In Towne Center III, against the fecal hue of his fifth-floor cubicle, Rhavi Prasad loosened his necktie and felt his carotid artery resume normal pumping. Nobody could make that artery jump like his boss, Joe Mudge. He glanced at his watch. Nearly two hours remained until the stock market closed. On the 26-inch plasma computer screen that dwarfed his Office Town desk, a tiny window traced the trading of Stress Free Concrete, Inc., stock symbol SFCI. Numbers flickered like fireflies above his screensaver, a family portrait of the extended Rhavi clan at his college graduation 18 months ago. It cast a ghoulish green sheen on his face.
The pressure Mudge had placed on him, Rhavi thought. He would have to test principles that reached back all the way to Introduction to Economics. Here was Adam Smith's invisible hand of the market, impulsively grasping for perfect balance, and Rhavi was about to thumb-wrestle it. But he had an advantage, he remembered. This was America. In India, the market was beset by forces that were equal or strongerfamily, politics, religion, monsoons. Here, the populace responded to every cue like a textbook model of rational economic behavior. The will to get ahead was hardwired into its social circuitry, its schools, its parties, even its churches. The process was ineluctable. The invisible hand tapped America's knee, and responsively it jerked.
Rhavi was growing calmer by the moment. Mudge made him nervous, but numbers did not. They were simple and right. If anything still rattled him, it was the awesome force of the strategy: the power that resided in Death Spiral Preferred. But the more he thought about it, the more he warmed to his phantom ally. Death Spiral Preferred was not a foe. Not at all! It was a ravenous swarming army of numbers, to be marched, deployed, and if need be killed for the good of the cause. And Rhavi held their orders. Alone in his cubicle, literally green with family pride, he coolly set up a spreadsheet to watch the unseen hand close its fist.
First, some reading. Rhavi did a quick computer search for Death Spiral Preferred. Vaguely recalling some research from his college days, he clicked on a 2001 article in Industry Standard. The magazine had been the Bible of the Internet world but collapsed when the bubble burst. Its articles still floated in the binary ether, like light traveling from a long-dead star.
"The dark side of Internet financing is here," the magazine read, unwittingly foreseeing its own demise. "In today's desperate times, Internet companies are turning to desperate measures. Notorious among these is the reset security, also known as a 'death-spiral convertible,' 'death spiral preferred,' and sometimes the 'toxic.' In the best of times, a death-spiral instrument can be the elixir that brings a company back to life. More often, it can suck the last breath from a struggling business."
There must be a hypothetical here, Rhavi thought, scrolling down. Bingo.
"Here's how it works. Acme.com takes out a $30 million loan, with one catch: the venture capital company making the loan can convert that amount into Acme stock. If Acme's total stock adds up to $100 million, the venture capitalist can swap the debt for 30 percent ownership, on demand. But let's say for some reason the stock price gets cut in half. That means, of course, that Acme's value is cut in half. But by the terms of the death-spiral agreement, the venture capital company's stake must still equal $30 million. So twice as many shares must be handed over. Before Acme's other shareholders know what's hit them, they've handed over a 60 percent stake in their company."
There it was, in perfect black and white. Mudge had an agreement to buy $15 million in stock in SFCI. As soon as the stock started fallingand it already was, thanks to the Rev. Floyd Winnings' public tiradesmore shares would have to be issued. SFCI was now swimming whitewater with a cannonball around its neck. But surely there was a hitch. He read on.
"Of course, there's risk for the venture capitalist. If the company goes bankrupt, he's left with nothing. The key, however, is that as the stock price falls and more shares must be issued, that in turn causes existing shares to lose more value. And that triggers a further sell-off and yet more dilution. Such is the spiral."
The perfect storm! Stock price falls...original investors sell because the price is dropping... Mudge's stake increases...which causes further drop in price...which causes still more selling and more shares to be issued. And even if the worst happenedeven if the stock became worthless, falling all the way to zeroMudge would still end up with a major asset: Darby Glen. That was worth at least $15 million in stock. That was land.
Rhavi's artery pulsed again, this time in tribute to Joe Mudge's brilliance. He continued reading, feeling his excitement raise with every warning flag.
"The use of death spirals can get even more sinister," the article cautioned, bringing a flush to Rhavi's cheeks. "The same vulture capitalists who take a stake in a company suddenly have a vested interest in seeing the stock price fall, so they can gain even more shares. Some have been known to invest in a company with one hand and hammer the stock by short-selling with the other to drive the share price down. Either way, they make money."
