The Icarus Prediction: Betting it all has its price (8 page)

CHAPTER SIX

Russian Province of Stavropol Krai

North of the Chechen Border

Shamil Basayev peered through the night vision binoculars at the pumping station below. On this isolated stretch of Russian real estate between the Caspian and Black Seas, the oil pipeline snaked across the Russian steppe north of the Caucasus Mountain Range like a never-ending eel.

Elevated on vertical scaffolding, the 940-mile pipeline was built from the Tengez field on the northeastern shore of the Caspian Sea in Kazakhstan, to the Black Sea oil terminus at Novorossiysk, where massive oil tankers took on their loads of crude to fuel the economies of the world.

The only pipeline on Russian soil not wholly owned by the state company called Transneft, the CPC pipeline’s stakeholders were, as its name implied, a consortium of oil companies and the Russian and Kazakh governments. It carried 32 million metric tons of oil per year from the rich Kazakh field, feeding the coffers of governments and their oligarchs.

Basayev lowered the binoculars, leaving only the moonlight to illuminate his face. For the first time in years, his beard was growing back, but the once-dark hair was now flecked with gray, the result of aging, stress, and a life on the run for many years. But now, all the torment he and his people had endured at the hands of his country’s oppressors would soon be avenged beyond anyone’s imagination.

“How long?” he asked Lemontov, who was his right hand man.

“The truck left Tbilisi this morning. It will use the pass and enter North Ossetia tomorrow. Then three days by back roads to us.”

Lemontov had answered the same question at least once an hour for the last two days. But he did not protest, for the hooded eyes that stared back at him possessed the severity of an executioner. The little humanity that might have once been there had long since been extinguished by an ocean of blood.

Basayev struck a match and fired up a forbidden cigarette that illuminated the brown fedora resting on his bald scalp. He was always given to distinctive headgear, whether it was a fatigue cap, a military beret, or a peaked hat.

“We will hurt them this time, Lemontov. More painful than anything they could imagine.”

Lemontov nodded, having heard this before, too.

Basayev picked up the binoculars again. He could make out a flashlight bobbing in the far distance along the pipeline, causing Basayev to sneer. Just like the Russians to entrust such a crown jewel of an asset to pitifully tiny protection. So much the better. He would have Lemontov extract the heart from the lone soldier, a personal trademark he’d developed during the prolonged wars in Chechnya.

He’d spent the last six years looking for the right weapon to take the head off the Russian bear, and though he’d tried, nuclear weapons remained beyond his grasp. But now he had found a way to cripple their economy in a way they never saw coming. So much grander than hostage taking. And when he was done here, he would crush the infidels of Israel the same way. The West had turned a blind eye as the sacred land of Chechnya was defiled by the Russians, instead, always providing protection to their handmaiden, Israel.

But now he had found the jugular of the infidels, and he intended to slice it to ribbons.

*

New York City

Jarrod leaned against the pillar beside his office window, watching the boats plying up and down the Hudson. The sun was heading toward the horizon in its late afternoon descent. Ordinarily the scene imbued him with the feeling that he’d finally arrived. But now it offered little comfort. He was procrastinating, he knew. Putting off the confrontation he feared would leave his career in tatters. He took a deep breath and then put on the jacket that had been sculpted for him by his tailor in Milan. Might as well be in proper attire for the execution, he thought.

He walked past Gwen, saying, “I’ll be in William’s office.”

“OK,” was all she said.

He took the elevator up to the next floor, then down the hall to the terminus where Rosita sat as a Praetorian Guard of one.

Jarrod looked down at her and confirmed that Gwen had been correct; Rosita did look white as a ghost. Nodding, he said, “I need to see William.”

Blankly she returned his gaze. “I…I’m sorry Jarrod, but William left specific instructions not to be disturbed.”

“Announce me, please.”

Tentatively she reached for the phone and murmured into it, then set the receiver down and said, “He can’t see you now.”

“I’m afraid he will.” He walked past her and through the double hand-carved teak doors.

“Jarrod, no!”

He entered and closed the doors behind him.

Stepping into William Blackenford’s lair was like stepping into the sunshine after watching a movie matinee. You had to squint and take a moment to get your bearings. In the case of William’s office it wasn’t darkness to sunlight, it was the matter of scale. To say it was baronial didn’t quite get it, for initially you felt like a Lilliputian stepping into Gulliver’s living room. William’s office took an entire quarter of a floor, and the one above it, providing a cathedral ceiling that went on forever. His working area included a desk that had been purchased from the Earl of Haversham’s estate, while Heriz rugs covered the hardwood floor of the living area. There was a Georgian dining suite for private lunches with clients and portraits on the wall of dad, granddad, and his Preakness winner (which always generated a whispered speculation on which picture was the biggest horse’s ass). Everywhere you turned was the memorabilia—autographed photos of William with a mayor, senator, president, Hollywood starlet, jockey, and Luciano Pavarotti. On the credenza was a model of the Gulfstream, and at the center of the coffee table was a handcrafted model of the
Valkyrie
.

William Blackenford was sitting at his desk, phone in hand, when he looked up, startled at the intrusion.

“Jarrod? I told Rosita I absolutely can’t see you now. I have to--”

“We need to talk, William, and it can’t wait.” He strode toward the desk as William rose in defiance, seething that his edict had been ignored and his private lair violated. “Now see here, Jarrod,” came the Vesuvian voice.

But Stryker would not be dissuaded. He leaned forward on clenched fists atop the overhang of Blackenford’s desk. “I want a straight answer on what’s going on, William.”

