liquidity, they were able to successfully lobby for bank holding status that neither Bear Stearns or Lehman Brothers could get.

There are other evidences pundits cite against Goldman Sachs, but the ones cited above are the main evidences people have been talking about. So this got me asking myself two questions. 1) Why does Goldman Sachs get everything it wants? It seems like Goldman never losses. The simplistic answer is, they own the government and have alumni in powerful decision making positions. Although this explanation may very well be valid, it is far from complete. As powerful as Goldman is, they do not own everyone. So when they make their pleas for bank holding status, AIG bailout, etc, they must still argue their positions and win over those they do not control. 2) Why does the Federal Reserve and Treasury give Goldman Sachs everything it wants? Although this question may seem the same as the first one, it isn't. What are the motives behind supporting Goldman Sachs? Zerohedge recently stated that Goldman Sachs has preferential treatment, or rather an exemption, from applying traditional VAR calculation to their books. What are they trying to hide? Could it be... Goldman Sachs is the anointed leader of the Plunge Protection Team (PPT) as many traders believe?

From the evidence I have seen, I deduced that the Fed and Goldman have a very special-symbiotic relationship. I believe Bernanke and the White House know we are in the mother of all poo storm. I am willing to go as far as, I believe Bernanke and the government know we as a nation are bankrupt. They believe we are most likely heading into a Great Depression which may lead to uncontrollable situations, such as civil unrest, secessionist movements and other unimaginable horrors. Goldman Sachs must also realize that if we indeed head into GD II, it too is finished as a firm. All its investments will plummet forcing the firm into bankruptcy and there will be absolutely no prospects of growth for years to come, assuming the United States as a nation state survives. Knowing this, I believe Bernanke & Co and Goldman Sachs & Co, struck a deal. The Federal Reserve will provide liquidity for Goldman to prop up the stock markets, hopefully long enough for a recovery to take off. In return, Goldman Sachs will get a significant cut of any profits made from PPT activity, preferential treatment and an implicit government bailout in the event the firm were to fail.

Why is propping up the equity market so incredibly important? The stock market is the most visible barometer everyday Americans use to evaluate the direction of this country. In fact, if equities were to collapse, it would become clear to everyone we are finished. Those who responsibly saved and invested for retirement would be left with very little. The evaporation of life-time savings could motivate those individuals to engage in activities that are detrimental to the interest of our government. On the corporate side, a collapse in equity would precipitate violations of debt covenants and lead to a domino collapse in companies across industries. In this scenario, you will see companies filing for bankruptcies without end and official unemployment rate rocket pass 20% with ease. By inflating the stock market and running green shoot propaganda 24-7, the Fed is trying to lift morale and hope long enough so that, just maybe, all those stimulus (and more to come) and Fed intervention will lead to a recovery. Remember, they already believe the nation is bankrupt, so if this Hail Mary of an intervention fails, they would be in the same position they were in last fall. In some respects, they may already be slightly better off than they were last fall because the government by now must have prepared contingency plans should all hell break loose.

As much as we like to hate Goldman Sachs, I believe it is very much the servant as it is the master of our government. Goldman Sachs is a corrupt organization that is excellent at what it does in the financial markets. The United States as a whole is bankrupt. In my opinion, the Fed had no choice but to cut a deal with the Devil. All was already lost; but through lies and deceit, not everyone has realized it yet, or perhaps they choose not to accept the truth. When the money runs out, which it ultimately will like all ponzi schemes, this house of cards will come crashing down. In the meantime, as long as the printing press has ink, the Fed, via Goldman Sachs, will NEVER let this market collapse on its own because a minority of traders already see through the lies. Remember, most large funds and institutional money managers don't make money from being right, but from tracking the index so they can continue to clip their fat management fees. It will take a crisis of extraordinary magnitude to bring us to THE point of reflection that will ultimately reveal the Fed's hole cards: we were all-in with deuce-seven off suit the whole time.

Saturday, 18 July 2009

Investment banker to exotic dancer

Episode 1

'The financial markets are full of hard luck stories these days, so I thought it only right to share my experiences.

I joined Lehman Brothers straight out of college in 2004. Although I didn't really know what I was getting into, a friend of mine worked for the firm, and there was a vacancy in fixed income support, so I tried out for it and lucked out. When it came down to it, however, the job was really nothing more than a glorified PA, as I ran around photocopying things, and undertaking menial tasks like going out to get lunch for busy traders.

After a while, however, I started to get into what I was doing, and learning the lingo. Gradually, I learned what terms like 'ABS', 'MBS' and 'CDO' stood for (although I never really got what they actually were). In time (after 18 months or so), I even found myself on the telephone speaking to clients, who were eager to buy 'top-rated commercial paper' from the firm. Although nervous at first, I soon discovered that as long as the clients thought they were getting investments which would yield good returns, they didn't mind speaking to a young buck, and my confidence quickly grew. Very soon I had my own small portfolio of clients (mostly smaller clients who no-one else had the time to cover). Anyway, although I was never the best salesperson on the block, I closed several deals and walked off with a decent bonus in 2006 (not huge by any means, but substantially more than I ever expected to earn in any one year).

We hit the ground running in 2007, and, in the first-half of the year, our numbers were strong. Then the fixed income markets began to show signs of stress, and concerns started to grow about a sustained downturn in the US housing market. Investors soon became spooked about the true nature of their promised returns, and the safety of their 'risk-free' investments. The likes of Citi and Merrill Lynch started to post losses on huge asset writedowns, and soon the CEOs of both firms had fallen on their swords. We struggled through into 2008, and there were persistent rumours that Lehman (and other firms) had liquidity problems. In March, Bear Stearns fell into the arms of JPMorgan Chase. And, in September, well, you know what happened to Lehman.

In truth, I didn't even make it through until the September. The appetite for asset-backed securities had already dried up, and I was laid-off a couple of months before. At first, I wasn't that bothered - I fell into the markets by accident, so it wasn't as if my dreams had been shattered. But after being knocked back following several job interviews (both in the industry and outside), I started to panic. The financial meltdown that followed the fall of Lehman had spread to Main Street, and it was proving difficult for a young woman who had little by way of transferable skills to find alternative employment. And, to top it all, my severance (such as it was) had run out.

Anyway, I lived on my savings for a while, then noticed a wanted ad in a women's magazine. An out of town 'dancing bar' was seeking an 'exotic' dancer for four night's work each week. I knew that I could dance, and I wasn't bad looking (and, despite working with a group of lardy traders, I had managed to keep my svelte figure). I kept the magazine, and every few days would pull it out and re-read the ad. One afternoon, after receiving another rejection letter from a would-be employer, I called the number listed, and made an appointment to see the manager of the bar.

To say that it was seedy would be a major understatement. The bar was dark, and the carpets smelled of alcohol (and worse). 'Can you dance ?', the manager asked. 'Sure', I nodded. He looked me up and down. 'You'll do. Be here tonight at 10pm. You'll finish at 2am. $120, plus tips. You should do OK'.

That night I joined the group of women in the back (it was described as a 'dressing room', but was really just a large bathroom with a few dressers pushed together). I was really nervous now, and kept eyeing the exit, thinking that the smart thing to do was just to leave. But, despite my reservations, I stuck with it, and, shortly before it was my time to go on, one of the older 'performers' pulled me to one side. 'You're in charge, honey', she said, 'Remember that. The punters will take advantage of you if you let 'em. But there'll be putty in your hands if you show them that you're calling the shots'.

The next thing I remember was that the announcer was calling my name (I was to be known as 'Amazing Grace'), and I was pushed onto the small stage to the cheers of what seemed to be scores of paying clients. Although they could clearly see me, the bright lighting fortunately meant that I could only see the few at the very front. The music started, and I began my first routine'.

Episode 2

'The truth is, I can't remember a whole lot about that first time. I recall my stomach in my mouth as I was pushed onto that stage. I grabbed hold of the pole, closed my eyes tight, and tried to block everything out apart from the beat of the music. The next thing I remember, the music had stopped, and I was being dragged off stage by one of the security guys.

'You should have taken a fortune', one of the other dancers said to me as I passed by, 'The crowd went nuts for you'. I wasn't sure what she meant, but it soon became clear.

'You f.cking idiot', Chad, the manager of the bar said between clenched teeth. 'Didn't you hear us shouting at you ? You're supposed to let go of the f.cking pole and go shake your stuff up close to the punters. How the else do you think they are gonna get close enough to stick cash in your panties ?'. I had broken the golden rule, and Chad was really angry. 'God knows why, but those guys were loving you. All you had to do was ease to the edge of the stage and we would've done great'. Chad had lost 50% of what he thought I should have taken in tips (my belief that all the tips I made would be mine was very short-lived).

I was gutted. I felt like I did when I first interned at a Fortune 500 company all those summers ago. I felt intimidated, and useless, humiliated. But I had overcome adversity before, after the company told me that perhaps working in a large corporate wasn't for me, and I would do so again now. Although my first thought was to run away, I knew that I had it in me. I was convinced that I could deliver. And it wasn't just the thought of the money - even in this job, I wanted to be a success.

Although the performers could shower and change on the premises, I just couldn't face it. Chad said that I shouldn't do anymore turns that night, and that I should just stay and watch how the older pros did it. But I didn't want to hang around. Telling him that I'd see him the following evening, I slung my coat over my skimpy costume and headed quickly for the exit. When I got home I spent over an hour in the shower, trying to wash off the smell of that place.

'Didn't expect to see you again', Chad said as he looked over at me when I came in the next night, taking his eyes only briefly off the porn magazine he was 'reading'.

'Whatever doesn't kill you makes you strong, and all that', I replied cheerily. But Chad wasn't interested. He was back to his magazine.

