Tim Munkeby taught high school English, literature and creative writing for 13 years before becoming a financial advisor and founder of Munkeby Financial, Inc. After retiring in 2008, Tim wrote the book “If I Had a Million Dollars: How to Achieve Financial Independence Before Your Parents Do” and he’s had numerous articles published in various periodicals. Back to the Island is his first attempt at fiction. Check out www.timmunkeby.com for more info.

Wall Street “Beach”

From a Tropical Island: The Great Recession Explained Through Fiction


June 2015

June 2015

Editor’s Note: The Reporters Inc. presents an exclusive excerpt from a great new work by author Tim Munkeby. Back to the Island is a fictional tale woven around the real-life issue of unscrupulous developers and financiers. But first, Tim explains how the book came to be:

I was starting work on a fictional short story that, I hoped, would also describe my real-life opposition to a proposed real estate development on the quaint Elbow Cay in the outer Abacos Islands of the Bahamas. I was certain it would destroy the quiet beauty of island life.

I picked up a Bahamian newspaper reporting how the greed of Wall Street had destroyed much of the economy of the Bahamas. Having been in the investment business, I was acutely aware of the questionable ethics and even legality of the transgressions Wall Street firms were getting away with.

I was appalled, even outraged, at our system in the U.S. that allowed the outlandish greed of a handful of financiers to not only destroy the lives–and dreams (maybe worse)–of citizens of the U. S. by helping cause the Great Recession, but that a small island nation was also so drastically affected. It hit me how far-reaching and global the fallout was.

What’s even more unbelievable is that since writing this short story—which eventually turned into a novel–things have gotten worse, not better. Fewer firms (a misnomer) now control even more assets, portending another potential economic disaster where, once again, a few people will walk away with millions and millions of our money pilfered and tucked away in their foreign bank accounts.

Fines are a joke to them. Their firms don’t pay with their money, but ours. Pain, inflicted through incarceration or at least the threat of, may be the only solution. Yet when the people–elected officials or those appointed by elected officials—who are in position to do this are also benefitting from the transgressions (many going to work for the Wall Street firms at the end of their tenure) change is unlikely.

I figure the only way I personally have at my disposal to affect change is to make as much of the public as possible aware of the problem. In this case, I’ve done so by writing fiction (which the actual situation almost seems like anyway).

In this excerpt from Back to the Island, a conversation occurs on a yacht owned by a wealthy vagabond named Spence Redfern. The character Kate has intercepted damning emails on the computer of her live-in boyfriend, who was a compliance officer at one of the major firms; she’s about to testify about what she found in court. In the meantime, she’s been given refuge on Elbow Cay by the main character, Mikael. Kate’s visiting twin Sara, Mikael’s friend Barney, and an island barmaid named Lottie are all present, and weigh in on the troubling situation at hand.

* * * * * * * * * *

“The floor is yours,” Mick announced to Kate. “We’ve all
waited long enough for this.”

Kate and Sara looked at each other and shifted in their
chairs. “As some of you know,” Kate started, “Sara works for
the SEC, the Security and Exchange Commission, remotely
most of the time in Spokane, where we’re from. For the previous year, before the Bahamas, I was in a contract position doing PR work for a big financial institution in New York. While there, I met Richard, an internal compliance officer for the same institution. Being in my forties, not having managed to save money like my sister, and Richard—a bachelor, very good-looking, and financially well off—made me feel safe in the Big Apple. So he proposed, I accepted, and we moved in together. It all happened way too fast.

“This institution I was doing work for is one of the biggies being investigated by the SEC and several other branches of
the government. Sara contacted me and informed me that
they were trying to build a case against them for fraud.”

“Like what?” Mick interjected, always hot on this topic.

Sara spoke up. “I don’t think we can, or should, get into
the specifics.”

“Just give us an inkling so we can get good and pissed,”
Mick said.

Sara looked at the group and they all shrugged, Spense
saying, “The suspense is almost intolerable. I believe we
agree our lips are sealed?” Mick, Barney, and Lottie all
nodded and were already on the edge of their seats, literally.

