I asked Irwin what he was up to now. He said the computer program was being refined. He was tinkering with it all the time. Meanwhile, his other computer programs for industry were doing all right. Of course, Wall Street was not too flush, so Irwin didn’t know when another brokerage firm would spring for wiring up his computer.

  “But we’re running it on our own,” he said, “and the computer is doing very, very well. It is outperforming the market. And our system is getting better every day. It is almost people-proof. It really wasn’t the computer’s fault, those losses. The computer will be back, you’ll see. You can’t turn back the tides of history.”

  Seymour the Head has to go on the casualty list for losing $10 million, but he says that does not make him unhappy. That is because Seymour is following the Way, and money is only a chimera anyway.

  I met Seymour in the mountains of Mexico. He was the talk of Cuernavaca, or at least of the endowed Americans of Cuernavaca. They were sure he was a fraud or a con man or at least some superior kind of nut. He said he had been a respectable Los Angeles lawyer, but that he had quit that; he claimed, they said, to have bought and sold $300 million worth of stock the previous year; he claimed to have made $15 million and to be the biggest individual trader on the New York Stock Exchange, all the while operating long distance from Mexico and the Bahamas and Nepal, where he owned a monastery.

  “If Seymour likes you,” said the friends, “you get the ultimate gift. Seymour has a hundred lamas from his monastery say prayers for you for one hour.”

  So they trotted me along to meet Seymour, to unmask the impostor, to expose the fraud, because how could this character with the wild gleam—his hair down to his shoulder blades, wearing a jump suit and no socks—how could this character be anything he said? A hippie speculator? An acid-head arbitrager?

  It was all true, of course, a little hard to take because of the manic gleam and the long, stringy hair and the sandals, but there I was, the Berenson of the Mountains, and Seymour was real, formerly a respectable Los Angeles lawyer with a respectable wife and child, who discovered arbitrage, mind-blowing chemicals and a new life style all at the same time. Goodbye, law practice; goodbye, wife and child; goodbye, socks and ties. If Seymour went to a directors’ meeting in New York—for Seymour was on several boards—a secretary would pull out some socks kept specifically for him; Seymour would put them on for the directors’ meeting and take them off afterward, returning them to the drawer. That was the extent of his compromise. He was not going to live a materialistic life; he was going to feel Beautiful and do good things and help people, meanwhile playing the arbitrage game to finance it all. David the Bond Man at TPO, Inc., and the traders at Bear Stearns learned to answer the phone any time of day or night, and if it was a character sounding slightly stoned calling from Nepal, take the order.

  So Seymour borrowed $100 million, all from banks, married the most beautiful and serene Chinese girl you have ever seen, and sought Inner Peace. We went to lunch at Seymour’s rented mansion in Mexico and had a Wonderful Chocolate Cake for lunch, a Cake to Help Peace and Understanding and Bring Love, and with Seymour giggling wildly, like a Renaissance prince watching his palace visitors get tipsy, the guests ate the chocolate cake, and we got back from the Tuesday lunch Wednesday night—Sara Lee should have that recipe, it does something to your sense of time. Seymour said the experience was Beautiful, and we had such a good time that he had his hundred lamas in Nepal say two hours of prayers for me, which had no noticeable effect on my portfolios.

  There is supposed to be minimal risk in arbitrage, because you are buying and selling the same thing, only at different times or different places. If company A and company B are going to merge, and B sells slightly higher, you could buy A and sell B, all with borrowed money to make the effort worthwhile. The only risk is that it doesn’t come off quite right, and that is what happened to Seymour in a very big arbitrage. Seymour dropped about $10 million, but his life style did not change one whit; he never wrote checks or paid bills anyway—his brokers did that for him. Seymour said he had been too rich anyway, and stayed quite cheerful. He had put the initial money up for a vaginal douche called Cupid’s Quiver. There are vaginal douches and vaginal douches; apparently this one was the first with flavors: strawberry, raspberry, champagne and so on. The chic ladies’ magazines took the ads for it, McKesson and Robbins took over the franchise, and Seymour was above water again.