Things were a little better that night, and I went up three times. After a few more evenings, I started to get used to it. And dare I say it, I actually started to enjoy myself. Strange as it may seem, there was power in it. I realised that, after all those years thinking that lap dancers and their ilk were exploited, it was the punters themselves who were the ones being taken advantage of. They came in in packs, were encouraged to drink themselves silly and, before they realised what they had done, had spent a fortune paying for the odd dance, some 'companionship', or drugs (and sometimes all three). And mostly they were taken for a ride. The 'companionship' usually never led to anything physical (apart from the odd shove in the chest if the punter tried to get too frisky), and the drugs were cut so thin that they would hardly have had any affect. Still, the 'clients' seemed to get off on it. At least they kept coming back.

It was a little over a month after I first started, that the unthinkable happened. I had put all thoughts to the back of my mind of ever coming across any former Lehman colleagues at the bar. In fact, one of the main reasons why I thought it would be safe to dance at this bar was that it was a bit off the beaten track. But I was being naive - most firms had banned their brokers and traders from 'adult entertainment' clubs (especially if they had clients in tow), so these guys took their partying as far away from Madison Avenue as possible. And, that night, this already alcohol-fuelled group had decided to head my way.

'They're a really rowdy lot tonight', Jane, one of the other dancers remarked as she came off stage. 'And loaded - in more ways than one', she smiled at me as she quickly took some of the cash from her panties and stuffed it down her bra. It looked like Chad wouldn't be getting his full 50% that night either.

Anyway, these high-rollers intrigued me. I squinted out from behind the curtain, and thought that I recognised a couple of them. It couldn't be, could it ? Jesus, it was some of the old Lehman crew! Panic immediately set it, but I quickly calmed down. None of these guys were from my business unit. The last thing they would expect would be to see a former colleague strutting her stuff on this stage. And they were so drunk, I was confident that they wouldn't recognise me. And, even if I was found out, did it really matter ? When my turn came, I took a deep breath and went on stage to bring in some cash.

By now, I had become much more adventurous. I was able to use all the talents God blessed me with to extract every last dollar from the punters. I was really into it now, and completely forgot about the Lehman crew. Until I came face-to-face with one of them. 'Grace, you old tart', he shouted. 'You've finally found your true vocation!'. Taken aback for just a moment, I quickly composed myself. ' off back to your wife, you jerk', I retorted, turning around and pushing my rear-end right in his face. At that moment I knew no fear. I had been recognised, but I didn't care. After all, was my current job any more immoral than my last ? At least now I was taking advantage of clients who mostly wanted to be taken advantage of!

'What was all that about ?', Jane asked, as I came off. 'Oh, just some jerk that I used to work with. Alan something'.

'He's quite cute, though'.

'Still a loser', I replied cattily.

It was almost 3am when I finally came out the side door and headed to my car for the short ride home. And I was tired. But there waiting for me was Alan.

Episode 3

'Hi', he said, looking sheepishly down at his Gucci loafers.

'God', I groaned, 'What do you want, Alan ? I'm dead beat, and want to go to bed'.

'I just', he stammered, 'I just wanted to apologize'.

'Fine. Apology accepted. Goodnight', I replied as I slammed the car door closed and fiddled with the key in the ignition.

'Wait a minute, Grace', he said as he indicated for me to open the window. 'Can't I buy you a coffee, or something ?'

'Not tonight, Alan', I replied as his cell phone rang. 'Answer your phone. Your wife will be wondering where you are'.

'My wife left me months ago, Grace. She doesn't call me anymore', he retorted while he fiddled with his cell phone.

'I can't imagine why', I replied cruelly, 'Who did she go off with - your best mate, or your boss ?'.

'The TV repairman, actually', he said as he turned off his cell, cutting off the incoming call. 'I always wondered why the f.cking TV keep going wrong', he laughed.

I smiled. At least he had a sense of humor.

'When you next on ?', he asked, clearly not put off by feeble attempt at giving him the brush-off.

'Two days. Bring some more cash, and I'll make sure you get a good view!', I teased as I drove off into the night.

I looked back at Alan through the rear mirror. He was quite a sight in his rumpled suit and with his dishevelled hair. But he was kind of cute. I wondered if I'd see him again. These banker types are mostly wimps, though. One put down is usually enough to scare them off. I kind of regretted that I'd given him a hard time. But I was too tired to mull on it very long, and the dancing made you hard anyway. I'd already noticed that I was becoming emotionally detached from reality. Guess it was a survival mechanism.

It was a few days later, and I'd forgotten all about Alan. He hadn't been back to the bar, and I can't say that I was that surprised. I got in early that night and, before I'd even had the chance to dump my stuff, Chad called me over.

'Grace, Grace, can you come into my office please ?, he asked. I was immediately on my guard. I'd been at that place nearly two months and the only time I'd heard Chad say 'please' was when he was trying to persuade one of the other girls to let him have his evil way with her. He could beg all he wanted, I thought, as I followed him back to his office. He wasn't getting anything except a turn-down from me.

'Listen, Grace', he began. 'You've been with us a while now, and you're doing really well. You've got quite a following.......'.

'Forget it, Chad', I interrupted. 'I'm not sleeping with you'.

'No, no, Grace. You've got it all wrong. It's not me I want you to sleep with'.

'What the hell are you talking about, Chad ? Are you on something ?'

'Just calm down and listen, will you', he replied, 'Now, how would you like to make some real money ?'

'Are you offering me a raise, then ?', I retorted.

'In a way, I guess I am'.

'Spit it out, Chad. Just get to the point will you'. I was feeling even more uneasy now.

'Calm down, Grace. I've just got a business proposition for you, that's all', he said as he closed the door to give us some privacy. 'Listen, from time to time, I give some of the best girls the opportunity to make some extra money on the side. I just wondered if you wanted in ?'.

'I'm all ears, Chad. But exactly what do I have to do for this extra cash ?'.

'Well, let's just say that I have a few 'special clients'. And I do favours for them every once in a while'.

The son-of-a-bitch was actually offering to be my pimp! 'Don't you mean you get the girls to do the favours, Chad ? Well, you can right off. I'm no hooker if that's where this is going', I shouted. 'Just because I'm down on my luck doesn't mean that you can take any more advantage of me than you already are. You're just scum', I screamed at him.

'It's $500 an hour', he continued calmly.

'$500 an hour ?', I exclaimed, 'Do your clients take block bookings ?'. Chad had pressed the right button, after all.

'Well, yeah. But then there's my cut. But this client doesn't want you for a hour anyway. He wants you for a whole night. And that's $3,500, split right down the middle between you and me. A cool $1,750 for you just to do what comes natural, babe. I presume we have a deal', he added triumphantly.

'Chad, if you think that I'm going to spend the whole f.cking night shagging some loser, only to give 50% of the fee to you, you can think again'.

'40%, then', he replied, 'Final offer'.

'25% or take a hike', I quickly came back.

'Done', he smiled. Damn, he gave in far too easily. I knew right then that I could have got a better deal.

'But no kinky stuff', I insisted. 'And I get the evening off this place the day after'.

'Of course, Grace. You'll be treated like a princess now'. He was like the cat that got the cream now.

'So how does this work ?', I asked.

'You'll be picked up outside this place tomorrow night. Just make sure that you're clean. And wear something tasteful. And remember, it's just like the dancing. Don't get too involved with the punters. Always remember it's just a job'.

'Tomorrow!'. My heart was in my mouth. I hadn't expected that I'd have to 'perform' quite so soon. But Chad was a fast worker. He had seen his prey, and moved in quickly for the kill.

'What about the money', I asked.

'Don't worry about that', he said. 'I'll get the money and then sort you out'.

'No way, Chad. You must think I'm really stupid. The guy will need to let me have the cash as soon as I arrive. No cash, no sex. And you'll get your cut from me - after I'm happy with the way things turn out', I insisted. 'But let me be clear. No threesomes, no drugs, no more than once in one night. And no S&M!'.

'Relax, Grace. You'll be fine. You took to the dancing like a duck to water. This will be no different'.

No different. Just a few months before I was working for a top US investment bank, was earning a lot of money and was the envy of my friends. Just look at me now, I thought. I had descended to lap-dancing, and then hooking in short order. Did I have no shame ?

'So just who is this guy', I asked as I headed out of Chad's office. 'And how do you know he will like me'.

'Oh, some hedge fund guy. He's got his own fund, or something. He's rolling in it. Very well connected, apparently. And don't worry, he's seen your picture. He's gagging for it'.

'Well he'll be the only one 'gagging', Chad, as I'm not doing that either! And you've got a f.cking cheek taking my picture and showing it around to your dirty 'clients'!

He laughed, and I left to get ready for the evening's show, having entered into yet another sleazy deal with the Devil.

The chauffeur driven car drew up outside the bar at 9pm the following evening. Although I had serious misgivings, I knew it was too late to back out now. Chad would fire me, and I was already out of cash. In truth, I needed this job. I needed the money, no matter how I had to earn it.

And I was, indeed, treated like royalty. The chauffeur doffed his hat and opened the door for me. As I sat in the back of the limo, sipping champagne and watching the old Nicholas Cage film that was playing on the screen, I wondered what this hedge fund guy would be like. I'd had hedgies for clients before, of course, but this was clearly different. Anyway, I wouldn't have long to find out, as, after just a 20 minute drive, my ride pulled up outside one of New York's finest hotels..........'.

Episode 4

'I expected to be shown straight up to a hotel room but, to my surprise, the maitre'd led me to a discreet table in the restaurant. Sitting there, with his cell glued to his ear, was Alex. Another surprise. The maitre'd smiled and signalled for me to take a seat. I sat down and looked around the restaurant, remembering the last time I was there with a client, some 18 months before, under very different circumstances. Alex looked over at me and nodded, but continued talking in a whisper into his cell.

'Delighted to meet you, Grace', he said after finishing his call, 'I've heard lots of good things about you'. He stood up and walked over to kiss my hand. 'Your photographs do not do you justice'.

