Michael Lewis | The End

The End
by Michael Lewis Nov 11 2008
The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar's Poker, returns to his old haunt to figure out what went wrong.
Fallen bull statue in Wall Street

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn't the first clue.

I'd never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people's money, would be expelled from finance.

When I sat down to write my account of the experience in 1989—Liar's Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future.

Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.

I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged that back in 1986, the C.E.O. of Salomon Brothers, John Gutfreund, was paid $3.1 million; I expected them to gape in horror when I reported that one of our traders, Howie Rubin, had moved to Merrill Lynch, where he lost $250 million; I assumed they'd be shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the risks his traders were running. What I didn't expect was that any future reader would look on my experience and say, "How quaint."

I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, "I hope that college students trying to figure out what to do with their lives will read it and decide that it's silly to phony it up and abandon their passions to become financiers." I hoped that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

Somehow that message failed to come across. Six months after Liar's Poker was published, I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They'd read my book as a how-to manual.

In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents' world when you can buy it, slice it up into tranches, and sell off the pieces?

At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.

Then came Meredith Whitney with news. Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It's never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup's C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend.

From that moment, Whitney became E.F. Hutton: When she spoke, people listened. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of ­borrowed money, and imagine what they'd fetch in a fire sale. The vast assemblages of highly paid people inside the firms were essentially worth nothing. For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You're wrong. You're still not facing up to how badly you have mismanaged your business.

Rivals accused Whitney of being overrated; bloggers accused her of being lucky. What she was, mainly, was right. But it's true that she was, in part, guessing. There was no way she could have known what was going to happen to these Wall Street firms. The C.E.O.'s themselves didn't know.

Now, obviously, Meredith Whitney didn't sink Wall Street. She just expressed most clearly and loudly a view that was, in retrospect, far more seditious to the financial order than, say, Eliot Spitzer's campaign against Wall Street corruption. If mere scandal could have destroyed the big Wall Street investment banks, they'd have vanished long ago. This woman wasn't saying that Wall Street bankers were corrupt. She was saying they were stupid. These people whose job it was to allocate capital apparently didn't even know how to manage their own.

At some point, I could no longer contain myself: I called Whitney. This was back in March, when Wall Street's fate still hung in the balance. I thought, If she's right, then this really could be the end of Wall Street as we've known it. I was curious to see if she made sense but also to know where this young woman who was crashing the stock market with her every utterance had come from.

It turned out that she made a great deal of sense and that she'd arrived on Wall Street in 1993, from the Brown University history department. "I got to New York, and I didn't even know research existed," she says. She'd wound up at Oppenheimer and had the most incredible piece of luck: to be trained by a man who helped her establish not merely a career but a worldview. His name, she says, was Steve Eisman.

Eisman had moved on, but they kept in touch. "After I made the Citi call," she says, "one of the best things that happened was when Steve called and told me how proud he was of me."

Having never heard of Eisman, I didn't think anything of this. But a few months later, I called Whitney again and asked her, as I was asking others, whom she knew who had anticipated the cataclysm and set themselves up to make a fortune from it. There's a long list of people who now say they saw it coming all along but a far shorter one of people who actually did. Of those, even fewer had the nerve to bet on their vision. It's not easy to stand apart from mass hysteria—to believe that most of what's in the financial news is wrong or distorted, to believe that most important financial people are either lying or deluded—without actually being insane. A handful of people had been inside the black box, understood how it worked, and bet on it blowing up. Whitney rattled off a list with a half-dozen names on it. At the top was Steve Eisman.

Steve Eisman entered finance about the time I exited it. He'd grown up in New York City and gone to a Jewish day school, the University of Pennsylvania, and Harvard Law School. In 1991, he was a 30-year-old corporate lawyer. "I hated it," he says. "I hated being a lawyer. My parents worked as brokers at Oppenheimer. They managed to finagle me a job. It's not pretty, but that's what happened."

He was hired as a junior equity analyst, a helpmate who didn't actually offer his opinions. That changed in December 1991, less than a year into his new job, when a subprime mortgage lender called Ames Financial went public and no one at Oppenheimer particularly cared to express an opinion about it. One of Oppenheimer's investment bankers stomped around the research department looking for anyone who knew anything about the mortgage business. Recalls Eisman: "I'm a junior analyst and just trying to figure out which end is up, but I told him that as a lawyer I'd worked on a deal for the Money Store." He was promptly appointed the lead analyst for Ames Financial. "What I didn't tell him was that my job had been to proofread the ­documents and that I hadn't understood a word of the fucking things."

Ames Financial belonged to a category of firms known as nonbank financial institutions. The category didn't include J.P. Morgan, but it did encompass many little-known companies that one way or another were involved in the early-1990s boom in subprime mortgage lending—the lower class of American finance.

