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How The Indians Finally Won The World Series--And Saved Cleveland---Conclusion

 

How The Indians Finally Won The World Series—And Saved Cleveland

 

The BSBS Is Born

Mike knew that he had to start by making the Indians look better than they were, but now he knew how to do it. First he tweaked the computer program a little so it would accept statistical data about the performance of ballplayers instead of statistics about the performance of mortgages. Then, using basic performance data like ERA and batting average, he divided the Indians’ likely 25-man roster for the upcoming season into three tranches—from riskiest to least risky. And then just as the computer program instructed him to, he pressed "Ctl-Alt-Enter" on his computer keyboard and the riskiest tranche of Indians moved up to a less-risky one. In fact, he found out that if he just held down these three keys for a few extra seconds the bottom tranche of players moved up all the way to the top.

And just like that the Indians started to look like a championship team.

Since the winter sportsbook in Vegas was quoting 100-to-1 odds against the Tribe winning the 2011 World Series, Mike saw that he had discovered what the Wall Street people and the baseball statistics experts called a "market inefficiency" and that he could try to take advantage of it. But to make it work he knew that he needed some help from a lawyer, a baseball expert, and a stockbroker. He also needed some financial backing and help selling the BSBS. He already had an idea where he could get the money, the sales force, and the expert opinion. So he started by getting a lawyer.

The only lawyer he knew, a guy named Frank Murphy, ran a storefront legal practice on Detroit Avenue. Murphy had done wills for his wife and him and had handled the probating of her small estate.  He had been consulting Murphy again recently as he fought to save his home from foreclosure. Mike went to see him right away and told him what he wanted to do.

The lawyer was, to say the least, a bit skeptical. He told Mike that he hadn’t taken a securities course at the night law school he attended and in fact had never even handled a securities matter. He was very reluctant to get involved.

Mike pleaded with him to help and then Murphy had an idea. An old buddy of his, Marty Jablonski, had dropped out of law school after the first year and moved to New York to work in the securities business. Murphy tracked him down and called him. The lawyer explained Mike’s basic idea of the BSBS and asked his buddy if he could serve as the investment banker for the deal. Jablonski said that, technically speaking, he didn’t really work for an investment bank. In fact, he told Murphy  that some people referred to his firm as a bucket shop, though for his part he preferred to think of it as "an investment bank for the rest of us."  Murphy wasn’t sure what he meant by this, but he asked his buddy to think the situation over some more and get back to him if he thought he could help.

The next day Jablonski called back to say that he thought he could make this idea work. As he sat at home the night before thinking about Mike’s idea, he had remembered that his firm had a professional relationship with a similar firm in Tokyo. He knew that the Japanese were crazy about baseball, so he had called the firm to ask if it thought Japanese citizens might be interested in buying small pieces of these BSBS. The people at the firm already knew all about the Indians because of the popularity of Chief Wahoo and because the Indians had signed some Japanese players over the years. They said that if the BSBS was broken into small enough pieces (say, little investment certificates for $20 each) and a Chief Wahoo logo was put on each one of them it should be no problem to sell 4 million dollars’ worth of the things in short order. The certificates would offer the buyers the chance to double their money if the Indians had a good year and could be kept as a memorabilia item even if the team did poorly. The key, the Tokyo firm thought, was to put them on sale in March—just before the start of baseball season.

Murphy asked how much Jablonski and the Tokyo firm would get out of the deal. Jablonski told him that for selling 4 million dollars of BSBS to the customers the New York and Tokyo firms would want ten percent of the proceeds, or $200,000 each.

Murphy called Mike with this news right away. Mike walked over to his office to discuss the situation some more and to lay out the rest of his plan. Murphy said he didn’t want to know. He gave him Jablonski’s number, said that as far as he was concerned he and Mike had never talked about this, and wished him luck.