I smiled hesitantly. Alex wasn't at all what I expected. He was tall and elegant, and fairly in shape. I guessed that he was around 40, much younger than I assumed he would be. And although not traditionally good looking, he had an aura about him. I had seen that aura many times before - it came from the confidence of knowing that you had power. This was clearly a man used to getting his own way.

For once, I was tongue-tied. I nervously played with my napkin, and looked down at the table.

'Relax, Grace', he said in his New York accent. 'I know that you haven't done this kind of thing before. Let's have some dinner and get to know each other'.

I hadn't eaten that evening, and food was the last thing on my mind. But I nodded meekly, and took the menu the attentive waiter held out for me.

'The food's very good here, Grace. You'll enjoy it'.

'Yes, I know', I replied.

Alex looked up quizically from his menu, clearly taken back that I may have eaten there before. 'Have you been here before then, Grace ? My, you are a dark horse', he laughed.

'No' I lied. 'It's just that this place has a good reputation'. The last thing I wanted was for Alex to know anything about me. I planned to keep the evening strictly business. It was the only way that I knew I could get through it. And I thought that Alex might freak if he knew that I once worked for Lehman. It was just too close to home. As Chad kept reminding me, it was my job to ensure that Alex felt comfortable too. And if he wasn't, there would probably be no repeat business.

Anyway, the first part of the evening passed without incident. Alex was clearly educated, had an opinion on most things and appeared to be on his best behaviour. He was clearly determined not to scare me off. And, I have to admit, he was quite entertaining. He even managed to get me feeling slightly more relaxed. The only thing that irritated me was that his cell phone seemed to constantly ring. He must have excused himself from the table at least six times, as he moved to the corner of the restaurant to take each incoming call. And every time he returned, he seemed to be in an even better mood. I'd seen that look before, too. Clearly things were going his way. He was doing what he loved best - making money.

After a couple of drinks at the bar, Alex suggested that we 'retire' for the evening. His hotel suite was amazing, but I expected nothing less. He offered me another drink, and then suggested that I go to the bathroom to freshen up. It was then that it hit me.

I splashed some water on my face, and found myself staring at my reflection in the mirror. Had it really come to this, I thought. Was I about to hit a new low and, for the first time in my life, actually take money for sex ? I thought about my mother. She's British, and typically rather reserved. What would she ever think if she found out what I was doing ? She would never understand (but, then again, she never understood what I did working in an investment bank!) I sat on the toilet seat, and put my head in my hands. This was the big moment. Decision time. If I was going to back out, now was my last chance. I knew that if I went in that room and took my clothes off, that there would be no escape. I'd spoken to one of the other girls about this, and she said that I'd be at my most vulnerable when I was naked. If I was going to duck out, it would need to be while I still had my clothes on. Once I crossed that line, there would be no turning back.

My mind was in a whirl, as conflicting thoughts came in and out of my head. I needed the money, but I was disgusted at myself. And I kept thinking about my mother. I wasn't sure that I could do it. At that moment, Alex knocked on the bathroom door. 'Grace', he said apologetically, ' I need to pop out for a while. Will you be alright here on your own ?'

'Eh, yes', I stammered in reply, clearly taken by surprise.

'I won't be long. I just need to see someone down in the lobby. Feel free to call room service if you need anything'. And with that, I heard the hotel room door close behind him.

I unlocked the door, and emerged from the bathroom. I couldn't help myself, I started to have a good look around the suite. I looked through the hand-made suits hanging in the wardrobe, noticed the designer shoes and the luxury watch Alex had taken-off and left by the side of the bed. Clearly his visitor was unexpected. Alex had treated me like a princess. He had been on his best behaviour. But, when it came down to it, I knew that, no matter what the consequences, I couldn't go through with it. I don't know why, but I felt compelled to leave him a note, apologizing that I had let him down. I grabbed my purse, and slowly opened the door into the hallway. A quick look out was enough to confirm that it was all-clear, and I headed for the stairs, not wanting to run the risk of bumping into Alex in the elevator on his way back up. I was free, but I didn't feel elated. In fact, I felt guilty that I'd let Alex down. I wondered what he'd think when he returned to find me gone. But I smiled when the thought struck me that Chad would go berserk when he found out what I'd done.

It was two days later, when the pounding on my apartment door woke me up. I looked over at the alarm clock. It was almost three o'clock in the morning. What the heck was all this about ? As the banging continued, I got up sleepily and headed for the door, peering through the spy-hole to see who was making all the noise. It was Alan!

'What the Hell do you want, Alan ?', I hissed, without opening the door. 'And how did you get my Goddam address ?'.

'Sorry, Grace, but your boss at the bar gave it me. He knew that I'd been trying to get to see you the last couple of days, and he's been calling and texting you too. He's worried. He wanted me to make sure that you were alright'.

Chad had been trying to get hold of me, it was true, but I had blocked his calls and texts. I'd not been back to work either. I knew it was all over, and I figured that there wasn't much point listening to him sound off.

'Can you let me in, Grace', Alan begged. 'It's freezing out here'.

I looked around my apartment. It was a mess, and, in truth, I was ashamed that it wasn't full of designer furniture and all the nice things I had when I was working at Lehman. That all went months ago.

'Sorry, Alan', I replied, 'I'm going back to bed. Thanks for checking in on me, though. And you can tell Chad that I'm still alive and kicking. Well, alive, anyhow'.

'Oh come on, Grace', he insisted, 'I've a note from Chad for you. For God's sake, just let me in, will you ?'.

What the heck, I thought, as I took the chain off the latch. Alan was inside in an instant. 'Here's the note', he said passing me an envelope. I quickly tore it open and, to my surprise, saw that it was filled with cash.

'Hey, breakfast's on you', Alan laughed, eyeing the money. I swiftly put it in my purse. 'Thanks, Alan', I replied, 'But they'll be no breakfast this morning. I'm going back to bed'.

'We can do breakfast after bed, Grace', Alan came back. 'Nice try, Alan', I said as I opened the door and pushed him out.

'Look, Grace, can I see you ?, he turned and asked. 'How about dinner sometime ? It would be good to catch-up'.

I looked at him. He was a trier, that was for sure. And he was starting to get me interested in him. There was something about him. And I needed a friend. 'OK, wait', I said, before quickly scribbling out my cell number on a piece of paper for him. 'Call me in a few days. We'll sort something out'.

'You can count on it', he beamed. And I knew that I could.

Closing the door behind Alan, I rushed over to retrieve my purse. Opening the envelope from Chad, I counted out $3,000 - more than I was due for the 'overnight'. I hadn't expected anything. In fact, I was convinced that Alex wouldn't have paid at all, bearing in mind that I hadn't delivered on my end of the bargain. In with the cash was a note in Chad's spidery handwriting:


Here's your money (plus a tip from Alex). He is really sorry for what happened the other night, and wants to make amends. Can you call round tomorrow ? There's more money in this if you want it.


Episode 5

'Grace, where have you been ?', Chad asked as if he almost really cared, 'I've been worried sick'.

'About me, or your 'pension' ?', I retorted.

He smiled and indicated for me to follow him into his office.

'Look, Grace, I don't know what that stunt you pulled on Alex was all about, but all is forgiven now. But we do need to know if you are still up for this'.

'Up for what, exactly ?', I interrupted.

'To be honest, Grace, I'm not sure. Alex seems to have a thing for you. He wants to see you again and start over. And what Alex wants he usually gets'.

'Well he didn't last time, did he ?', I laughed.

I wasn't really sure where this was going. I was happy to continue with the dancing, but I had drawn a line on the escorting. And I made this clear to Chad. It was a self-respect thing; I didn't mind using my body to get money, but I wasn't prepared to sell it. But Chad seemed fine with it - as long as I agreed to give Alex another chance by going on a proper date.

'A proper date ? Let's be sure we understand what that means, Chad'.

'Yes, Yes', he cut in before I could elaborate. 'I understand. Sex not guaranteed. I get it'.

'More like 'sex not likely'', Chad, I continued. 'And the most important thing is that Alex gets it too. Otherwise you'll end up with real egg on your face next time'.

'Leave Alex to me', he reassured, 'He won't be a problem'.

'But what's in it for me, Chad ?, I asked.

'You get to keep your job. And you might even enjoy yourself', he laughed.

So that's how I ended up in the hotel lobby again the next evening, waiting for Alex to take me to his 'club'.

'Grace, you look stunning', he said, rather overdoing it, as he swept through the lobby, kissing me on the hand once again. 'I'm so sorry about the other evening. It's just that I get so wrapped up in work.......'.

I wondered just how long he was away after leaving me in that room. In fact, I started to believe that he had perhaps forgotten all about me!

Anyway, before we could engage in anything more than a few minutes of harmless small talk, the limo pulled up in a rather seedy looking street in Lower Manhattan.

'We need to walk the rest of the way, Grace', Alex said in response to my quizzical look, 'Bear with me, you'll understand in a little while'.

He grabbed my arm and we walked a couple of blocks, until we came to a old hotel which had clearly seen better days. The guy on the desk beamed when he saw Alex, jumped up to pump him by the hand, and quickly led us both out back. From out of nowhere, a door opened in the wall, and we ascended a narrow wooden staircase until we reached a second door that literally opened into another world. My jaw dropped.

'Nice, isn't is ?', Alex said, clearly happy that he had obviously impressed me.

'It''s like a casino', I spluttered.

'It is a casino, Grace', he replied, 'But a rather exclusive one. Come on, let's go and explore'.

I'd heard about places like this. Some of the guys at Lehman even said that they had visited them, but I doubted it. These were exclusive private clubs where unregulated gambling took place. They were playgrounds for the super-rich, where there were no rules and no limits. Tens of millions of dollars would change hands during just one evening outside the restrictions imposed by New York's gaming laws. To keep one step ahead of the cops (and the Feds), the 'casino' would spring up in a particular location just for one night, before moving on to the next venue several weeks later. And it was all here. Craps and roulette tables, blackjack. There was even a bar and a restaurant area.