The second company for which Eisman was given sole responsibility was Lomas Financial, which had just emerged from bankruptcy. "I put a sell rating on the thing because it was a piece of shit," Eisman says. "I didn't know that you weren't supposed to put a sell rating on companies. I thought there were three boxes—buy, hold, sell—and you could pick the one you thought you should." He was pressured generally to be a bit more upbeat, but upbeat wasn't Steve Eisman's style. Upbeat and Eisman didn't occupy the same planet. A hedge fund manager who counts Eisman as a friend set out to explain him to me but quit a minute into it. After describing how Eisman exposed various important people as either liars or idiots, the hedge fund manager started to laugh. "He's sort of a prick in a way, but he's smart and honest and fearless."

"A lot of people don't get Steve," Whitney says. "But the people who get him love him." Eisman stuck to his sell rating on Lomas Financial, even after the company announced that investors needn't worry about its financial condition, as it had hedged its market risk. "The single greatest line I ever wrote as an analyst," says Eisman, "was after Lomas said they were hedged." He recited the line from memory: " 'The Lomas Financial Corp. is a perfectly hedged financial institution: It loses money in every conceivable interest-rate environment.' I enjoyed writing that sentence more than any sentence I ever wrote." A few months after he'd delivered that line in his report, Lomas Financial returned to bankruptcy.

Eisman wasn't, in short, an analyst with a sunny disposition who expected the best of his fellow financial man and the companies he created. "You have to understand," Eisman says in his defense, "I did subprime first. I lived with the worst first. These guys lied to infinity. What I learned from that experience was that Wall Street didn't give a shit what it sold."

Harboring suspicions about ­people's morals and telling investors that companies don't deserve their capital wasn't, in the 1990s or at any other time, the fast track to success on Wall Street. Eisman quit Oppenheimer in 2001 to work as an analyst at a hedge fund, but what he really wanted to do was run money. FrontPoint Partners, another hedge fund, hired him in 2004 to invest in financial stocks. Eisman's brief was to evaluate Wall Street banks, homebuilders, mortgage originators, and any company (General Electric or General Motors, for instance) with a big financial-services division—anyone who touched American finance. An insurance company backed him with $50 million, a paltry sum. "Basically, we tried to raise money and didn't really do it," Eisman says.

Instead of money, he attracted people whose worldviews were as shaded as his own—Vincent Daniel, for instance, who became a partner and an analyst in charge of the mortgage sector. Now 36, Daniel grew up a lower-middle-class kid in Queens. One of his first jobs, as a junior accountant at Arthur Andersen, was to audit Salomon Brothers' books. "It was shocking," he says. "No one could explain to me what they were doing." He left accounting in the middle of the internet boom to become a research analyst, looking at companies that made subprime loans. "I was the only guy I knew covering companies that were all going to go bust," he says. "I saw how the sausage was made in the economy, and it was really freaky."

Danny Moses, who became Eisman's head trader, was another who shared his perspective. Raised in Georgia, Moses, the son of a finance professor, was a bit less fatalistic than Daniel or Eisman, but he nevertheless shared a general sense that bad things can and do happen. When a Wall Street firm helped him get into a trade that seemed perfect in every way, he said to the salesman, "I appreciate this, but I just want to know one thing: How are you going to screw me?"

Heh heh heh, c'mon. We'd never do that, the trader started to say, but Moses was politely insistent: We both know that unadulterated good things like this trade don't just happen between little hedge funds and big Wall Street firms. I'll do it, but only after you explain to me how you are going to screw me. And the salesman explained how he was going to screw him. And Moses did the trade.

Both Daniel and Moses enjoyed, immensely, working with Steve Eisman. He put a fine point on the absurdity they saw everywhere around them. "Steve's fun to take to any Wall Street meeting," Daniel says. "Because he'll say 'Explain that to me' 30 different times. Or 'Could you explain that more, in English?' Because once you do that, there's a few things you learn. For a start, you figure out if they even know what they're talking about. And a lot of times, they don't!"

At the end of 2004, Eisman, Moses, and Daniel shared a sense that unhealthy things were going on in the U.S. housing market: Lots of firms were lending money to people who shouldn't have been borrowing it. They thought Alan Greenspan's decision after the internet bust to lower interest rates to 1 percent was a travesty that would lead to some terrible day of reckoning. Neither of these insights was entirely original. Ivy Zelman, at the time the housing-market analyst at Credit Suisse, had seen the bubble forming very early on. There's a simple measure of sanity in housing prices: the ratio of median home price to income. Historically, it runs around 3 to 1; by late 2004, it had risen nationally to 4 to 1. "All these people were saying it was nearly as high in some other countries," Zelman says. "But the problem wasn't just that it was 4 to 1. In Los Angeles, it was 10 to 1, and in Miami, 8.5 to 1. And then you coupled that with the buyers. They weren't real buyers. They were speculators." Zelman alienated clients with her pessimism, but she couldn't pretend everything was good. "It wasn't that hard in hindsight to see it," she says. "It was very hard to know when it would stop." Zelman spoke occasionally with Eisman and always left these conversations feeling better about her views and worse about the world. "You needed the occasional assurance that you weren't nuts," she says. She wasn't nuts. The world was.