  Seymour said that the same group had made an unsuccessful attempt in trying to market a flavored jelly for homosexuals; I never knew whether to believe him, but in his new incarnation Seymour didn’t believe in lying. He still sponsors an ashram in Arizona, and the monks must still be praying for him in Nepal because I saw him once in the south of France, wearing a pair of dirty white pants and carrying a hairbrush and some Tibetan art the monks had shipped him. He said he had just gotten off a plane, and that was all his luggage—the hairbrush and the Tibetan art—because he wanted to be a free spirit. He never made plans and would never commit himself for more than twenty-four hours, because he wanted to live in the moment, in the Now, and go where he wanted when he wanted. We went to look at a villa for rent that used to belong to Mrs. Heinz, the ketchup one. Then he made two very-long-distance telephone calls and disappeared again.

  We heard later that he had gone to Montreal to borrow some money—$10 million or so—to buy some bonds, as usual carrying his hairbrush and nothing so soiling as currency. Seymour borrowed the money, then realized he could not even get back to the airport, so he asked the banker for an additional $100 for cab fare. Then we heard he was trying to start an astrology fund, with none of the usual stuff about “this mutual fund specializes in growth situations”; the managers would all be picked and would operate by the signs under which they were born. Six months later I got a call early in the morning from Seymour: he had an arbitrage scheme so complicated it would result in a perpetual tax loss, but when your Curaçao corporation received the loan from your Bahamian corporation, you wrote off the loan from your Panamanian corporation and got the money back. I said I couldn’t follow it. Seymour said that was all right, he would call some other time; right now he was going to Ecuador to look at some pre-Columbian art, and he did.

  There is a final character on the casualty list, and that is me. A man has to be part of the actions and passions of his time, right? The path he chooses does not matter. Having done that stuff about the Black Horsemen, I was not about to buy for myself any fried-chicken stands, chains of nursing homes, fancy conglomerates, the so-called gambling industry or National Student Marketing. I saw it all coming—yes, sir—and I bought the safest stock anybody could buy. I bought a Swiss bank.

  4:

  HOW MY SWISS BANK BLEW $40 MILLION AND WENT BROKE

  IN early September of that bad year, 1970, I was riding into New York on one of the Penn Central’s surviving trains when a story in The Wall Street Journal caused some hot flashes and palpitations. Nothing alarming; in 1970 it was impossible to read The Wall Street Journal without having hot flashes and palpitations. This story was not even on the front page, and I am sure was passed over by many of the newspaper’s readers. UNITED CALIFORNIA BANK, read the headline, SAYS SWISS UNIT INCURRED LOSSES THAT MAY HIT $30 MILLION. Swiss unit? United California Bank? That was my bank!

  I don’t mean it was my bank in the sense that the Bank of New York is my bank because I have a checking account there, or that people have a friend at the Chase Manhattan because that is where they owe the payments. I mean it was my bank because I owned it. There was no public stock in this bank; it was the biggest, solidest and safest investment I had ever made. A lockup, as they say. And only months after I bought this hunk of the bank, my judgment seemed to be confirmed. The majority interest was bought by the great United California Bank of Los Angeles, one of the fifteen largest in the United States, second largest bank on the West Coast, itself the flagship bank of Western Bancorporation, the largest bank holding company in the world. Big brother.

  Clifford Tweter, senior vice-chairman of United California and president of its parent, Western Bancorporation, last night declined to explain how the loss occurred. He said he hoped to be able to provide more data once an audit at the Swiss bank is completed. That would be within the next few days, he added. “We think we should speak in general terms at this time,” Mr. Tweter said.

  The troubled institution, United California Bank in Basel, is 58% controlled by United California Bank . . . the other 42% is held “by a variety of investors, mostly individuals,” Mr. Tweter said.