Was there no end to this joy? Short-selling was a time-honored and legitimate way to trade in the market. Rather than buy a stock, a sophisticated trader sells it instead. When people buy stocks, the price pressure goes upward. But when people sell stocks, the price pressure goes downward. Short-sell a lot, and the stock price dives. If Mudge were to short-sell enough, especially with all the Winnings controversy, he could bludgeon SFCI's price down to nothing. The company would be his overnight. Perhaps, for once, Rhavi could let the master in on a secret. Perhaps, in return, his boss would say something nice.
At the end of the Industry Standard piece, Rhavi noticed a paragraph in small type. An addendum listed all the companies that had been ravaged by Death Spiral: Auspex, Drkoopcom, eFax, eGain, eToys, Intrawawre, NetpLex, MicroStrategy. Ah, the costs of errant capitalization. He eyed his watch. The market was closing soon. If he got to Mudge soon enough, the short-sell would work.
And yet a critical piece of the puzzle was missing. If the stock price in SFCI fell further still, sucked into the Death Spiral's vortex, at what price point would Mudge have control? Needless to say, Mudge would have to have over 50 percent to run things. But where would that be assured?
Hello, spreadsheet. Rhavi typed furiously. The trick was to correlate various stock prices of SFCI with the corresponding percentages of the company Mudge would own. Find the magic numbera stock price low enough for Mudge to swoop in and seize powerand the battle was won. With the zeal some people use at the computer to build SimCities or manage fantasy baseball leagues, Rhavi set to work imagining SFCI's conquest.
Currently, SFCI's stock was trading at $34. He typed that into column #1. In column #2, he then typed the total number of SFCI shares: 1,845,980. In column #3, he typed the total worth of the company, that being the number of shares times the share price: $62.7 million. The company's total worth hinged on whatever it traded for in the market.
In the next column appeared what Rhavi knew to be the most critical number of all: the percentage of the company Mudge would own. With the stock trading at $34, the answer blinked onscreen: only 19.2 percent. If Mudge told the company to pay him the $15 million in stock, then he would own only 19.2 percent with shares trading at $34. Joe Mudge might mingle with minorities now and then, but he would never agree to be one.
But oh, the poisonous beauty of the Death Spiral, the downward tug of its quicksand embrace! If the stock price was falling, it could fall further still. Rhavi began nudging the price downward a dollar at a time. Across the spreadsheet, the dominoes began to topple.
First Rhavi typed in a new lower stock price: $33. The percentage Mudge would own of the company automatically appeared at the far right of the spreadsheet: 19.7 percent. He typed in another share price: $32. Percentage owned: 21.2 percent. Flicking a button, Rhavi instructed the spreadsheet to track the share price all the way to zero, one dollar at a time. In no timeand he had no time: the screen clock ticked down the minutes to market closurehe would find the sweet spot where Mudge's ownership would exceed 50 percent.
He moved the cursor down the rows. As the black arrow darted past each column, a tiny clicking sound shot out of the computer's speakers, like rifle fire. The stock price fell: $30...$27...$20...$12...all the way to zero. He then traced the point where Mudge's stake in the company made him majority shareholder. There it was, the temperature of flashpoint: 50.2 percent. At 50.2 percent, Mudge was above the law. He could fire the board, fire the managers, plunder the coffers, burn Darby Glen to the ground.
But the stock price had to be right. Eyeing that 50.2 figure, Rhavi then scanned the row to the left. And there he found his magic number.
Eight dollars. Give or take a few pennies. If the stock fell below the $8 mark, then Mudge effectively had SFCI. Cross $8, and Mudge could just ask for the keys. Eight dollars. It was a long way to go.
Rhavi breathed deeply. Watching the numbers spill across the screen had been like viewing a rapid and inexorable march on the truth. Yet the stock had to virtually collapse before it reached $8. The announcement of Winning's opposition to the venture had already sunk the price $3 since this morning. But if they were to see the price free-fall all the way to $8, he had to reach Mudge, now.
Down the hallway Rhavi ran, taking a sharp turn through a fire door and bolting down three flights of stairs. Flinging open a metal door to the first floor, he sucked wind, leaving a trail of skewed footprints through the chocolate pile carpet. Another quick left, and he was past Mudge's personal secretary before she could announce he was in a private meeting. He could hear the secretary say something, but in the name of Mudge, the Bank of Deerlick, Darby Glen and Adam Smith, Rhavi threw open the door.
