Chapter 9 - Wednesday, Jan. 21
"Karen!" Jaycee exclaimed and ran towards my former secretary. They embraced for a surprisingly fierce hug.
"You finally decided to wake up and join us, huh?" asked Karen.
"Actually," I interjected, "Jaycee was very sweet this morning. She got up with me and insisted on making me breakfast. Of course, she went back to sleep immediately afterwards, but I very much appreciated the gesture."
"I've convinced Will that I require one hour of sleep for every orgasm he gives me from the night before," Jaycee joked. "So really I should be back in bed until mid-afternoon."
Karen looked at me with eyes raised. I rolled my eyes at the two of them.
Karen and I still had a couple hours before Beck's car was due to pick us up. Karen had decided to come over early to talk about yesterday's client contacts and brainstorm potential plans. Jaycee mainly listened in, though she took every opportunity to touch or kiss me, or get me whatever I needed. When the conversation shifted to Beck and the upcoming meeting, Jaycee finally began asking questions.
"Karen, can I ask you a really personal question?" Jaycee asked.
"Shoot," Karen replied.
"How much money did you make by investing with Beck?"
Karen hesitated, but only for a couple seconds. "Just over a million dollars," she answered.
"What? Really?" Jaycee all but squealed. "Wow. So you're, like, set."
"Don't say 'like,'" I said reflexively.
Jaycee shot me an embarrassed look.
"It would be nice to say I'm set," Karen said. "But really I've decided to set that money aside for retirement. I'm still going to work until then. I was all excited about all that money until I started working out how much I needed to retire. Then it seemed like it wasn't much money at all."
I nodded. But if Karen was smart with that money then she'd be more than ok. We took a few minutes to explain to Jaycee how a million dollars really wasn't the enormous sum of money she thought it was.
"Ok, so what I still don't understand is how Beck made all this money when everyone else was losing their shirts," Jaycee complained.
"In the most general terms, he bet against the housing market," I answered.
"That's it?"
"Yes, though that's a gross oversimplification," I said.
"So explain it to me," Jaycee requested. "How did he do it?"
I spent a few minutes trying to explain collateralized debt obligations and credit default swaps to Jaycee, but I fell into technical jargon all too often without realizing it. Jaycee would rightly interrupt often to back me up. Finally, I decided to try a completely different tack.
"Ok, let's try an analogy. You know poker. Let me think of something. Alright. Say you go to a casino on your twenty-first birthday with your friend, Penny, and you lose all your money. So you're about to leave all depressed when this blackjack dealer takes pity on you and, seeing you are a hot young chick, decides to make up a game just for all single ladies who turned twenty-one that day so you can win some money back."
"Ok," Jaycee replied doubtfully.
"Just go with it," I said. "So we'll say he sets you up at his blackjack table. And for every hand you win, the dealer will give you a five dollar chip into a special pile. And you can walk away at any time and take that money with you, and you'll only lose it if the dealer gets an all-spades blackjack."
"That's crazy," Jaycee said. "The odds of them getting back that money would be ... one in ... I don't know. A lot."
"A little over one in twenty five hundred," I answered. Jaycee gave me a look like I wasn't supposed to know that better than her. I gave her a shrug.
"So, knowing that, and knowing that your friend, Penny still has lots of money, what do you do?" I ask.
"Easy. I borrow money from Penny and start playing."
"And do you think Penny would lend you the money?" I asked.
"Sure."
"What kind of deal would she want in return?" I pushed.
Jaycee thought about it a minute. "I suppose she'd want not just her money back, but a cut of my winnings."
"Good," I said. "Now let's say that Penny, hearing the terms of the deal, sends out a message on every social networking site saying that she'll financially back any twenty-one year old girl who gets her butt down to the casino pronto to play this game."
Karen and Jaycee laughed. "I think Jaycee would soon have a lot of company at that blackjack table," Karen said.
"Right. Now let's say that the dealer takes out a huge shoe, using a hundred decks of cards. So you're going to play a long time before he needs to re-shuffle. And you start playing. And you're doing ok. And soon there are a bunch of other girls who show up, take Penny's money, and start playing. And they're doing ok, too."
"Sounds fun," Jaycee laughs.
"You bet," I agreed. "In fact, it becomes a lot of fun for everyone. The girls are having a great time. That attracts guys over. Soon it becomes a big show. The pit boss at first was pissed off at the dealer, thinking the casino was going to lose a bunch of money when all the other girls showed up. But now, with the guys having a great time and all the fun, he's thinking that this was a great idea."