“Well, let’s see. Some of it I can’t tell you. I mean, there
are people going to prison for insider trading. You’ve
probably heard of that—using or letting out confidential
trading information about companies that gives themselves
or certain individuals an unfair advantage to trade their
stock for profit. And there are speculators on Wall Street
that were able to manipulate the market to their advantage.
They’re being prosecuted and going to prison.

That stuff is blatantly illegal and they were audacious enough to assume they could get away with it but not smart enough to cover their tracks. Also, there are glaring conflicts of interest being uncovered, such as with the S&P—Standard and Poors. They rate the credit worthiness of the institutions that pay them, a conflict of interest, obviously opening the door to unethical practices. It’s like a referee getting paid by whichever team wins.

This may have been one of the first precedents where emails were used for evidence. If I remember it correctly, it was congressional investigators that unearthed an email sent internally within the S&P that said—I’ve got this one memorized: ‘Let’s hope we are all wealthy and retired by the time this house of cards falters.’ They were arrogant, careless, and so got caught. We can prove through emails that they knew what they were doing was wrong.

“The big guys in the institutions like Richard’s are even
more arrogant but generally more careful and clandestine
with their in-house communications. They’re usually smart
enough to hide their complicity, but the longer they get
away with their corruption, the sloppier they get. They get
cocky, think they’re insulated and above it all.

Kate wasin the unusual position of having the opportunity to read and copy uncensored emails. With Richard’s firm, one of the big ones we’ve been previously unable to find sufficient evidence to prosecute, there are billions of dollars invested that are just simply missing, unaccounted for. We can’t trust bank accounting. It’s like handing addicts a loan and asking them to keep track of where they spend it. When it’s all gone, would you expect to believe their accounting of it? Some of the emails Kate was able to discover provide, hopefully, sufficient proof of actual complicity and, thus, fraud.”

“Bastards!” Mick just couldn’t help himself. “That missing money—our money!—is in somebody’s pockets. These guys lost billions of our bank deposits, our money, money we thought was guaranteed, by making high-risk investments that failed, and then they receive golden parachutes —bonuses in the ten- to fifty-million dollar range. Probably to keep their mouths shut. Simply unbelievable! Just not acceptable!

Sara smiled. “Yes. What I can tell you, though, to agitate your acrimony, is about the extent of leverage, which was a huge abuse–unethical for sure, but unfortunately, maybe not illegal, unless…”

“Like?” Mick prodded.

“Well, the average leverage…”

“Please explain leverage,” Lottie interrupted.

“Debt, borrowing,” Barney the professor answered. “Like a house: you may not have enough of your own cash to pay for it, so you borrow somebody else’s cash. The more of your money you have in it, the more risk to you, like if you lose the house, you lose your own money. The more of somebody else’s money, the more risk to them–you lose their money. That’s leverage.”

“But don’t you just go to the bank to borrow the money?”
Lottie asked.

“Yes,” Mick said, “but it isn’t the bank’s money you’re borrowing. It belongs to people who have entrusted their savings with the bank, expecting it to be safe.”

“Oh, yeah. I think I see,” Lottie said.

“The average leverage ratio with these big institutions,”
Sara continued, “was pretty close to 40:1. Meaning that for
every dollar they invested of their money, they borrowed
forty of ours. So, if a product rose by even 1%, their gain was 40%. A lot, a lot of profit was made, like Mick said. If the investment failed: no big deal—most of it wasn’t their money. So this abuse of leverage didn’t make any difference to them: their risk was low, their potential for gain, high. They thought they were just being smart. They knew how a system that very few people understood worked and used it to, in effect, risk our money for their gain. What we’ve got to do is stop letting them get away with it. To do that we’ve got to inflict personal pain: prison. What is at issue, legally, is whether or to what extent they knew, and so, misrepresented how risky that level of leverage was.”

“Totally greedy shitheads!” Again, Mick. “They, the
government or whatever, have got to separate deposit
banking from investment banking once again.”

To Lottie: “See, people deposit their money in the bank
because they believe it’s safe and ‘guaranteed’ and they can
get it if they want or need it.”