We moved quickly to the restaurant, and were escorted to a discreet table in the corner. Alex was clearly a regular at these events, as he was acknowledged by some of the other gamblers, and greeted profusely by many of the staff.

This guy really was a big-shot, I thought, as I sat across the table from him. You had to be worth a mint to get in with this crowd.

'Why did you bring me here, Alex ?', I asked after taking the first sip from the drink that I'd ordered, 'You don't even know me, yet you risked taking me somewhere illegal. For all you know, I could work for the FBI'.

'Grace, my dear, the risk is all part of the fun', he replied. 'Besides I don't know of too many Feds who go in for exotic dancing', he laughed.

I smiled too. He was an interesting guy. And it wasn't just the money or the power. There was something about this man.

'Let's hit the tables, Grace', he said excitedly the moment we finished dinner. 'Roulette is my passion', he gushed, 'Do you have a lucky number ?'.

'Seven', I replied.

He rushed over to the first table, and a place was immediately found for him to sit. I stood behind him, as was astounded when he threw a thick wad of one hundred dollar bills on the table, which he quickly exchanged for chips which were then all placed on number 7.

'It's not that lucky', I cried when I realised what he was doing. In fact, it was not lucky at all, as he lost the lot. Undaunted, he continued to bet on number 7 until his cash ran out. It hadn't come once.

'Just off to the cashier', he smiled. He checked his pockets again and found a few more bills. 'Here', he said, 'have a play with that'.

There must have been three thousand dollars there, which I quickly passed across to the croupier in exchange for some chips. (It's amazing that $3,000 in my new circumstances seemed an awful lot of money. In the old days, of course, it was the cost of a nice weekend away).

I took $100 and placed in across a couple of numbers. 'Sorry, Madam', the croupier said as he pushed the chips back towards me. 'Minimum bet $500'. My face reddened. I was clearly out of my depth. I decided to wait it out until Alex came back.

Alex returned, and we spent the next several hours jumping from table to table as he continued to place large bets on a variety of numbers. He insisted that he had a 'system', but I couldn't work out what it was, and it didn't seem to be a very good system, as he continued to lose throughout the night. At one point he did win big on number 7, and insisted that I take half the 'winnings'. I put up a token fight, but soon relented. I needed the money, and he could clearly afford it. He was soon back on a losing streak, but it didn't bother him one bit. He wasn't here to win - he was just here to play.

It must have been close to 4am when we sat back down in the restaurant to have 'breakfast'. Alex was in an expansive mood, despite dropping a fortune.

So tell me, Alex', I ventured. 'What do you actually do for a living'.

'I'm an investor, Grace', he replied as he leaned back in his chair and drew on his large cigar.

'An investor in what', I continued to probe, doing exactly what Chad had forbidden me to do.

'Equities....Stocks to you'.

'And you clearly do it very well'.

'Let's just say that I'm very well connected, Grace, and those connections help me make money'.

'You mean like insider trading', I asked in as disarming a manner as I could muster.

That unexpected question threw him. He coughed, and for a moment I thought he was going to swallow his cigar!

'Insider trading', he repeated quietly. 'Keep your voice down, Grace. People like me don't talk about things like that, even in jest. Wherever did you get to learn about that anyway ?'.

'Oh, let's just say that I have some interest in the markets, Alex', I replied coyly.

'Now you are beginning to worry me, Grace', he laughed. 'You have me wondering if you really are working for the FBI, after all'.

When the night was finally over, I insisted on being dropped a few blocks from where I lived. I gave Alex a peck on the cheek. He seemed satisfied with that. He had clearly enjoyed himself, and so had I. As I walked back to my apartment I thought back over the last few months. I had come a long way - from Lehman Brothers to exotic dancing. From investment bankers to hedge fund managers. And now into a world where laws were clearly there to be broken, and the biggest crime was getting caught. I went to bed that morning flushed with excitement. I was living on the edge again, and I liked it'.

Episode 6

Chad was full of beans when I got into work the next evening. He was clearly getting some kind of rake off from Alex, and was determined that I carried on seeing him. I didn't mind that he was profiting at my expense though, as Alex was fun and I'd had a really good time the night before.

'He's loaded, Grace. You know that, don't you ?', he said excitedly. 'And he's dead keen to see you again'.

'Relax, Chad', I replied. 'You needn't worry about your retainer. I dare say Alex and I will hook up again soon'.

I'd got the dancing down to a fine art now. In fact, I was a master. I even looked forward to getting up on that stage and strutting my stuff now. It was good thinking time, as I found that while I was turning on the guys in the audience, I was able to tune out and think about other things. And that night, I found myself thinking about Alex. And I kept wondering if he was married.

While I was holding that thought, all Hell broke loose. It took me a while to realise what was going on, but I first heard the shouting, and then some of the audience jumped up on stage to get out of the way. Finally, the music stopped and the lights came up. And there they were - a group of drunken bankers throwing beer bottles and trading punches. I stood back and watched the fun unfold, and realised that, even though times had been tough for me over recent months, I'd rather be on stage than working in an investment bank. These would-be masters of the universe were wound-up so tight that they simply had to blow off steam every now and then. But they were pathetic creatures; overweight, out of condition and out of control. And as the traders tried to knock seven bells out of each other, even more trouble arrived. Someone had called the cops. There were at least 10 of them, all with guns and all chewing gum. Typically, the traders ignored the warnings, and three ended up being hauled off to spend the night in a cell. Another two were booked for possession of cocaine. Two others ended up in a hospital bed.

Typically, we got closed down for the night, and I was heading back home for a long bath and a good sleep when my cell rang. It was Alan. He'd been trying to reach me for a few days, but I'd avoided taking his calls. I still thought he was an amusing guy, but life was becoming complicated enough as it was. The last thing I needed was to get something going with Alan. But he was persistent, so I knew that I had to deal with this before it got out of hand.

'Hi', I answered, perhaps a little too disinterestedly. I didn't want to come across as being rude, just firm. I had to end it with Alan, even though there was really nothing to end. He was clearly keen to start something, but the time just wasn't right for me.

'Hi', he responded, 'You're a difficult girl to get hold of'.

'Just busy, Alan. That's all. I've just got back home', I said, as I locked up the car and headed across the street.

'I know', he said. 'I can see you. I'm just outside your door'.

I looked over, and there he was, waving at me from under the tree that stood just outside the apartment building. And he had a silly grin on his face. This guy was always just turning up!

'So what happened with Lorraine', I asked as we sat down in my living room to drink some coffee. I kicked off my shoes, expecting a long story. I wanted to get Alan to talk, so that I could think through how to put him off without hurting his feelings. 'Did she really run off with a TV repair man ?'.

'No', he laughed. 'It was actually the cable guy. There was me working all the hours to earn the big bucks for our future, and she was screwing the cable guy. And in my house, in front of my kid!'.

'Your kid ?'. I didn't know that Alan had a kid.

'Yes. He's five years old now. And I hardly ever get to see him. She took me to the cleaners when we got divorced. She got the apartment, the car, the kid. And all I got was the fucking bill and limited access!'.

'Oh, I'm sorry, Alan. I didn't know. What happened to the cable guy. Is is still around ?'.

'Nope, he replied nonchalantly, 'He moved on. It was just a bit of fun for him. But I don't blame him. He didn't cause the split. It was all my fault. I never got the balance right. I became so wrapped up in my job that I just forgot about my marriage. It was an accident waiting to happen. I guess I learned my lesson the hard way.'

Alan had more luck with his career, however. He had the good fortune to secure a new job offer just the week before Lehman filed for bankruptcy. Although Barclays Capital, which took over the firm's US businesses a couple of days after the bankruptcy filing, did try to get him to stay on, he went to work for one of Lehman's bigger rivals, and had been there just a few weeks.

'And how's the new firm ?', I asked.

'It's different', he replied. 'It's not Lehman. It's much more corporate. But it's a job'.

'And the market ?'.

'It stinks. In my sector, there's just no appetite for deals. It's not a good time to be in M&A'.

The more he talked, the more I started to feel more relaxed with him. For the first time, I thought that I was seeing the real Alan. The more we talked, the more he let his barriers come down. All the bullshit evaporated, and there before me was just an ordinary guy, as vulnerable and as hurt as the rest of us.

As the night started to turn into morning, Alan and I continued to talk. And we had graduated from coffee to wine. I can't blame the drink, though, for what happened next, for we were starting to feel more comfortable with each out, and soon began to flirt. Alan then reached over and touched my hand, pulling me towards him. In a moment we were locked in a passionate grasp, and quickly moved on into the bedroom.

Alan was asleep now, sprawled across me. I lay on my back thinking. A few hours ago I was going to ditch him, but now things had changed. I wanted Alan, but I wanted Alex too. In fact, I wanted it all.

'Do you think I'm crazy, Jane ?' I asked.

Jane and I had become quite close over the last few weeks. Although Chad told me never to discuss Alex with any of the other girls, I had to tell someone. Jane was around my age, and had been dancing at the club for a good 18 months before me, so she was more experienced and, if truth be told, had a wiser head than mine.

'Life is always complicated', she replied. 'Even a woman with a good husband, a nice house and beautiful children has her complications. I wouldn't worry about Alan or Alex. Just play it by ear. But don't make any promises you can't keep - to either of them. Otherwise it could get nasty'. It was a warning I would later look back on and wish I had taken more seriously.

'Davos! He wants me to go to Davos with him ?'

'It's some banking conference, or something', Chad replied.

'I know what Davos is, Chad. And it's not just some 'banking conference'.

So that's how I found out that Alex wanted me to spend a few days in Switzerland with him while he attended the World Economic Forum. And although it wouldn't be such a grand affair that year (as many top banking CEOs would remain close to home dealing with the unfolding financial crisis), Davos was still the place to be in January if you worked in the financial markets. I'd never been anywhere near the center of such power before, and the thought was intoxicating. My only concern was that I'd have to lie to Alan about where I was going. I'd been seeing him three or four times a week since we slept together, and I had to find an excuse to explain why I'd be out of town for a few days. I was already having to start covering my tracks. Life was indeed becoming complicated, but it seemed a small price to pay to go to Davos!'

