The rain was unrelenting.
I walked down Douglas at a clip, dark grey sidewalk soaked through beneath my feet, black Deer Stags work shoes gripping the concrete. Lunch was only half an hour, and I had already blown half of it cashing my check at the Money Mart.
My hands were shoved in the pockets of black work pants, one hovering above cold, damp keys, the other with six hundred or so dollars in a firm grip.
I ducked into the entrance to the Shoppers Drug Mart and the automatic door groaned itself open. I rounded the corner onto the polished floors with a squeak, flipping back my hood to set the security guard at ease. The light filled my eyes as I scanned the aisles.
Now that the Nexium samples were finished, I needed a couple of these per day to treat the ulcer. When it had woken me up in the middle of the night six weeks ago, I honestly thought it was a heart attack. Like a knife plunged into your most vital part, an ulcer will scare the shit out of you if you let it. Once established, it and only it can decide what you eat, when you eat, what you do and how much pain you can expect as a result.
I had staggered to the bathroom, clutching my chest. I thought for a moment, turned around and rapped on the bedroom door.
Startled awake, his voice came back. "Huh? What's going on?"
"Hey, sorry to wake you guys. I think I need to go to the hospital, this fucking pain is erupting like crazy. It feels like I'm getting stabbed."
He was already in the hall, dressed and grabbing his jacket. "Let's go straight to emergency. Then we'll figure out just what it is."
My mom swept out of the dark room into the hallway, looked into my face, worried, and then gave me a hug. "Don't worry, sweetie. They'll figure it out and get it all fixed up."
"Sure thing ma, back in a bit."
I had been attempting to self-diagnose on the internet - one of the stupider things you can engage in. Research is only worth doing when your judgement isn’t compromised by pain and fear.
Inflammation of the heart sac - pericarditis - that was my wager so far.
They triaged me quick and went through all the usual motions. After a thorough once-over, the kindly doctor announced "no sign of anything" - a diagnosis I had grown very accustomed to in my twenty-nine years….
The intercom went off overhead: "Checkout two is now open." I zoned back in to the shelf in front of me, picking the box of generic ranitidine, 10mg. 5.99
The next day I had gone to a walk-in clinic, and met Dr. Green.
I was wound up when he stepped into the examination room where I was sitting. We shook hands.
"So why are you here?"
I sighed. "I keep getting a really sharp, stabbing pain under my heart, and sometimes in my other side… smoking seems to set it off, but even if I don’t smoke, it still wakes me up an night…"
He interrupted me. "It's worse at night? It wakes you up?"
"Yes. I went to the emergency room last night it was so bad; they didn’t find anything. I thought it may be pleurisy or pericarditis, but apparently not." I took a breath. "So I think that maybe it's an infection, and I'm hoping to get some antibiotics, if you think that would help."
Our eyes met - mine fearful and glassy with pain, his assured and professional.
He spoke. "Hold on a minute." He paused and clicked his pen open over my file.
He locked eyes with me again. "We're going to figure out what's wrong with you, and how we're going to do that is by looking at all the different factors that could be affecting your health. Once I get some information about you, then I can start looking at what is causing the problem."
"Ok, sure." I felt like a deer in headlights, confronted with knowledge and confidence vastly greater than mine at present.
He took notes as he asked the questions.
"Yeah, but very little, like one every couple days. I just quit smoking pot too."
"Drink a lot?"
"No, 2 or 3 beers a week, tops."
"Normal, I guess." I thought briefly. "I was poor for a long time, and didn’t eat well then."
"You say the pain is worse at night. Does eating help?"
I hadn't thought about it. Now that I did, I remembered how a granola bar had staved off the worst of the pain several nights.
"Yeah, I think it does, a bit anyway."
"Take any medication?"
"Any other pain? Symptoms? Going to the bathroom ok?"
"Well, my back hurts a lot these days… Other than that, no. Bathroom is fine."
He scribbled a few moments longer and then sat back and looked at me with a hint of a smile.
"I think you have an ulcer - or at the very least, the beginnings of one."
An ulcer? I was shocked. Didn't ulcers happen to stressed old businessmen? I had an uncle get an ulcer from drinking too much, but that was the extent of my knowledge on the subject.
"An ulcer happens when the stomach starts eating itself. You said you were poor and not eating well for a long time, that could have certainly helped create the problem."