"Sure, why not?" Jaycee replied.
"So you've been playing for a while now. And you've got a good chunk of change sitting in that pile. Enough that you really don't want to lose it, especially knowing you have to give a good chunk of that to Penny. And you suddenly realize that you haven't seen hardly any spades played. And you certainly haven't seen any aces or jacks of spades played. What does that tell you?"
"It tells me that I should start thinking about taking my money and getting out," Jaycee answered.
"Why?" I asked.
"Because the odds have changed. If there are a bunch of aces and jacks of spades left in the shoe, then the odds of the dealer hitting an all-spades blackjack is no longer one in ... whatever that was, twenty five hundred? It's come way down."
"Ok, so say you start collecting your pile in preparation for leaving, and the pit boss comes over to you and tells you that you've got nothing to worry about. That there's really no way for the dealer to hit the all-spades blackjack."
"Why? Did he fix the deck or something?" Jaycee asked.
"That certainly sounds like that's what he's saying, doesn't it? In fact, that's what everyone else decides he must mean, and Penny starts upping the loans she's making to the players as she now believes that it's a sure thing. But you watched carefully and didn't see anything funny take place with the handling of the deck. In fact, you remember that the pit boss wasn't even around when the deck was made. You're sure there are a ton of aces and jacks of spades waiting to come out," I said.
"Now let's say that Beck had been there watching the entire time," I continued. "And upon hearing this latest pronouncement from the pit boss, Beck tells the dealer that he wants to place a bet that the dealer wins on an all-spade blackjack on the next hand. The dealer looks at him with contempt, of course. I mean, who does this idiot think he is? But if he's just going to throw his money away, then the casino will gladly take it. So they set up the bet where if the dealer hits, then all of the money in all of the players' side piles goes to Beck, which is up to about two grand, and in return Beck bets ten dollars."
"So that's two hundred to one odds? Is that about right for the cards in the deck?" Jaycee asked.
"Beck thinks the odds are lower than that, else he wouldn't make the bet. But he loses that bet and his ten dollar chip is gone, and again no jacks or aces are played. So Beck asks to make the bet again, and he loses again, and again and again, but still no jacks or aces are played. So what should happen?"
Jaycee thought for a moment. "The casino should start demanding more than ten bucks if Beck makes that bet again, because the odds of the blackjack hitting keep going down."
"Very good," I reply. "That's exactly what should have happened. Only they don't. In fact, Beck is viewed by everyone there as though he's just throwing his money away. With no aces or jacks being played, it looks like the Pit Boss really has fixed the game. And so people start getting really crazy. The girls start flirting with the dealer and promising sexual favors for help. They start pushing more than the five dollar chip into their pile and getting away with it. The behavior is becoming outrageous, and the pit boss doesn't seem to care. If anything, he seems to be encouraging it."
"Wow. It sounds like I really need to take my money and get out of there," Jaycee stated.
"Why?" I insisted.
"With crazy things going on, you just know that the rug is going to get pulled out from under them eventually," Jaycee said, "and it's going to be ugly when it happens."
"Congratulations," I told Jaycee, "you are officially smarter than ninety nine percent of all financial investors." She looked doubtful. "Do you know what would happen at this point if this story actually happened in real life? A gaggle of twenty-one-year-old girls would show up and start throwing their money at the table, and Penny or the guys around the table with money would back them up, too."
"You're joking," Jaycee said in disbelief.
"I wish I was," I lamented. "Now let's just say for argument's sake, that at some point the dealer is going to throw that all-spades blackjack."
"Beck's going to make a lot of money," Jaycee blurted.
"Only if he's still betting," I explained. "He may run out of money before then."
"Oh. Right. He's losing ten dollars a hand. That's going to add up. And even if he eventually hits, he may have spent so much money that he comes out close to even," Jaycee added.
"No. You're assuming that either the dealer starts demanding higher bets from him to cover the increasing odds, or that the money in the piles doesn't grow. But that money is growing, by more than ten dollars per hand, too. And the dealer is apparently clueless."
"So as long as Beck still has money to bet, then he's going to make a ton when it comes in," Jaycee saw.
"Right," I agreed. "Now Penny sees these bets of Beck's and she decides she wants in on that action, so she offers Beck the same bet."
"What?" exclaimed Jaycee. "That's crazy!" I was overjoyed at how she saw that immediately.
"Good," I said. "Why?"