Alex was in an ebullient mood as we headed for JFK International, and he kept talking about 'the big one'. But he was also starting to annoy me with his smug attitude. I forget how many times he asked me just how many hedge fund managers I thought were making money at that moment in time. And predictably, he confirmed that he was one of the very few. These guys have egos as big as houses!

Before we checked in, Alex left me with the luggage and told me to get a coffee and wait for him. He had to meet a 'big' contact, who had apparently come to the airport to discuss some business with him.

'This is the one, Grace', Alex said as he returned. 'Mark my words, in a few weeks I'll be a household name'.

He was off on one again when, incredibly, I saw Alan in the distance, just leaving the airport. The bastard must have been following me! He wasn't happy that I was going away, and I'm wasn't sure that he bought my story that June's mother was gravely ill, and that I was going to New Hampshire to help her through what was looking likely to be a very difficult time. Telling Alex that I need to pop to the ladies room, I rushed off to call Alan and give him a piece of my mind.

'You slimeball!', I shouted into my cell. 'How dare you follow me!'.

'What ?!', he seemed taken aback. 'What the fuck are you talking about, Grace ?'.

'Following me to the airport. That's really low, Alan. I never had you down for a loser like that'.

'Calm down, Grace', he replied. 'I didn't follow you anywhere. I went to JFK to meet someone. And anyway, you're in the wrong terminal if you saw me. Domestic flights fly from Terminal 8!'.

I was on the back foot now. 'Oh, I'm sorry', I apologized. 'I just jumped to the wrong conclusion. It's just one of those silly co-incidences. And yes, you're right, the cab driver dropped me off at the wrong terminal. I'm sorry, I've got to rush, I'm late for check-in now. I'll call you when we land'. I couldn't cut him off soon enough. I felt so stupid and, at the same time, scared that he would catch me out.

But as I walked over to where Alex was waiting, my mind started to process what had happened, and it suddenly dawned on me. Was Alan Alex's 'big' contact. Was he feeding him inside information ? If so, what was I to do, and what kind of mess was I now in the middle of ?

Episode 7

Davos didn't go well. And my opinion of Alex had started to change. He was ever the gentleman when he was trying to woo me (although he had yet to get me between the sheets), but I started to see signs that this man might not be quite the catch I originally thought he was. I called Chad to tell him that things were becoming difficult, but he begged me to stick with it. The last thing he wanted was me ditching Alex in Davos.

'The fucking suite hasn't been been cleaned!', he yelled when we returned after a late breakfast that first morning. Alex was straight on the telephone screaming for the hotel manager, who quickly appeared with an army of cleaners.

'I'm sorry, Mr Raban', the manager said as he entered. 'Please just give us a few minutes and all will be sorted'.

'This is a fucking disgrace!', Alex shouted, his eyes staring wildly and the veins in his temple appearing to stand to attention. 'To think that I'm paying thousands of dollars for this room, and I get treated like this!'.

'But Mr Raban', the manager replied, 'You had the 'Do not disturb' sign on the door. My staff clearly wouldn't have interrupted you to clean the suite in those circumstances'.

'Rubbish!', Alex shouted. 'That's a poor excuse for a pathetic service! I demand to be compensated!!'.

But it wasn't rubbish at all. I remembered that Alex had placed the sign on the door the evening before (clearly hoping that he would be having fun with me!). Alex was making a scene, when it was all his own fault. But he just wouldn't back down and admit that he was wrong. And I wasn't impressed.

Alex soon rushed off to participate in the World Economic Forum, and I was left kicking my heels in the hotel, thus setting a pattern that would last for a few days. I was being truly naive when I thought that I would be rubbing shoulders with the great and the good in Davos. But Alex was full of it, returning to the suite each evening with tales of which global CEO he had met, and who he had added to his rolodex. And I just found myself laying in bed for most of the day, drinking alone most of the afternoon and becoming bored senseless with Alex's stories long into each evening.

My thoughts, however, kept turning back to seeing Alan at JFK. Was it really just all one huge co-incidence, or was something going on between him and Alex ? I wasn't sure. Alan wasn't a bigshot. Sure he'd worked on a few high profile deals while at Lehman (as part of a team), but would he really have access to the kind of information that Alex could use to his advantage ? And why would someone like Alex need someone like Alan ? They inhabited different worlds. Indeed, it would have been a truly strange relationship. But I decided to try and press Alex on his 'contacts', to see whether he'd give anything away that might identify just who was feeding him his inside information. And I didn't have long to wait to get my opening, as Alex returned on the third evening slightly drunk, and clearly in an expansive mood. It didn't take much prompting for me to get him to talk about how wonderful he was, and how he was going to rake in millions from his next big deal.

'I shouldn't be talking to you about all this, Grace', he said as he relaxed with his feet up on the sofa, and a glass of brandy in his hand.

'Humor me, Alex', I said, 'I probably won't understand what you are talking about anyway, but I guess I want to learn something about what you do, and what makes you tick'. I was trying to coax him out by appealing to his vanity.

'Well, Grace', he started to pontificate. 'Life is not a level-playing field. There's always an advantage to be had. And my job is to find that advantage and exploit it. And that's what I've been doing for much of my career'. He kicked off his shoes, and continued: 'Don't let anyone ever tell you that being fair will make you a success. Nothing in life is fair; ask the people in countries in Africa what fair is. Explain to them why they and their children continue to die through lack of food and because of disease, while the West lives high on the hog on a diet of fast food, cable TV and prescription drugs. I learned long ago that being fair would get you nowhere. You need to find an edge. And that's what I do well'.

'But does that have to mean breaking the law ?', I asked.

'The law ?', he sneered. 'Who do you think made these laws ? They were made by people simply to ensure that they themselves retained an advantage. Your so-called laws are not there to protect anyone, they are there to protect the status quo. No, those laws mean nothing. Not anymore. And I am proud that I can flout them so easily'.

'And how do you get an advantage ?', I continued pressing.

'Information', Grace. 'Information. I pay well for information that the general public does not have access to. I get ahead of the curve, out front of the information flow. And that gives me my advantage'.

'Insider trading, then ?', I asked boldly.

'Smart trading, Grace', he replied, 'Just smart trading. And I'm so close to making the big kill, I can almost smell it'.

'The 'big kill' ?'

'Yes', I have a reliable new source who has fed me some very good information recently that I have been able to capitalize on. And this same source has given me another sure thing. I'm so confident that this will mean the big time for me, that I've literally bet the bank. I'm practically all in on it! And I won't have long to wait, as the action is due to go down next week'.

But that's as far as I got. He didn't go into any specifics, and I didn't want to arouse any suspicions by pushing it. I was none the wiser about his mystery informant, although I was a lot wiser about Alex; he was just another big-mouthed, self-righteous, arrogant hedge fund manager who thought that he was above the law and free to operate by a different set of rules than the rest of us. I was beginning to despise him. And needless to say that, as I continued to evade his amorous advances, our time together in Davos became more and more tense.

I was glad to get back at the end of the week, and determined that Alex would have to go. Having said that, Alex appeared to be less bothered as the week wore on, becoming bored when his constant attempts to seduce me were thwarted. I planned to tell Chad how I felt, and either he could tell Alex that it wasn't working out, or I would.

It was as I was approaching the apartment that I saw a figure emerge from the tree outside the building. For a moment I thought it was Alan, and my heart started to beat faster. I had missed him. But it wasn't. It was a woman in her late twenties, and she had a young child with her. Dragging the boy along after her, she headed straight for me, stopped in front of my path, and looked me up and down before slapping me hard across the face.

I was too shocked to react. I just stood there, staring at this crazed woman. 'That's for sleeping with my husband!', she screamed uncontrollably. She let go of the child's hand, and launched a new offensive against me, grabbing hold of my hair and kicking me simultaneously. I'd usually have a pepper spray easily accessible for situations like this (although I'd imagined that I'd first have to use it against a drunken or over-sexed man who'd seen me doing my thing at the club). But I didn't think that I'd need the spray in Switzerland, so I was defenseless as this woman continued to try and take lumps out of me. In the end, it was the tears from the young boy that saved me. The sound of her child crying brought this woman back to her senses, and she was distracted just long enough for me to pull away and run up the steps to the apartment building.

'I haven't finished with you', she yelled as she saw me make my escape. 'You've not heard the last of me for what you've done with Alan!'.

Alan! I stopped in my tracks and turned back towards her. 'What's this got to do with Alan ?', I shouted, already fearing the response I'd get. As I walked back down towards her, I saw that this feisty woman was crying too. I then realised that she was the real victim in all this, not me. I approached her slowly, and touched her gently on the arm. 'You've got to believe me', I said, 'I had no idea that you and Alan were still together. He told me that you split up a long time ago, that you were divorced'.

She said nothing, but nodded and looked down forlornly at her young son. 'Hey, it's cold out here', I said rather impulsively, 'Do you want to come up for a coffee or something ?'. She nodded again, and we all tramped up to the apartment for a more civilized showdown.

Lorraine wasn't a traditional beauty, and looked like she'd let herself go a little, probably since she had her son. But I was unable to recognise the picture that Alan had painted of her. She didn't seem to be the money-grabbing fatal attraction that he delighted in describing. And she seemed at her wits end. Her small hands shook as they grasped the mug of coffee. Sitting in silence for a short while, as Thomas played with one of my old teddy bears, Lorraine slowly came out of her shell.

'He's done this before', she whispered, 'He can't help himself. He's a fantasist. He's sick. I keep trying to get him to go to the doctor, but he won't have it. Every few months he goes off the rails and leads this fantasy life. It's like an escape for him, but it does the rest of us no good. I just don't know what to do', she sobbed.