So Mike called Jablonski directly and laid out his entire plan. He and his buddies would raise 4 million dollars in convents, union halls, church councils, bingo halls, and neighborhood bars and restaurants all over Cleveland, use the money to pay the $400,000 in fees to the securities firms and then make 3.6 million dollars’ worth of bets at a number of sportsbooks in Vegas on the Tribe to win the Series at 100-1 odds. They would then use Jablonski’s firm to securitize the betting slips they got from the sportsbooks where they placed the bets while holding the betting slips themselves in a safety deposit box (Mike said that he would be acting kind of like the trustee of a mortgage-backed security).  Then they would have Jablonski work through the Tokyo firm to sell enough pieces of the securities in Japan to repay the 4 million dollars right away to the people who had provided the initial 4 million dollars. They would also give them their share of the betting slips and tell them to sell them or hold onto them as they chose. If the Tribe got off to a strong start the slips should go up in value as the odds against the Indians winning the Series decreased to maybe 40-1 or less. The holders of the slips could sell them whenever they wanted to anyone who was interested in buying a 100-1 bet at a discount and charge any price the buyer was willing to pay. Mike would also send enough of the betting slips to the Tokyo firm to allow it to redeem certificates there.

Mike told Jablonski that from all his research this is what the investment bankers had meant when they kept referring to the "magic of the free market" when they were talking about MBS and ABS in the years before the crash.  Jablonski said that he was basically right about that but asked Mike what would happen if the Indians had a bad year and the BSBS bought by the Japanese turned out to be worthless and the buyers started complaining.

Mike said that he had already thought of that. He reminded Jablonski that the government had bailed out all sorts of foreign banks which had invested in mortgage-backed securities that turned out to be worthless and had never prosecuted the people on Wall Street who had created and sold this garbage, so he thought the government would also bail out these Japanese buyers of the BSBS and be too embarrassed to prosecute him. He called it his "too small to fail" theory.

Jablonski was now even more interested, but he told Mike that two other things were needed—an actual security document for the BSBS and an opinion letter vouching for the safety of the security from a qualified expert. Mike said he had already had the answer in both areas.

For the BSBS security document he would just modify the one which was contained in the program he had obtained from the senator’s office by deleting everything that talked about mortgages and their risks and putting in language that talked about the Tribe’s ballplayers and the risks facing them. Jablonski would then put his firm’s name on the document. And for the expert opinion he would rely on a former ballplayer who lived in the neighborhood.

This ballplayer, Paul ("No Hands") Hansen, was something of a local celebrity. He had played for ten years in the Indians’ minor league system and finally had a two-month stint with the big league club but for the last fifteen years or so had fallen on hard times. He hung around one of the local bars, and people who remembered him stood him drinks in return for stories about his years in baseball. Mike had already checked with him and told him about the computer program that showed that the Tribe was actually a great team, and he had agreed to sign a letter stating that in his expert opinion as a former major league ballplayer the Indians were a good team with a great shot at winning the Series this year. In fact, Sally had already created a letterhead for him using the bar’s address as his office address. And the letter was just waiting to be signed.

After hearing all this, Jablonski paid Mike what he considered to be the ultimate compliment. He said, "Mike, you should have been an investment banker."

 

Count Me In

In a matter of days after he talked to Jablonski Mike had modified the document in the computer program to create the world’s first BSBS and gotten the expert opinion letter signed by Paul Hansen. He sent them to Jablonski, who told him that they looked every bit as good as any MBS he had ever seen and agreed to put his firm’s name on the BSBS.  Jablonski told him that it was now time for Mike to try to raise the money necessary to buy the betting slips. Mike knew exactly where to start.

Over the years he had stayed in contact with his old fifth grade teacher, Sister Aloysius, who was now living in a home for retired nuns. He knew that the home was experiencing financial problems and could use some help. He also knew that Sister Aloysius was a great Indians fan who, along with some of the other nuns from her order, often went to Tribe games with the tickets the team provided them. So Mike went to see her.