By the spring of 2005, FrontPoint was fairly convinced that something was very screwed up not merely in a handful of companies but in the financial underpinnings of the entire U.S. mortgage market. In 2000, there had been $130 billion in subprime mortgage lending, with $55 billion of that repackaged as mortgage bonds. But in 2005, there was $625 billion in subprime mortgage loans, $507 billion of which found its way into mortgage bonds. Eisman couldn't understand who was making all these loans or why. He had a from-the-ground-up understanding of both the U.S. housing market and Wall Street. But he'd spent his life in the stock market, and it was clear that the stock market was, in this story, largely irrelevant. "What most people don't realize is that the fixed-income world dwarfs the equity world," he says. "The equity world is like a fucking zit compared with the bond market." He shorted companies that originated subprime loans, like New Century and Indy Mac, and companies that built the houses bought with the loans, such as Toll Brothers. Smart as these trades proved to be, they weren't entirely satisfying. These companies paid high dividends, and their shares were often expensive to borrow; selling them short was a costly proposition.

Enter Greg Lippman, a mortgage-bond trader at Deutsche Bank. He arrived at FrontPoint bearing a 66-page presentation that described a better way for the fund to put its view of both Wall Street and the U.S. housing market into action. The smart trade, Lippman argued, was to sell short not New Century's stock but its bonds that were backed by the subprime loans it had made. Eisman hadn't known this was even possible—because until recently, it hadn't been. But Lippman, along with traders at other Wall Street investment banks, had created a way to short the subprime bond market with precision.

Here's where financial technology became suddenly, urgently relevant. The typical mortgage bond was still structured in much the same way it had been when I worked at Salomon Brothers. The loans went into a trust that was designed to pay off its investors not all at once but according to their rankings. The investors in the top tranche, rated AAA, received the first payment from the trust and, because their investment was the least risky, received the lowest interest rate on their money. The investors who held the trusts' BBB tranche got the last payments—and bore the brunt of the first defaults. Because they were taking the most risk, they received the highest return. Eisman wanted to bet that some subprime borrowers would default, causing the trust to suffer losses. The way to express this view was to short the BBB tranche. The trouble was that the BBB tranche was only a tiny slice of the deal.

But the scarcity of truly crappy subprime-mortgage bonds no longer mattered. The big Wall Street firms had just made it possible to short even the tiniest and most obscure subprime-mortgage-backed bond by creating, in effect, a market of side bets. Instead of shorting the actual BBB bond, you could now enter into an agreement for a credit-default swap with Deutsche Bank or Goldman Sachs. It cost money to make this side bet, but nothing like what it cost to short the stocks, and the upside was far greater.

The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L. Eisman was perplexed in particular about why Wall Street firms would be coming to him and asking him to sell short. "What Lippman did, to his credit, was he came around several times to me and said, 'Short this market,' " Eisman says. "In my entire life, I never saw a sell-side guy come in and say, 'Short my market.' "

And short Eisman did—then he tried to get his mind around what he'd just done so he could do it better. He'd call over to a big firm and ask for a list of mortgage bonds from all over the country. The juiciest shorts—the bonds ultimately backed by the mortgages most likely to default—had several characteristics. They'd be in what Wall Street people were now calling the sand states: Arizona, California, Florida, Nevada. The loans would have been made by one of the more dubious mortgage lenders; Long Beach Financial, wholly owned by Washington Mutual, was a great example. Long Beach Financial was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking home­owners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.

More generally, the subprime market tapped a tranche of the American public that did not typically have anything to do with Wall Street. Lenders were making loans to people who, based on their credit ratings, were less creditworthy than 71 percent of the population. Eisman knew some of these people. One day, his housekeeper, a South American woman, told him that she was planning to buy a townhouse in Queens. "The price was absurd, and they were giving her a low-down-payment option-ARM," says Eisman, who talked her into taking out a conventional fixed-rate mortgage. Next, the baby nurse he'd hired back in 1997 to take care of his newborn twin daughters phoned him. "She was this lovely woman from Jamaica," he says. "One day she calls me and says she and her sister own five townhouses in Queens. I said, 'How did that happen?' " It happened because after they bought the first one and its value rose, the lenders came and suggested they refinance and take out $250,000, which they used to buy another one. Then the price of that one rose too, and they repeated the experiment. "By the time they were done," Eisman says, "they owned five of them, the market was falling, and they couldn't make any of the payments."