“So, if the money’s guaranteed, what’s the problem?” Lottie
asked.

“What money? The investment side took what should be
these short-term, safe deposits—but low profit to the
banks—and then takes not only this money but borrows
even more against it and invests it in these longer-term,
potentially more profitable but risky, complex investments.

So when these investments failed, the banks wouldn’t have the money to give back to their depositors if they requested it… so the government had to bail them out because, as you’ve probably heard, they’re ‘too big to fail.’”

“No shit?” Lottie said. “This crap really goes on?”

“What about the ‘selling short’ shit?” Barney pointed out,
and looked at Lottie. “That means they bet against their own
investments. They would package a bunch of mortgages in what were called tranches and made tons of money by selling these as investments to individuals, but mostly to large institutional managers of retirement funds and nonprofit organizations. Many, too many, of the mortgages were very risky—subprime they’re called—meaning they were made to people who were unlikely to be able to make their payments. So they also made money when these investments failed.”

“What? They can do that?” Lottie exclaimed. “No way!
That must be illegal.”

“The assholes make a ton of money selling these products
and also make money when they fail,” Mick spit, getting
heated, almost choleric.

“They can legally do this?” asked Spense, calmly.

“You’ve heard of hedging?” Everyone nodded except Lottie.

“Hedging,” Sara directed at Lottie, “is a balance of betting the market will go up but protecting yourself if it goes down. So, selling short, hedging, can on one hand mitigate risk but can certainly be unethical, depending on your knowledge of the investment risk and potential for loss. The practice itself is not illegal–unless they had knowledge that they knew the investment was going to fail. That’s what we now, with Kate’s evidence, have proof of. I can’t say much more, but some people at the top knew exactly what they were doing. They knew and understood the risk and that the products would fail. And if we can prove that they misrepresented to their sales force and the public, intentionally, what the risk was, then there’s fraud. ‘Intentionally’ being the key word, and hard to prove.

“None of the big honchos behind the debacle that almost caused our entire economy to fail—causing millions to lose savings, retirement funds, houses, and jobs—have been convicted, much less charged–and won’t, unless we have actual proof. And they can’t just be fined. That accomplishes nothing. In their minds, they’re getting away with it. They basically pay, not with their own money, but, in effect, our money that they’ve so cleverly manipulated into their own pockets. And then they think they’re being smart, which they wouldn’t be if it was illegal and provable. No. They have to be incarcerated to change the system of abuse. Their personal freedom must be at stake to keep them honest.”

“So,” Spense interjected quickly before Mick once again
erupted, “how, exactly, is Kate involved and why is she in
danger?”

“Well,” Kate started, “I was around the condo a lot more
than Richard. I rarely saw him, probably why we got along
at the time. Our relationship was more like a series of first
dates.” She glanced at Mick, not looking thrilled that she was
talking about this, or that he was shoulder to shoulder with
Lottie on the ‘love’ seat, or that he was glaring at her.

Except at night! What? Like a series of one nighters? Mick
thought, and then pushed the thought out of his mind. Why
should he care?

“So, often, Richard,” Kate continued, haltingly, “would leave his mail open, and after Sara clued me in on the apparent transgressions, I started looking at his emails.”

“Uh-oh,” Spense purred.

“Right,” Sara said, taking over. “Richard, being a compliance officer, was privy to just about everything going on and who knew what. They figured nobody outside their exclusive group would ever see these emails. So Kate came across some that prove absolute and total complicity from the higher-ups in this institution that they knew the products were going to fail, allowed them to be sold, and made a fortune by cashing in their clients’ money when they did fail. They win big; their clients lose big. These emails will go a long way, hopefully, in proving fraud and putting them away. When we build our case, Kate will be the star witness.”

“That’s almost out of the realm of believability,” Spense said, shaking his head. “I more blame the system that allowed them to be able to do this than the buggers themselves. There always will be unscrupulous people in the world that will take advantage of people and do anything for money–and the bigger the payoff potential the easier to fall to, hopefully, a damning temptation.”

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