'So how does he keep his job down ?', was all I could think to ask.

'His job ?', she half-laughed, 'That's a good one. I think that's the problem. Since he left Lehman, he's found it tough. The market is so bad, he just can't find anything. Things started to go downhill for us soon after Lehman went bankrupt'.

'I thought he was at JPMorgan now ?', I asked incredulously.

'I wish!', she replied, 'That's where he'd like to be, but he can't even get through the front door for an interview. They're not hiring in his area. In fact, no-one seems to be hiring in his area'.

'I'm sorry', I said rather lamely, 'I truly didn't know. I guess I just fell for Alan's story. There was really no reason for me not to believe him'.

'Don't worry', she replied, 'You're not the first. I think he's stringing along another dumb female too. I found your name and address scrawled on a scrap of paper he left in his wallet. And there's also a cell number for a girl called Alex'.

'A girl called Alex'. It all fell into place now. Lorraine was wrong about Alex's gender, but she had unknowingly confirmed to me that the two main men in my life were in cahoots.

We swapped cell numbers, and agreed to keep in touch. I wanted to try and help, as it was clear that Alan wasn't well. Lorraine hadn't seen him for several days, and I agreed to let her know when I next saw him. In the meantime, we both agreed that neither would say anything to Alan about us having met. And I said nothing to Lorraine about Alex - that would have been far too much for her to have to deal with. I went over to the apartment window and saw them walking off slowly into the distance. I smiled as I saw that Thomas was holding his mother's hand tightly, and was dragging my old teddy along with the other. I didn't mind that he had taken it. He probably needed it more than I did.

Despite being exhausted from the Davos trip, I found it difficult to sleep that night, as I tried to put all the pieces together. Alan remained married, and my relationship with him was a fraud. That had to end, but I had to do it in a delicate way that didn't make life anymore difficult for Lorraine and Thomas. I felt that I at least owed them that. Alan was also clearly Alex's informant. But quite what information Alan was feeding him was unclear. And where that information came from was another question, bearing in mind that Alan appeared to have been out of the deal action for months. But how was I to confront Alan ? And what of Alex ? He was a nasty piece of work, but looked like he was placing huge bets on unreliable information provided by Alan. I had to let him know, not because I cared about Alex's financial well-being, but because I feared what he would do to Alan and his family if he lost most of his money.

But it was too late. Alex called me later that evening. He wanted to see me again soon - to celebrate. His ship, he said, would be coming in the next day or so. He told me to watch the financial news for details of a really big deal that would soon be announced which would blow the markets away. And he had taken a huge stake in the company being acquired (and had encouraged a number of his friends to invest too), and was sitting back expecting a massive killing. But had Alex been set-up for a fall by a fantasist ?
Episode 8

All went quiet for over a week, and I started to think that I was making a big thing out of nothing, and that perhaps things weren't going to be as bad as I had feared. Then Chad called.

'Have you seen the news ?', he asked breathlessly'.

'The news ? What news, Chad ?', I replied

'It's Alex', he continued. 'Quick. Tune in to CNBC'.

CNBC! I knew it was serious if Chad was watching CNBC!! I put the receiver down on the dresser, and rushed over to turn on the TV. And there it was - pictures of Alex, surrounded by Feds, being escorted out of his building in handcuffs. And the commentator was all excited, talking about 'insider trading allegations' and another 'mini-Madoff'!

'What's going on ?', I asked Chad as soon as I retrieved the phone.

'Beats me', he said gloomily, realising that another meal ticket had gone west. 'But it sure looks like Alex'll be out of action for a while'.

Although I had seen the nasty side of this man, and I realised that he was up to no good, I took no pleasure in Alex's apparent demise. From the limited time I had spent with him, I knew that he was a very proud person, and, even on TV, I could see the hurt in his eyes. And I pitied him. Only a few days before, he was on top of the world (or so he thought), and now everything had fallen down around him. Fascinated, I watched the screen as he elbowed photographers out of the way, was bundled into a waiting car, and driven off at high speed to be booked for securities fraud. Alex had got his wish. He really was public property now, but not quite in the way that he had imagined.

The business press was full of it the following day. It seemed that Alex was being watched by the Feds, under suspicion of insider trading. An informant, someone who he had relied on for information, had apparently turned him in. More arrests were expected. My heart sank. Was that Alan ? Was he the informant ? And, if so, what was going to happen to him ? But there was more. It soon became apparent that Alex had only resorted to insider trading as his own investment strategy had been a disaster. And he had been hiding his losses from clients, issuing false claims and phony statements. Quite how long the fraud had been going on, no-one yet knew, but a lot of investors stood to lose a lot of money. Like many rogue financiers before him, Alex was hoping to pull-off one big investment coup and make good the losses before anyone noticed. But he was caught out, and now looked like paying a heavy price.

I had to speak to Alan. I had attempted to get him a few times after the episode with his wife, but his cell just kept going to voicemail. It wasn't that I was angry with him or anything, but I just needed closure. I wanted some kind of explanation, and I thought that I would be able to move on more easily if I could just talk things over with him. After a few days of trying, however, I gave up. I imagined that he knew the game was up with me anyway, and that the last thing he probably needed was me bending his ear. And I had no better luck getting him on this occasion either. My mind was racing as I had him on continued speed dial, and, as I just had to find out what was going on, I decided to try Lorraine, and searched around for the cell number she had given me when we met.

After several rings, Lorraine answered. She was clearly in a state, and I immediately regretted bothering her. But as soon as she realised it was me, she started to unburden herself. 'I'm at my wits end', she sobbed. 'We had a huge row when I told him that I'd met up with you, but then things started to get back to normal. We were doing OK.......'. Her voice trailed off.

'So where is he ?', I asked.

'I don't know', she replied. 'He's been away for hours. He just went off to the drugstore, and never came back'.

'How about his cell ? Have you tried it ?', I rather stupidly asked.

'It's here. He didn't bother to take it with him. That's why I'm so worried. He was only supposed to be gone for 15 minutes at most. I'm worried that he's gone off the rails again. I really thought that we'd turned a corner this time; I managed to get him back to his counselor, and he even started taking his pills again'.

'Have you called the cops ?', I interjected.

'No, not yet', she replied. 'But I'm frightened, Grace. I think that something really terrible has happened to him'.

My heart went out to this woman, and I really wanted to help, but I was reluctant to get even more involved in what was turning out to be a real drama. In the end, however, I couldn't help myself. 'Do you want me to come over ?', I asked. After a brief moment's thought, she said that she could do with the support. I wrote down her address, quickly showered and changed, and headed downtown to her place.

As the taxi cab wound its way through the busy streets, I thought how strange this was. Just a few days ago I was the subject of all Lorraine's anger, and yet now I was going to be her emotional support. I thought it was sad that she had no-one else that she could rely on.

The taxi pulled up outside a shabby apartment block, and my first thought was that the cab driver had gone to the wrong address. Trash was spewing along the sidewalk, and young children were playing in outside in the dirt.

'Are you sure that we're at the right place ?', I asked.

'Look, Miss', the cabbie replied. 'I've been doing this beat for 16 years. Believe me, this is it'. I paid the fare and walked towards the building, carefully avoiding the vomit, discarded food and general mess that seemed to be everywhere. I called the elevator. 'Doesn't work, ma'ma', an old gentleman with a walking stick called out as he was hobbling by. 'Hasn't worked in years......... We don't normally see your sort here', he added quietly as an after-thought. I headed for the stairs, and the smell of urine was at once overpowering; I had to run up to the third floor without drawing breath. I wondered why Alan and his family were living in a place like this. This didn't make sense. Although Alan was not the master of the universe he liked to make out he was, he would still have earned a fair living from Lehman; a decent salary, good bonuses over a number of years and other perks. I was dumbfounded.

As I came on to the landing and approached the door, I noticed that it was slightly ajar. On further inspection I saw that someone had used a jemmy to force it open. My heart started to beat faster. Reluctant to enter the apartment on my own, I looked around outside to see if there was anyone who could perhaps help me out, but I was alone. I pushed against the door, and slowly walked in. The lights were on, and I could hear the sound of a TV coming from somewhere out back. I could also smell home cooking. 'Lorraine!', I called as I proceeded down the narrow hallway. 'It's me, Grace'. Not a word.

The first room was the sitting room, and there was nothing unusual there. I passed the kitchen, and noticed that something was boiling away on the stove. I pushed the door to a small bedroom, where Thomas clearly slept, but the room was empty. As I approached what turned out to be the main bedroom, I noticed a bloody smudge on the door. I stopped in my tracks. I now feared the worst. My throat was dry and my hand was shaking as I slowly entered the bedroom. Although it was early afternoon by now, the curtains were still drawn and the room was in darkness. I fumbled for the light, found it, and quickly threw the switch. The room was a mess. There had clearly been a struggle; there were books strewn across the floor as an old bookcase had been overturned, and there was a broken lampshade on the bed, with a cord trailing down to the floor. My eyes immediately fixed on the cord, and, to my horror, I saw Lorraine, motionless on the carpet, with the other end of the cord wrapped tightly around her throat. I rushed over to her, pushed her over onto her back, and slowly unwound the cord from her throat. On autopilot, I then felt for a pulse, but there was none. I was too late. She was dead.

I leapt up, with my heart in my mouth. 'Thomas!', I shouted, as I ran from room to room searching for the young boy. I looked under the beds and in the cupboards, searching in all those places where I remembered hiding myself as a child. But he was nowhere to be found. In a state of panic, I headed back out of the apartment. I knew that I had to call 911, but I needed to get some air. I rushed for the door, knocking against some furniture in my haste to get out. I was feeling dizzy, and thought that I was likely to throw up at any moment. But, before I knew it, I ran straight into something. I was startled and scared at the same time. It was a man, and he was standing at the apartment entrance, barring my exit. Wiping away the tears that had welled up in my eyes, I looked up and realised, to my horror, that it was Alan. And I could straightaway see that he was out of control. He was unshaven, and his face was contorted with rage. I screamed at the top of my voice, convinced that I was to become his next murder victim.