On one knee, in Mudge's informal sitting area near the stuffed deer, Joe Mudge knelt beside his visitor, the Rev. Floyd Winnings. Each held the other's hand. Neither looked up. Though closed, their eyes were watching God.
"And Lord," Winnings rumbled, "be Thou as Thou mayest, look upon us favorably and grant us the wisdom to do what is right here at the Bank of Deerlick. Grant that as Joe Mudge and the bank go about doing their work, that he will also have the presence of mind to be doing Your work. We have read about the moneychangers in the temple, oh Lord, and we have seen the dangers and distractions involved in the lust for money. All we ask is that we be ever mindful of You as we go about our jobs and our lives. In Jesus' name we pray. Amen."
"Amen," Mudge said.
The two stood slowly. As Winnings unfurled himself to his full height, Rhavi could not help but slightly cower. It wasn't so much that Rhavi was a believer in the Lord, but some quality Winnings exudeda radiance, a strength. Was this Christianity? Or just power? Even Mudge appeared somehow diminished. His face looked sleepy and rumpled, his eyes swollen as if he'd been crying, or at least squinting very hard. Mudge extended a hand to pat Winnings on the shoulder, and Winnings enfolded him in a bear hug.
"Thank you, Pastor," Mudge wheezed. "Sometime I think we'd all benefit from having you attend our morning prayer session here at the bank. Could you do that?"
"Absolutely, Joe. We must all be prayerful, wherever we are."
"And Junior?" Mudge shot a look in Rhavi's direction. The grin was reemerging on Mudge's face, and the look of drowsy revelry was fading fast. "I would like you to meet Floyd T. Winnings. Pastor Winnings has agreed to serve on our bank's loan committee. We'll be sponsoring his church's barbecue supper in coming weeks. Pastor Winnings and I have just been discussing the need for more community outreach between white and black organizations in this city. You know, Rhavi, that has been a great concern of mine."
Rhavi knew of no such concern, but he shook his head aggressively to compensate. As he did so, he thought of those bobbleheads that nod spastically on dashboards.
"Floyd," Mudge crowed, "Junior here had never studied the life of Jesus at all until he came to work here at the Bank of Deerlick. Now he attends all of our prayer sessions."
"That's fine, young man. Are there any passages you'd like to share with us today?"
Interrogation time! Rhavi blanched. And of all things, about Jesus Christ? His artery gushed like a firehose. This was no time for Jesus. He looked at Winnings in his wide-lapelled navy suit standing shoulder to shoulder with Mudge, whose thin upper lip rolled up like a drawn blind over his gleaming teeth.
"Come on, Junior, whatsa mattercat got your tongue?"
Winnings and Mudge chuckled, their bellies bouncing in unison, chests jointly heaving, as Rhavi withered in the sunlight of their attention.
"Short it, sir. We have to short it."
Mudge's and Winnings' faces went blank. First silence, and now the boy was speaking in tongues. "Excuse me, son?" Winnings asked.
"I'm sorry, I'm in a rush, and it's good to meet you pastor," Rhavi said, walking toward the two men in a state that was both anxious and brave. "But Mr. Mudge, we have to short SFCI and fast."
There was a pause.
"Junior," Mudge said, "You okay? Feel all right? Why don't we step out here into the hallway for a second. Pastor, I'm gonna be back. Looks like I got a little personnel situation." At that he chuckled a bit.
Once outside, Mudge spun Rhavi around and marched him toward his office door. Mudge's smile drew his jowls tight, as if the corners of his mouth were pulled back with wire.
"What in the daylights is this about," Mudge barked, lips tight, teeth bared. "Rhavi, son, I am in there with Floyd T. Winnings and it is important I have some rapport here. Got it?"
"Yes, sir, Mr. Mudge," Rhavi stammered. "But I just think the time is right for some additional effort with regard to SFCI."
Mudge paused a moment. He stepped back a foot, placed his hands in his pockets, and then glanced both left and right to see who was within earshot. "What you got, son?"
"You have to get this price down, Mr. Mudge. It's got to go a lot further than I thought. Maybe you thought the Winnings sermon would have more of an effect. But if you want to cross the 50 percent ownership..."
"And I do!" Mudge stated firmly, rocking back on his bootheels. He scoured the hallways again, worried that he had spoken too loudly.