  It was a good year when I bought into my Swiss bank. I had a popular book on all the best-seller lists. Now you take the average American male who has a fat year or a windfall, and there are a lot of ways to spend the money in tune with fantasyland. He could buy a beautiful sloop (not to mention yawl, ketch and cutter) and cruise around the world. He could get fitted for a Purdy in London or a Wesley Richards .375 and go shoot an elephant in Kenya while they are thinning out the herds. He could buy a pro football team—or at least part of one—and buy and sell 280-pound tackles, and have a modest little speech prepared when the television cameras roll into the locker room amidst the victory whoops, the champagne, and the wet towels. Not me. I had to buy a Swiss bank. Overexposure to early Eric Ambler, I guess, when if you really wanted to know what was going on, you certainly didn’t watch the newspaper headlines because they didn’t tell you anything; you watched the rise of the dinar and the fall of the drachma, and those barely perceptible flutters told you that Peter Lorre and Sidney Greenstreet were in a compartment on the Orient Express on their way to Istanbul. They were looking for Demetrius, and you remember the trail led right back to Switzerland, good old Switzerland, where the master spy was in his château playing a Bach fugue on his magnificent organ.

  So it wasn’t all safety and solidity that attracted me, though what could be safer than a Swiss bank? It was a hedge against the troubles of the dollar, and a friendly place to call upon in Europe, and the prospects of a lot of fun, and maybe even a very good investment to boot. The United California Bank of Los Angeles didn’t buy into the bank because of Eric Ambler. American business was expanding in Europe. There was big merchant banking to be done. American banks were expanding in Europe—opening branches, chartering banks. Dollars had piled up overseas and there was a big business in Eurodollars. American banks sought to start banks in Europe, but that was hard, and took time; if they could buy one, that would put them right in the middle of the action. We junior partners were delighted when the United California Bank took over; obviously our bank was to be part of the big expansion in Europe. We were in for a great ride.

  When I got to my office that September day the story came out, I dialed 061 35 94 50, the number of the bank’s office in Basel. I remember that I was worried but not stricken. No one likes to see his biggest investment have a bad year. But with the great United California Bank as a senior partner, could anything really go seriously wrong? It was like owning a great ship in partnership with Cunard. The Titanic is unsinkable. If you hear that it has had a little brush with an iceberg, you are annoyed that maybe some paint has been scraped off and now the damn thing is going to need a new paint job when it gets to New York.

  After only a few moments, 061 35 94 50 answered, but the bank’s office seemed to be in some confusion. I asked for Paul Erdman, the thirty-eight-year-old American president of the bank. Previous calls had gone right through, the voices across the Atlantic sounding clearer than a local call. Both Paul Erdman and his secretary seemed not to be there. There was some chattering in German on the other end.

  Finally a male voice said, “Mr. Erdman is not here. He is not with the bank any more.”

  Since when? I wanted to know.

  “Since yesterday,” the voice said. I asked where I could reach Erdman, and the voice said to try him at his home in Basel, which I did. Erdman sounded cheerful as usual.

  “I’ve resigned,” he said. “But I’m staying on as a consultant. There’s a bit of a mess. Maybe you heard.”

  I told him I had just read about it, and what exactly was the problem?

  “There’s a shortfall in the trading account of thirty million dollars.”

  Thirty million dollars?

  Unlike American banks, Swiss banks act also as brokers, and can trade for their own accounts. The assets of our bank were reported to be $69 million at the end of 1969, but of course there were liabilities against those assets. The capital of the bank was less than $9 million. A loss of $30 million would have busted not only our bank but two more the same size, except for our giant parent. I brought this up.

  “UCB will keep the bank open,” Erdman said. “They have to—their reputation would be damaged if they closed it.”

  Where is the thirty million dollars? I wanted to know.

  “It’s lost,” Erdman said. “We lost it trading. A commodities trader lost it.”

  “Listen,” I said. “I have seen guys lose one million dollars. Two million dollars, even. But there is just no way to lose thirty million dollars. No way.”

  “Well, it’s lost,” Erdman said. “The UCB will make it up. You’re going to suffer some dilution. But the bank will go on.”

  “How come you resigned?” I asked.

  “The buck has to stop somewhere, and I was in charge,” he said.