Episode 9

Not even the sound of my piercing scream seemed to register with Alan, who rushed passed me and headed back into the apartment. In a state of panic, I ran out and scrambled quickly down the stairs. I must have gone at least three blocks before I felt safe enough to stop and call 911. The operator calmly took the details, and told me to head back to the apartment and wait nearby until the cops arrived.

Although I was reluctant to go back to the scene I had just left, I clearly had no choice. I was a witness of sorts, my fingerprints were all over the flat (not to mention Lorraine's body), so I had to come forward if only to clear my name. The cops were already there when I got back; three squad cars, all lights flashing. And the neighbors were out in force too. I noticed that the cops had taped off the stairwell and cordoned off Alan's apartment.

'Excuse me', I said as I approached one of the uniforms, 'I'm looking for the detective in charge'.

He simply nodded his head in the direction of a man in his mid-thirties, who was busy scribbling down notes and listening intently to one of the locals. I caught his eye, and went over. 'Are you the detective in charge ?' I asked. He smiled, and for a moment he reminded me of Alex. Alex, too, had that glint in his eye when he smiled (at least when he wanted to). 'I'm Grace Driver'.

'Oh, yes', he replied, 'You're the person who called this in. I'm John Dinallo'. He came closer and extended his hand. 'Thanks for coming back. So, can we go over it ? All of it - from start to finish'. Although he told me that I'd have to go to the station to sign a statement, Dinallo wanted to walk me through the crime scene, and tell him everything I remembered while it was still fresh in my mind. I took him through the background, too. How I knew Alan, the affair, the meeting with his wife, Alan's illness, the reason for my visit to the apartment earlier that day, my discovery of Lorraine's body, my feeble attempt to revive her, and the final sight I had of Alan. The worst bit was having to see Lorraine again. Her unblinking eyes seemed to be staring straight at me. It was so unnerving, as I looked down at her and speculated that I could quite easily have suffered her fate at Alan's hand.

It was as we were in the car on the way to the station that my cell rang. I looked down at the incoming number. My heart started to beat off the scale. 'It's him!', I shouted. 'It's Alan!!'.

Dinallo pulled over and told me to answer it. 'See if you can get him to meet you. Somewhere in a public place, preferably out in the open', he ordered. 'And we'll need at least an hour to get our men in place'.

'Alan', I exclaimed when I picked up. 'What the fuck is going on ?'.

He was crying, and I struggled to make any sense of what he was saying.

'Look, Alan', I insisted, 'The cops are all over your apartment. You can't go back home. Let's meet. I want to help'.

He grunted, and wanted to know when and where.

'Somewhere open', I said. 'You can't be too careful'. I looked over to Dinallo for some help, but he just shrugged his shoulders. He couldn't say anything for fear of giving the game away.

'How about the Children's Zoo at Central Park ?', I finally suggested, again looking over at the Detective. Dinallo gave me the thumbs up. 'Let's meet outside the Acorn Theatre in ninety minutes', I said.

'You'll need to wear a wire', Dinallo insisted as I ended the call. Strange as it may seem, this appeared to be the most normal thing in the world to do. The events of the last few weeks had been so extraordinary, but now even the most bizarre suggestions seemed fairly run-on-the-mill.

Dinallo had a technician meet us at my apartment, as I needed to change into something more substantial in order to hide the wire. And it was when I was back in the sanctity of my apartment, being fitted, that I started to freak out. I grabbed the wire and ripped it off, throwing it down on the ground. 'I can't do this!', I shouted as Dinallo looked on. 'I can't face him. I'm sorry, but I just can't. I've had it. I can't cope with any more'.

The detective grabbed my arm as I tried to walk away. 'Listen Grace', he said soothingly, 'I can't force you to do this, and if you want to back out, then that's fine. We'll catch up with him sooner or later. But you'll be safe if you go ahead. I can guarantee that. And we stand more chance taking Alan alive if we can get him when his guard is down and he least expects it'.

'You mean you might have to shoot him, or something ?', I asked incredulously.

He nodded. 'He's dangerous, Grace. We may not have a choice'. He looked me straight in the eye, knowing that this would strike a cord with me. For all that he had done, I didn't want Alan to come to any harm. He needed help; he wasn't well.

'OK', I finally blurted out, 'Let's do it your way, and I guess I'll just have to trust you'.

'Don't worry, Grace', he said, 'There will be at least six expert marksmen with rifles trained on him. And we're covering the place with undercover cops too. You'll be fine', he said squeezing my arm gently now.

Just over an hour later, Dinallo dropped me at the Lehman Gates (somewhat appropriate, I thought), and I nervously headed towards my rendezvous with Alan. The cops had also fitted me out with a miniature ear-piece, and Dinallo was making reassuring noises to me every step along the way. It was 10 minutes before the agreed time, and I was hanging around the theatre, trying to work out who among the several passers-by were actually undercover cops, when my cell rang. I glanced down at the incoming number, almost certain it would be Alan. But it wasn't. Although I didn't recognise the caller, I picked up.

'Grace, you cheating whore!', came the voice at the other end. It sounded like Alex! Dinallo was screaming into my ear, demanding to know if it was Alan. He instructed me to drop the newspaper I was carrying under my arm if it was. Clearly he was somewhere close by, watching. I shook my head vigorously, trying to make Dinallo understand that this was something else. I didn't want Alex involved in all this. He had enough problems of his own, and it was far too complicated to have to tell Dinallo about him, especially when I was confident that it wasn't really relevant.

'Sorry ?', I replied still somewhat taken aback. 'Is that you Alex ?', I asked, wondering whether it really was him, as it wasn't like Alex to shout at me in that way.

'You know damn well it's me, you bitch!', he shouted. 'I don't know how or why you are involved, but I've uncovered your involvement in setting me up. You're dead meat', he screamed.

'Alex, what are you talking about ?'. He was scaring me now, and this was the last thing I needed going into the meeting with Alan. And thank God Dinallo couldn't hear what was going on.

'I know you were in on it. I know all about you and your fucking boyfriend', Alex continued, 'And you can tell him that we've got his kid too, and unless you both get over here pronto, the kid will go the same fucking way as the wife!'.

I felt sick to my stomach. My hands started to shake, and my face flushed. 'Alex, you've got it all wrong', I declared. 'I'm not involved in anything!', I cried.

'Leave it out, Grace. You had me well and truly fooled, but I'll sort you both out for what you did to me. I'll text you a time and location, and you and your boyfriend had better be there, or you'll never see that kid, or your fucking teddy bear, again!'.

'Alex!', I shouted into my cell. But he had hung up. The teddy bear! So that was it. Alex had only been to my apartment once (I was late, and asked him to come up for a quick drink while I changed). I remember him aimlessly picking up the teddy bear and making some smart remark about it. It was all falling into place now. Alex had been the one behind Lorraine's murder, and had arranged to abduct Thomas in order to get at Alan. And Thomas must have taken the teddy with him when he was kidnapped, Alex recognised it as mine, and naturally assumed that Alan and I were in some way in cahoots, and that I was therefore responsible too for the mess he found himself in!

Now I was in a panic! I looked up, and Alan was heading towards me, totally unaware that he was being set up. He was about to be arrested for a crime I now knew he didn't commit. Worse, unless Alan and I somehow got to Alex, Thomas was done for. I glanced over trying to locate where Dinallo was hiding, but succeeded only in seeing the sun glance off the barrel of a rifle, which was pointing directly at Alan. Were the cops going to take him down ? Had I lured this troubled, but innocent man, to his death ?

Episode 10

There was nothing I could do; I was completely powerless. I wanted to warn him, to shout at Alan to run, but I knew that if I did so, he wouldn't stand a chance. If he made a break for it, he would be shot, and possibly even killed.

I didn't want to be responsible for his death. I just had to keep him alive; we could always explain what had happened when we got back to the station. It would all be alright, wouldn't it ? I knew that I'd have to get up as close as possible to protect him. The cops were unlikely to take him down if I was too close. I rushed over to greet him, placing my arms around him and hugging him. I held on to him as tightly as I could. He looked even worse than when I saw him just a couple of hours before. He was clearly startled by the way I ran over to him, and mumbled something I couldn't make out. He was disorientated. Confused, and in a state of high anxiety.

'I'm sorry', I whispered into his ear. Alan looked me in the eye, clearly unable to understand why I was apologizing.

In just seconds we were surrounded by undercover cops. They quickly separated us, grabbed Alan and pushed him to the ground. Strangely, he didn't protest. He hardly moved. As I looked over at this sad and desperate man laying face-down on the ground, I could only imagine what he was going through. I just had to help him.

'OK, good work', Dinallo was beaming as he emerged from his lair. 'Grace, you were excellent. If you ever need a job in law enforcement, just give me a call', he joked. 'Secure him inside my car', Dinallo told the officer who now had custody of Alan, 'We'll take him downtown to book him'. The officer pushed Alan into the back of the car, handcuffing him to something in the rear which presumably would prevent him from making a getaway.

'Detective', I interrupted, 'Please let me come with you. Maybe I can help you get some sense out of him', I implored.

Dinallo looked over at me, unsure whether to grant my request. It was obviously a breach of protocol, as I was a witness who could put Alan at the scene of the murder. 'OK', he said after a long pause. 'But you're in the front with me. Officer, you're in the back with the suspect.'.

The car pulled away with the four of us inside. My head was spinning. Although part of me believed that all this would be sorted out, I knew that I couldn't take the risk. What if the cops didn't believe us ? And Alan was hardly in the best frame of mind to fight his corner. I could just imagine the cops taking him into interrogation and quickly emerging with a signed 'confession'. And what about Thomas ? His life was in danger. We had to be there when Alex called. We had to be ready to meet with him.