"Well, sir, then we need to short the stock."
Rhavi's carotid cartwheeled crazily underneath his rayon collar. Mudge wasn't speaking. Rhavi took that as a good sign. When Mudge wasn't speaking, it usually meant he was switching his inner hard drive from the New Testament to the New South.
"Shares outstanding?" Mudge asked. Rhavi knew, now, that he had done the right thing. He had successfully engaged.
Mudge looked at the ceiling. "Latest price?" he asked dryly.
"Thirty-one dollars, sir."
"Shit," Mudge said. Rhavi had never heard him curse. It was eerie, almost embarrassing, like hearing your father curse for the first time. Rhavi also knew Mudge to be a religious man: wasn't cursing a sin? "Sumthin' tells me we gotta hit $9, son."
"Actually 8 and change, sir."
"That's a far stretch down the road, ain't it, Junior?"
"Well, sir, I was thinking shorting the stock would help get you there."
"That's not what I want you to do now," Mudge said, the rigid smile having yielded to something like lockjaw. "What I want you to do now is call BizWire and put out that news about my buying Death Spiral Preferred in Stress Free. That's what I want you to do."
Mudge pulled back his coat pocket, stuck his hands in his pockets, and began pacing the hallway. His footprints scarcely left a trace. "Junior," he said, "I want to let every owner in SFCI know that I can convert my $15 million into stock. I want the news and the word and the truth to go forth. And you know what's going to happen when all this hits the fan? You know what's gonna happen, son?"
"Sir, the situation will....
"What's gonna happen," Mudge interrupted, "is that the pressure downward is gonna be godawful. People will know their stock is getting hammered. They will know they are on the losing side. Isn't it a wonderful thing, this country, Rhavi: the more information, the better. It's all about being honest, ain't it?"
Rhavi thought a moment. The question was rhetorical, but he had to admit: it was smart. It wasn't something he had thought of himself. It would drive the price down on its own. Still, he had to ask.
"But sir, wouldn't shorting the stock do the same thing?"
"Already done, son," Mudge said, straightening his tie and running his hands through his hair to continue his meeting with Winnings. "Shorted it just five minutes ago, right before the preacher and I prayed. Kind of took a little work, hitting all the right trade buttons without telling him what I was doing. Told him I was just checking an emergency e-mail."
Rhavi felt relieved. He also felt validated. His idea had been a good one.
"If I might ask, sir, how much did you short?"
"Sir, precisely how much."
"$5 million. And for the next hour, I'm giving you authority to execute an additional $5 million in short-selling on my behalf."
Five million? At his discretion? Rhavi felt his chest ripple. Never had he traded at such a high level! Never had he imagined such firepower at his disposal! Rhavi felt like Patton.
"Junior," Mudge added, reaching for the doorknob, "It's time to throw everything we've got at SFCI. I want BizWire to know about the Death Spiral. I want the black people in an uproar. I want the short-selling to grab them by the privates, and I want anything and everything you can do to push that piss-ant company off the hill and into the creek. Do I make myself understood?"
Rhavi understood. He did not even speak it was so clear.
"And one more thing, Junior. Proverbs 13:20. 'He that walketh with wise men shall be wise: but a companion of fools shall be destroyed.' "
Great, again with the riddles. When Mudge spoke the language of money, they were on solid ground. But when his boss talked religion, cartoon birds circled Rhavi's head. Mudge must have noticed his mystification.
"In other words, son, stick with me and you'll get somewhere. But next time some black preacher sitting in my office asks you for some verse, don't sit there dumb as a fence post. Come up with sumthin', son. Genesis, Deuteronomy, Exodusheck, it don't even matter. I don't care. Winnings won't care. Even the Lord won't care. Just have sumthin' to carry around with ya. Every man needs a lick of Scripture."
With that, Mudge ran a hand one more time through his slicked-back hair, straightened his posture, and turned the doorknob to his office. Before he could enter, however, his secretary yelled out from her desk.
"Mr. Mudge, you had an emergency call from a Mr. Andy Hobbs. Would you like me to patch you in?"
"Gimme five minutes," Mudge shot back. "Let me finish up in here."
Rhavi and the secretary watched as Mudge strode into the vast room, his face all grins and sunshine. "Pastor, I'm sorry to have kept you," they heard him say. "Now where were we?"
And with that, the door pulled shut.
COPYRIGHT 2004 BY BRUCE DOBIE.