After he laid out his plan, Sister Aloysius smiled at Mike and said, "Michael, you always were one of my favorite students. Count me in." But then she offered a suggestion. She told Mike that the watchword in raising the money had to always be the following: "Keep your mouth shut and we just might all get out of the hole Wall Street dug us."

From there events moved rapidly. Some of the convent’s pension money was invested in the BSBS. After Sister Aloysius had placed some discreet calls to some other nuns from other convents where there were a lot of Indians fans, still more money came in. And then, with Sister Aloysius’s permission to use hers and the other convents’ names, Mike, Sam, Jack and some of their unemployed friends fanned out to councils of churches which had been scheduled for closing, to bingo halls where fewer players had been showing up every week, to union halls where unemployed workers were meeting, and to everywhere else in Cleveland where they thought they could raise money. And they told the same story everywhere they went: "The sisters who taught you have invested in this. It’s a good chance to make back some of the money you all got screwed out of. So put your money in. But keep your mouth shut."

In two weeks’ time they had raised the four million dollars. Mike and Sam promptly went to Vegas and made 3.6 million dollars’ worth of small bets at 100-1 that the Indians would win the Series. They brought the betting slips back with them in a box in the trunk of their car. Once home, they put them in a safety deposit box.

After that, things went like clockwork. They sent Jablonski the $400,000 fee they had agreed upon for the two securities firms and enough betting slips for the Tokyo firm to hold as trustee for the Japanese buyers of the pieces of the BSBS. The Tokyo firm sold the entire 4 million dollar allotment of the BSBS in one week. It sent the money to Jablonski who in turn sent it to Mike. Mike and his buddies then repaid all the seed money to the people who had provided it and also gave them their proportionate share of the betting slips. Then everyone waited for Opening Day, which was just ten days off.

As all Tribe fans everywhere now know, the Indians got out of the gate fast, and the Vegas odds against their winning the Series began dropping sharply. As the Tribe’s injured players returned to form, as their young players began blossoming, and as their prospects moved to the major league club and prospered, the Tribe found itself in first place by mid-June.

The next two months saw them cling to the division lead, though at times the lead shrank to only a half-game. But as the team continued to play well, the fans began to believe in them and the crowds at the games grew steadily larger. Now the drumbeats of the drummer were accompanied by the sounds of cheering fans, who pushed the team on to rally after rally and win after win.

And the longer the Indians stayed in first, the more valuable the betting slips became as the Vegas odds continued to drop. The initial investors began to sell some of the slips at a huge profit and began catching up on their mortgages. Foreclosure cases began to be dismissed and "for sale" signs started coming down. Houses all over the city began to get new coats of paint, and some got new roofs and driveways as well. As people began to feel a little more secure, they began patronizing local businesses again, and many small businesses reopened. Men and women who had been unemployed for several years began working at local shops and restaurants and for small construction companies. Many people used their profits from the slips to rebuild their retirement plans. Churches which had been scheduled for closing were now able to justify remaining open, and church attendance grew. The sisters in the convents and retirement homes suddenly had a brighter future. The city began to feel good about itself again.

And the Indians kept winning enough to remain in first. By early September, though, the Twins and the White Sox were both making a move.  Progressive Field was sold out game after game, as the crowds, which included many religious orders who showed up en masse, willed the Indians onward.

The designated drummer now had to beat his drum louder because, in addition to the cheering, he was competing with a distinct humming sound which echoed throughout the stadium and reminded people of the vuvuzelas heard at the recent World Cup. The sound was actually coming from the thousands of rosary beads which were clicking together as the sisters prayed the team on to victory.

And, finally, everyone’s prayers were answered. The Tribe pulled away from the field in September, won the division by plenty, and swept every postseason series.

______________

As the World Series victory parade moved slowly down Euclid Avenue on a sunny late October afternoon, anyone paying close enough attention noticed two things. They saw that the lead car had several players but also a newlywed couple, Mike and Sally. And in the background, amid all the wild cheering, there was the distinct sound of church bells ringing all over Cleveland.

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