William promptly stood up, pounding his own fists on the desk as his voice rumbled with anger “I don’t know what you’re talking about! How dare you waste my time! Now get out of—”

“You sold the
Valkyrie
,” Stryker said evenly. “And the Pissarro—all in for ninety-seven million. Partners have not received their distribution checks, the firm is in arrears in its dues at the Bridgemount, and the property manager is about to evict the firm from the premises. Seeing how Blackenford Capital had the best financial performance in its history last month, I’m somewhat at a loss as to why this situation exists. So enlighten me, please. Now.”

All defiance evaporated before Jarrod’s eyes. It seemed like a release valve was opened, and Blackenford deflated like a balloon—no, more like the
Hindenburg
as it went down in flames. His face turned from crimson to white, his knees buckled, and he slowly fell back into the massive leather chair, like a marionette whose strings had been cut. A few moments of silence passed until he mumbled something.

“William? What did you say? I didn’t catch that.”

The older man inhaled deeply, then whispered softly, “It’s over.”

“It’s over? What do you mean, ‘it’s over?’ What’s over?”

He looked up and gazed around his throne room longingly. ‘It’s over. All of it. Gone. I’ll be on the street. We are all done.”

“Street? William, what are you talking about? Between the
Valkyrie
and the firm’s profits last month, you’re sitting on 200 million in cash from that alone. How could you be on the street?”

The figure made for a pitiful sight. Only moments before Blackenford had been the imperial lord of his domain. Now he was a broken old man with his world in tatters.

Jarrod had never seen him so vulnerable like this and didn’t know how to react. He pulled a chair up to the edge of the desk and said, “William, tell me what’s happened. We’ve always been straight with each other. Remember that racehorse matter I took care of for you? You know you can trust me. Now what is it?”

Blackenford couldn’t bring himself to look the younger man in the eye. “CDOs,” he whispered.

“CDOs? But you strictly forbade anyone in the firm from trading in CDOs. Said it was all smoke and mirrors.”

He nodded. “They were—are.”

Collateralized Debt Obligations, or CDOs, were the Svengali financial instruments that had been cooked up by Wall Street and brought the global economy to its knees. Essentially a promise to pay a debt obligation if the underlying asset went south, the market for CDOs ballooned into the trillions of dollars. And there was nothing wrong with the idea as long as the party issuing the guarantee was actuarially sound and had the financial muscle to make good on the promise. But that wasn’t enough to feed the greedy beast of Wall Street. They started using CDOs that were called…

“Synthetics?” asked Jarrod. “Don’t tell me you got into synthetics?”

Blackenford slowly nodded, and Jarrod leaned back in the chair. He put his hands carefully around the arms of the chair to steady himself.

“Synthetic” CDOs were unfunded obligations. That is to say, it was simply a promise to pay by the issuing company if the underlying asset went south. No earmarked funding behind it. Uncountable billions in synthetic CDOs had been issued on mortgage-backed securities, fueled by the fundamental premise that housing prices would always go up. Wall Street raked in a
tsunami
of fees based on this flawed premise. Then when the music stopped and the housing market crashed, the pillars of Wall Street fell like dominoes—Lehman Brothers, Bear Stearns, Merrill Lynch, and AIG all tumbled, and even Goldman Sachs got nailed with a charge of fraud by the SEC.

Yet Blackenford Capital had dodged that bullet. William had smelled synthetics for what they were and had forbidden any trader to touch them. So when the rest of Rome was burning, Blackenford Capital had remained intact. It had been his—and the firm’s—finest hour. So the revelation that William had gone over to the dark side was received by Jarrod like a kick in the stones.

“All right, William. From square one. Tell me what has happened.”

Blackenford slowly drew breath and said, “The…the ‘opportunity’ came to me at the Bridgemount. Marlin Kain—”

“Of Middlebury-Kain?” asked Stryker. A mid-sized investment bank.

“Yes. He said they were representing the Dubai Concourse. Or rather, the tranche of CDOs their insurer had issued.

Dubai Concourse and CDOs. Stryker didn’t like where this was headed. Dubai Concourse was a gargantuan real estate development in the United Arab Emirates that had built an $8 billion artificial islet off the coast and constructed a utopian city on top of it—just before Dubai real estate went south. Now it was a string of empty see-through buildings gathering a patina of wind-blown sand.

“The Dubai Concourse issued eight billion in bonds to complete construction,” said William softly. “When the real estate market in Dubai melted down, the Concourse project missed its first quarterly payment.”

“I remember that,” replied Jarrod. “Go on.”

“The bond holders turned to the CDO guarantors. The instruments and their obligations had been sold and resold, and it looked like it was all smoke and mirrors. They were all unfunded synthetics. The obligation holders had nothing to pay with. It was all going down. Turkow, VKG, and Redmond were the obligators ultimately holding the baby. They were leveraged on obligations nine to one. They couldn’t cover.”

“That was all over the
Journal
and
Financial Times
. Nobody wanted Dubai Concourse paper. Don’t tell me you got in?”

Blackenford looked at him with sad-sack eyes. “Marlin Kain came to me and said the Concourse CDOs had fallen 80 percent—roughly to the value of the underlying real estate less the debt. But what everyone was missing was the tranches of CDOs weren’t bundled, meaning all the obligors weren’t obligated on a pro-rata basis. The way the legal instrument was drawn, each obligor was earmarked on specific bonds within a specific tranche.” In layman’s terms, if you happened to be the last guy in the chain guaranteeing the debt, you could get royally effed.