"Smoking always sets off an ulcer - it stimulates digestive juices, irritating the stomach. That's why the food helps - it fills the stomach, keeping the acid off of the wound."
He continued. "Alcohol and caffeine don’t help, and anti-inflammatories like Advil are hell on the stomach. Ulcers also often cause back pain, as well."
I thought about the endless nights of empty stomachs, or the days where I was happy with a few bagels and some candy. Endless shitty coffee, spiked with white sugar, whitebread McDonalds muffins. Booze, drugs and cigarettes for the nights; Advil liquigels for the mornings. Suddenly I felt very stupid and destructive. I had poisoned my body - in a way I had never intended.
I thought back to my uncle - experiencing unbearable pain in his stomach, he had decided to keep drinking beer until it went away. A few days later, he called my dad to come take him to the hospital. It turns out he had an ulcer that perforated, flooding his bloodstream with toxic poison; he lost 40 pounds during his month in the hospital, and endured two operations to have his rotten gut fixed up.
Soon I was on Nexium, which would define the first six weeks of my recovery. I found out that ulcers have a 100 percent relapse rate, and can take years to heal correctly.
Much later, I would discover that the most potent cure for ulcers is raw cabbage juice - that a few cups a day can heal an ulcer in a few weeks…
I stopped at the magazine rack. The new Wired was out. I had a minute to kill - and the headline of one of the features had caught my eye.
* * *
Excerpt from Recipe for Disaster: The formula that killed Wall Street (Wired, 2.23.09)
A year ago, it was hardly unthinkable that a math wizard like David X. Li might someday earn a Nobel Prize. After all, financial economists—even Wall Street quants—have received the Nobel in economics before, and Li's work on measuring risk has had more impact, more quickly, than previous Nobel Prize-winning contributions to the field. Today, though, as dazed bankers, politicians, regulators, and investors survey the wreckage of the biggest financial meltdown since the Great Depression, Li is probably thankful he still has a job in finance at all. Not that his achievement should be dismissed. He took a notoriously tough nut—determining correlation, or how seemingly disparate events are related—and cracked it wide open with a simple and elegant mathematical formula, one that would become ubiquitous in finance worldwide.
For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.
His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.
Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li's formula hadn't expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system's foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.
David X. Li, it's safe to say, won't be getting that Nobel anytime soon. One result of the collapse has been the end of financial economics as something to be celebrated rather than feared. And Li's Gaussian copula formula will go down in history as instrumental in causing the unfathomable losses that brought the world financial system to its knees.
How could one formula pack such a devastating punch? The answer lies in the bond market, the multitrillion-dollar system that allows pension funds, insurance companies, and hedge funds to lend trillions of dollars to companies, countries, and home buyers.
A bond, of course, is just an IOU, a promise to pay back money with interest by certain dates. If a company—say, IBM—borrows money by issuing a bond, investors will look very closely over its accounts to make sure it has the wherewithal to repay them. The higher the perceived risk—and there's always some risk—the higher the interest rate the bond must carry.
Bond investors are very comfortable with the concept of probability. If there's a 1 percent chance of default but they get an extra two percentage points in interest, they're ahead of the game overall—like a casino, which is happy to lose big sums every so often in return for profits most of the time.
Bond investors also invest in pools of hundreds or even thousands of mortgages. The potential sums involved are staggering: Americans now owe more than $11 trillion on their homes. But mortgage pools are messier than most bonds. There's no guaranteed interest rate, since the amount of money homeowners collectively pay back every month is a function of how many have refinanced and how many have defaulted. There's certainly no fixed maturity date: Money shows up in irregular chunks as people pay down their mortgages at unpredictable times—for instance, when they decide to sell their house. And most problematic, there's no easy way to assign a single probability to the chance of default.
Wall Street solved many of these problems through a process called tranching, which divides a pool and allows for the creation of safe bonds with a risk-free triple-A credit rating. Investors in the first tranche, or slice, are first in line to be paid off. Those next in line might get only a double-A credit rating on their tranche of bonds but will be able to charge a higher interest rate for bearing the slightly higher chance of default. And so on.
* * *
I put the magazine back on the rack. I would have to read the rest online.
As I stood in line, I couldn't help noticing little fireworks of activity in my mind - vague ideas about the power of language to define reality, and how math is like any other language, in that it describes concepts… defines parameters…
"Just this today?" The cashier eyed me, her figure lit from above by the harsh fluorescent.