who just skim a few tenths of a cent on every trade. They just do a lot of trades.
There was one other ingredient. A course tutor sat by a flip-chart, and every now and then turned a page to reveal a news item. It might be about consumer spending, an election result, or the death of a president. With each announcement, the market reacted. Investors who were sitting pretty one moment could watch their assets tumble or soar as prices shifted.
And that was that. No other rules. At the end of the game, everyone’s assets were counted up. And, as the T-shirt philosophers of New York put it, he who dies with the most wins. Roses and champagne were awarded to the winning investor and the winning investment bank. There were no penalties for failure, except one. The penalty was that the trading games were the most important tests of the course, and the course had a failure rate of one in three. The Lion of Wall Street would not go hungry.
The game was about to start. Sophie and Matthew had worked out some ground rules, but it wasn’t like an exam, you couldn’t revise for the future. Matthew put his mouth to Sophie’s ear.
‘Good luck,’ he whispered.
‘Bonne chance, Monsieur Gradley. Good luck.’
A whistle blew and the game began.
The students were arranged in three rows. The investors sat along one side of the room, while the salespeople sat in another row down the middle. The traders sat opposite their salespeople, but they weren’t required to stay there. If they wanted to get up, to mix with the other traders in search of a deal, they were welcome to do so.
At first though, there was no movement and not much noise. The students had been brought up to be polite and, for a while, decorum reigned. A few investors, thinking they should invest some of their cash in bonds, asked a couple of salespeople for prices. The salespeople sorted out a price with their traders. Any haggling was done with apologies and laughter. The traders stayed seated.
Then the tutor in charge of the flip-chart turned a page. The announcement was visible to everybody. GREENSPAN BULLISH ON INFLATION PROSPECTS. Alan Greenspan was the head of the powerful US Federal Reserve. If he thought inflation would stay low, then bonds should rise as investors bought into positive economic prospects.
The traders quickly changed the prices they were giving their salespeople, but not all traders thought alike. The quiet equilibrium changed. Investors started shouting out their requirements to the salespeople. The noise increased.
The salespeople now asked their traders for prices several times a minute. The traders knew that prices were constantly shifting and worried about getting out of line. They began to leave their seats to check out what others were doing or to deal directly with other traders. When their salespeople needed a new price, they had to yell to get their attention. The volume of trades increased. The room grew noisier.
Then, unannounced and unnoticed by half the room, the flip-chart was turned to reveal another message. CONSUMER SPENDING SIGNIFICANTLY HIGHER THAN EXPECTED. So perhaps Greenspan had been wrong. Perhaps inflation was more of a risk. Bond prices needed to come down again. By how much? There was no right answer, no wrong answer. There was only the answer of the market.
Sophie shouted at Matthew to check he had seen the message. He had, but he hollered his thanks for the tip-off. Sophie was taking more orders now, building up the flow of deals. It was good business, but demanding. Matthew wanted to avoid sitting on a big stack of bonds in case he was caught short by a change in the market. So for every deal that Sophie brought him, he had to do one or two more to square his position again.
The flip-chart messages came faster now.
‘Give me a price to buy the 2017s and a price to sell the 2012s,’ shouted Sophie.
Matthew thought on his feet. Investors didn’t wait long when the market was moving so fast.
‘I’ll buy the 2017s at $99. I don’t want to sell the 2012s, because I’m short of them as it is. Ask $105 for them. No one in their right mind will take that price.’
Matthew knew that a decent investor could get the 2012 bonds much cheaper from elsewhere.
‘OK. 2017s to buy at $99. 2012s to sell at $105.’
Matthew raised his thumb in agreement. Another rule of theirs: always confirm the price. Other pairs hadn’t agreed to do this and got into arguments as misunderstandings spread.
Meanwhile Matthew plunged back into the throng of traders. By acting fast he could buy bonds off one trader and sell them back to another at a slightly higher price. It was tough to do. Decent traders understood the market and cut out the middleman, but not everyone was that slick. Matthew noticed a couple of the Japanese in particular were struggling.
He tried to remember their names. Sophie prompted him: Takashi and Atsuo. Matthew greeted them warmly amidst the frenzy and made some little joke about the swelling chaos. He stayed close and helped them out a couple of times in small ways. In the bond markets, real or fictional, no friend is better than a stupid friend.
He was interrupted again by Sophie.
‘Matthew. We’ve done both deals. Bought 100 lots of 2017s at $99. Sold 200 lots of the 2012s at $105. I’ve updated the accounts.’
Matthew broke off what he was doing and leaped across to Sophie’s desk.
‘Jesus, Sophie. Who did these trades? The 2012s are trading at $100. We’ve made $5 clear profit on each bond.’
In a game where the profit margin seldom rose above a dollar, $5 was wealth indeed.
‘Fareshti,’ said Sophie. ‘I think she’s finding it tough.’
They looked across to Fareshti, who was sitting bolt upright in her chair. Her face was pale and her eyes open in a blank stare. Her pad of paper lay face down on the desk and she clearly hadn’t a clue what her position was. While Matthew and Sophie watched, she pulled off her heavy gold earrings and laid them next to the thick gold necklace which already lay on the desk. She looked as though the jewellery had been weighing down on her, crushing her even.
‘I spy with my little eye an investor who needs the help of the Banque Entente Cordiale,’ said Matthew.
Sophie glanced at him.
‘That’s not fair. She doesn’t know what she’s doing any more.’
‘I don’t know about you, but my nearest and dearest forgot to provide me with a few billion dollars’ worth of oil. I propose to earn my living as a trader instead.’
Sophie half-smiled in incomplete agreement. ‘C’est vrai. D’accord. But I don’t like it.’
She called to Fareshti, who woke up pleased to hear a friendly voice amidst the din.
‘Give me your pad,’ said Sophie. ‘Let me help you get up-to-date.’
A grateful Fareshti tossed her pad over to Sophie who bent over it with her calculator. The princess, meanwhile, put her hands to her neck and massaged it, staring down at the heap of gold in front of her. Drilling a few metres down into the desert sands was simpler than this. But her parents thought she should have a Western business education and this was it. She watched Sophie gratefully.
After