Dinallo's cell rang, and he picked up, continuing to drive while he talked. And, as he held the cell to his ear, I got a glimpse at the handgun in his shoulder holster. Dinallo was off his guard now, pleased with himself that he had Alan in custody. And he was talking to someone at the precinct, detailing the chain of events that led to Alan's capture. I looked back over at Alan, and noticed that the officer by his side also seemed to have his mind on other things. Alan was neutralized now, so what possible danger could there be ?

The next few seconds seemed to happen in slow motion. Acting on total impulse, I lunged at Dinallo and reached into his shoulder-holster. In a flash, I had his pistol in my hand. As luck would have it, the safety catch was easy to recognise, and I threw it and pointed the weapon straight at the startled detective's head. 'Stop the fucking car!', I shouted. Dinallo dropped his cell, and slammed on the brakes, pushing everyone violently forward. In the meantime, the officer in the back had drawn his weapon, but the forward-movement of the squad car loosened his grip, and it fell from his hand.

Dinallo recovered quickly, and made a grab for his gun. I swung back round and faced him. 'Don't do anything stupid, Detective', I screamed, 'I know how to use this'. I was shaking from top to toe. But I didn't have time to think about the magnitude of what I was doing. I was operating on pure adrenalin. 'Tell him to take the cuffs off Alan!', I ordered, nodding my head in the direction of the officer in the back, 'And tell him not to try anything clever, or I'll blow your fucking brains out!', I screamed. I knew that if the detective called my bluff, I was done for. There was no way that I could have pulled that trigger. And Dinallo was clearly mulling over the odds in his mind, trying to work out whether I had it in me to go through with my threat. In the end, he backed-off and, after a brief hesitation, turned to the officer and nodded his agreement for Alan to be uncuffed.

As soon as Dinallo and the officer got out, I slid across into the driver's seat and pushed the accelerator to the floor as hard as I could. Off we roared. I looked in the rearview mirror, and saw the two cops standing helplessly in the middle of the road. I looked over at Alan. He was just sitting there, still in a daze. My mind was racing overtime. I was now on the run from the law, having threatened to kill a detective. In the back of the car was a man wanted for murder. I had no idea where I was headed, and no plan for what to do next. I knew, however, that we'd have to ditch the squad car. And quickly. Its location would obviously be tracked by the cops.

I was busy scouring the street for another vehicle, when I spied a young man in a pick-up waiting outside a deli. And, as luck would have it, his engine was idling. I could see him freeze when the squad car pulled up behind him, wondering just what kind of trouble he was in. 'Out the car!', I shouted as I jumped out of the police vehicle, pointing the gun at his head. 'Now!', I shouted as he hesitated, not knowing what to make of the situation and now in fear for his life. Alan had by now regained some of his equilibrium. He ran round to the passenger door and jumped inside. As soon as the startled driver got out, I jumped into the driver's seat, and we continued our getaway in yet another hijacked vehicle. After a few minutes, Alan looked over and smiled. 'I'm not entirely sure what's going on', he said, 'But I guess I should thank you for what you've done'. Now wasn't the time for explanations though, so I simply returned his smile and focused on the road ahead. But it was good to see that he could still smile.

Thankfully I had the presence of mind to stop off at an ATM and take out as much cash as I could from all the cards I had in my possession. And I got Alan to do the same. Then we had to get as far away as possible, as the cops would be monitoring our bank transactions and would doubtless soon be following our trail.

We kept on the move, but I decided it would be sensible to remain close to New York City, as Alex would probably want to meet us somewhere nearby. In the end, we ditched the pick-up and took a Greyhound to Newark, registering at the County Motel.

Although Alan and I were both exhausted due to the full-on events of the day, we knew that neither of us would be able to sleep straightaway. So, after we showered and ordered in a pizza, we began to unwind. Then, over the course of the next two hours, we brought each other up to speed on what had happened. First, I laid it all out for him; the way I came to meet Alex; how he boasted that he had bet the ranch after receiving sound insider tips; the visit from Lorraine and Thomas; my telephone call to Lorraine after discovering that Alex had been charged with securities fraud; my trip to Alan's apartment and discovery of Lorraine's body; my suspicion that Alan was the murderer; the agreement to help the cops bring him in; the last minute phone-call from Alex admitting that he had Thomas and that he was responsible for Lorraine's death; and the teddy bear, which appeared to tie me to what Alex was convinced was the plot that brought him down.

Alan mostly listened, throwing in the odd question. Then it was his turn, and slowly he started to come out of his shell.

'I was always a bit of a journeyman, Grace', he admitted. It was the first time that he gave me the impression that he was anything less than perfect. 'I had average grades through college, and I only got to work at Lehman because they acquired the mortgage firm I was working for. I fell into M&A, mainly doing the grunt work. Although I joined a deal team, I was never an originator of business; I just didn't have the contacts. I met Alex last spring at a hedge fund poker tournament in Chicago. I fancied myself as a bit of a player, but Alex took me to the cleaners that night. In truth, I was close to busted; I never was any good with money. It always seems to just fall through my hands'. As he was speaking, I remembered my surprise when the taxi pulled up outside his apartment earlier that day; it certainly wasn't the kind of place I expected an investment banker to live in with his family. Now things were beginning to fall into place.

'It was only afterwards, at the bar, that Alex and I got talking, and he started to push me into giving him information about pending M&A deals. But I didn't tell him anything, at least not at that stage', Alan continued. 'But things then went from bad to worse for me. The deals dried up at work, and I was spending more and more of my time just looking out the window at work. And Lehman was making the news for all the wrong reasons. We were all worried about our livelihoods. Anyway, I went into a deep depression, and did what I usually did when the pressure was on - retreated into a kind of fantasy world. I starting mixing with the wrong crowd, people who really did have money. I struggled to keep up with them and, before I knew what I'd done - spending money that I never had - we were almost bankrupt. We had to sell our apartment. Lorraine went spare; I thought she was going to leave me and take Thomas, but we found a place to rent and things settled down. And then, just as I managed to stave off bankruptcy, fucking Lehman went belly up, and I lost my job. How ironic is that ?', he laughed.

'I couldn't find another job. I looked for weeks', He continued. 'But I didn't get one interview. Nobody was hiring then. And it was soon after that that Alex called me out of the blue. He assumed that I'd been taken on by Barclays after they took Lehman's US businesses, and it was fairly easy for me to lead him on. He wanted information, and I needed money. You work it out, Grace. Anyway, that's how it all started'.

'But how come that last deal went bad, Alan ?', I asked.

'Simple', he replied. 'Because the information I fed him was mostly made up, or at least based on conjecture!'.

'Made up!', I repeated incredulously.

'Listen, when you work in M&A at a firm like Lehman, there's always lots of ideas for clients being thrown around. I knew that most of these were long-shots, and I was never really in the loop on any big deal anyway. Even more so after I lost my job. But I just pieced a few things together and made some logical assumptions'.

'But how were you able to gain his trust ? Alex must have believed in you to stake everything on that last deal', I asked.

'I just got lucky, Grace. There were a couple of things that were tentative deals that I knew some of guys were working on when I was at Lehman. I didn't really have a clue if they would progress, but I was in such a hole that I just feed Alex the information as if it was fact. He went for it, and made a small amount of money on each deal as they were announced. No one was more surprised than me that these deals went through! It was then that he started pestering me for more. I had no idea that he was in any kind of financial difficulty, but he clearly persuaded himself that I was the solution to all his problems. His calls became more frequent and, in hindsight, more desperate'.

'So, what was the last 'deal' ? What happened ?', I asked, becoming more and more intrigued as his story unfolded.

There was a brief pause. 'Well', he laughed, 'You're not going to believe it, but I told him that Satyam Computers was going to be bought out by one of the big boys! How wrong was I ? I couldn't have picked a worse company'.

Satyam had been the main topic of conversation in the financial community over the last few days, and was being described as 'India's Enron'. The company's founder and Chairman, Ramalinga Raju, was on the run, after writing a letter to his board confessing that he had overstated revenues and profits for years. The stock nosed dived 90% overnight. No wonder Alex was pissed!

'Why Satyam ?'

'Oh, I remembered a few guys talking about the company as a possible target, that's all. Nothing concrete. And I read something about it in The Times, I think. I was just clutching at straws, the same as Alex really. When I woke up to the news that the stock had plummeted, I literally threw up. And Alex kept calling and calling. He wouldn't leave me alone. In the end, I just couldn't handle it. I left the apartment to go get some air and just walked around, in a daze. It was a few hours later that I plucked up the courage to pick up one of his calls, and Alex told me that he had Thomas. I rushed back to the apartment, but it was too late. I still don't remember you being there. I was in shock. I couldn't believe that he had done it. And seeing Lorraine there...............'. His voice trailed off as he started to relive the terrible scene he had witnessed just a few hours before. The tears welled up in his eyes, and he started to shake. 'We have to save him', he sobbed. 'We've got to get Thomas back! He's the only thing that I've got left now'.

But the ball was in Alex's court. We were now playing a waiting game. He was in control. We just had to stay one step ahead of the law and await Alex's call. And Alex was still in custody.

'And were you the mole who shopped him ?', I asked.

'No', he said, shaking his head and regaining his composure, 'He thinks it was me, but it wasn't. It could have been anybody, though. I later found out that Alex was known all over the Street for paying for information. Word is that he had someone on the inside at most of the big firms'.

I'd just turned off the light, and was looking over at Alan, who had already fallen asleep on the couch. And no wonder - it had been one Hell of a day, especially for him. But one thing was still troubling me; I couldn't understand how Alex had managed to put that call into me earlier in the day. It didn't make any sense. He was in police custody. But, before I could reflect anymore on it, I was distracted by a noise outside. I rushed to the window and slowly pulled back the curtain. It was Dinallo. The cops had found us already! I bet we'd been fingered by the pizza delivery boy. I knew we were making a big mistake when we ordered in. Now what were we to do ? The place was probably surrounded'.

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