  At that point I began to feel some sympathy for Erdman. For me the bank was an investment: for him it was a personal creation, something he had spent years building up. I said, “This must be tough.”

  “I’m all right,” he said. “I’ll be at the bank tomorrow, helping to clean up the mess.”

  But he wasn’t. Shortly thereafter, the Basel police picked Erdman up, as they did all the directors of the bank who were in Switzerland. The two directors they did not pick up were the chairman of the board, Frank King, who was also the chairman of the United California Bank in Los Angeles and, in fact, of the Western Bancorporation, and Victor Rose, a vice-president of the Los Angeles bank. Both of them were in Los Angeles. It seemed somehow very Swiss to put the board of a bank in jail. I never heard of it happening here.

  Erdman was to spend ten months in the Basel prison, much of it in solitary confinement. Habeas corpus is an Anglo-Saxon institution. In Switzerland they can keep you in jail as long as they see fit, for investigation. The Swiss say it’s very efficient.

  I called Erdman’s house a few days later, and talked to Erdman’s attractive blond wife, Helly.

  “It’s like a nightmare,” Helly said. “No one will speak to me. They won’t let me talk to Paul. I am afraid the house is being watched. It’s like a bad criminal show on TV.”

  How could they simply hold someone without a charge?

  “This is not the United States,” Helly said. “There is a long phrase, Verdacht der ungetreuen Geschäftsführung. I don’t know how to translate it.” Helly was a native-born Baseler, but she spoke good English. “I think,” she said, “it means Suspicion of Crimes Against a Bank.”

  I couldn’t think of anything like that in English.

  “There isn’t,” she said. “In Switzerland this is very serious. More serious than murder.”

  That, incidentally, is true. Long jail sentences do not meet the Swiss standard of justice. There is a gentleman at this moment in the Basel jail who caved in his wife’s skull with a blunt instrument. She was a nagging wife, he said, and she liked to boss him around. One day he had had all he could stand, and he dispatched her. Then he went downtown and mailed a letter. Murder one, five years, with a year and a half off for good behavior. In Switzerland almost everybody gets off for good behavior, because almost everybody is well behaved.

  On September 16, 1970, at 2 P.M., the United California Bank in Basel AG closed its doors and posted a notice on its premises at St. Jakobsstrasse 7. According to the papers, the losses were closer to $40 million than $30 million. Representatives of the United California Bank in Los Angeles presented a plan to the Swiss banking authorities in Bern. They would, they said, make good to the depositors and creditors. In a report to its own stockholders, the California bank explained that a great international bank has deposits from other great international banks, and if it were to welsh it couldn’t continue in business. The loss, it said, would be treated as an ordinary and necessary business expense, and it applied to Internal Revenue for a tax saving of half the loss. Furthermore, insurance might cover $10 million. On the New York Stock Exchange, Western Bancorporation went down two and a half points, and then back up two points. In 1969 Western Banc had had a net profit after taxes of a bit more than $60 million, so a $10 million or even a $20 million loss, while quite an inconvenience, was not a serious impediment to doing business.

  Western Bancorporation was a publicly traded company; the United California Bank in Basel was held privately, by the Los Angeles bank and a few of us faithful junior partners. No one called the junior partners—at least no one called me, and I certainly left my phone number in enough places. There seemed to be nowhere to get information. I called an investment officer I knew professionally at the UCB in Los Angeles. He clucked sympathetically, said he didn’t know anything that hadn’t been in the papers, and suggested that the best use for my stock certificates was as wallpaper.

  “Write it off,” he said.

  “Off what?” I said.

  Finally I began to play a little game. I would call the office of Frank King, the chairman of the United California Bank, and explain carefully why I was calling, what it was in reference to, and that it was a call from the junior partner to the senior partner. Frank King’s office would say they would take the message and he would call back. Then he wouldn’t call back. We tried this thirty-one times and then gave up. I had to conclude that nobody wanted to talk to me. We were, after all, in the same boat, and we did have something to talk about, but when there is trouble, bankers get very tongue-tied, and this incident was a real conversation-stopper, bankwise.