In retrospect, pretty much all of the riskiest subprime-backed bonds were worth betting against; they would all one day be worth zero. But at the time Eisman began to do it, in the fall of 2006, that wasn't clear. He and his team set out to find the smelliest pile of loans they could so that they could make side bets against them with Goldman Sachs or Deutsche Bank. What they were doing, oddly enough, was the analysis of subprime lending that should have been done before the loans were made: Which poor Americans were likely to jump which way with their finances? How much did home prices need to fall for these loans to blow up? (It turned out they didn't have to fall; they merely needed to stay flat.) The default rate in Georgia was five times higher than that in Florida even though the two states had the same unemployment rate. Why? Indiana had a 25 percent default rate; California's was only 5 percent. Why?

Moses actually flew down to Miami and wandered around neighborhoods built with subprime loans to see how bad things were. "He'd call me and say, 'Oh my God, this is a calamity here,' " recalls Eisman. All that was required for the BBB bonds to go to zero was for the default rate on the underlying loans to reach 14 percent. Eisman thought that, in certain sections of the country, it would go far, far higher.

The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism. For instance, he knew that the big Wall Street investment banks took huge piles of loans that in and of themselves might be rated BBB, threw them into a trust, carved the trust into tranches, and wound up with 60 percent of the new total being rated AAA.

But he couldn't figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. "I didn't understand how they were turning all this garbage into gold," he says. He brought some of the bond people from Goldman Sachs, Lehman Brothers, and UBS over for a visit. "We always asked the same question," says Eisman. "Where are the rating agencies in all of this? And I'd always get the same reaction. It was a smirk." He called Standard & Poor's and asked what would happen to default rates if real estate prices fell. The man at S&P couldn't say; its model for home prices had no ability to accept a negative number. "They were just assuming home prices would keep going up," Eisman says.

As an investor, Eisman was allowed on the quarterly conference calls held by Moody's but not allowed to ask questions. The people at Moody's were polite about their brush-off, however. The C.E.O. even invited Eisman and his team to his office for a visit in June 2007. By then, Eisman was so certain that the world had been turned upside down that he just assumed this guy must know it too. "But we're sitting there," Daniel recalls, "and he says to us, like he actually means it, 'I truly believe that our rating will prove accurate.' And Steve shoots up in his chair and asks, 'What did you just say?' as if the guy had just uttered the most preposterous statement in the history of finance. He repeated it. And Eisman just laughed at him."

"With all due respect, sir," Daniel told the C.E.O. deferentially as they left the meeting, "you're delusional."
This wasn't Fitch or even S&P. This was Moody's, the aristocrats of the rating business, 20 percent owned by Warren Buffett. And the company's C.E.O. was being told he was either a fool or a crook by one Vincent Daniel, from Queens.

A full nine months earlier, Daniel and ­Moses had flown to Orlando for an industry conference. It had a grand title—the American Securitization Forum—but it was essentially a trade show for the ­subprime-mortgage business: the people who originated subprime mortgages, the Wall Street firms that packaged and sold subprime mortgages, the fund managers who invested in nothing but subprime-mortgage-backed bonds, the agencies that rated subprime-­mortgage bonds, the lawyers who did whatever the lawyers did. Daniel and Moses thought they were paying a courtesy call on a cottage industry, but the cottage had become a castle. "There were like 6,000 people there," Daniel says. "There were so many people being fed by this industry. The entire fixed-income department of each brokerage firm is built on this. Everyone there was the long side of the trade. The wrong side of the trade. And then there was us. That's when the picture really started to become clearer, and we started to get more cynical, if that was possible. We went back home and said to Steve, 'You gotta see this.' "

Eisman, Daniel, and Moses then flew out to Las Vegas for an even bigger subprime conference. By now, Eisman knew everything he needed to know about the quality of the loans being made. He still didn't fully understand how the apparatus worked, but he knew that Wall Street had built a doomsday machine. He was at once opportunistic and outraged.

Their first stop was a speech given by the C.E.O. of Option One, the mortgage originator owned by H&R Block. When the guy got to the part of his speech about Option One's subprime-loan portfolio, he claimed to be expecting a modest default rate of 5 percent. Eisman raised his hand. Moses and Daniel sank into their chairs. "It wasn't a Q&A," says Moses. "The guy was giving a speech. He sees Steve's hand and says, 'Yes?'"

"Would you say that 5 percent is a probability or a possibility?" Eisman asked.

A probability, said the C.E.O., and he continued his speech.

Eisman had his hand up in the air again, waving it around. Oh, no, Moses thought. "The one thing Steve always says," Daniel explains, "is you must assume they are lying to you. They will always lie to you." Moses and Daniel both knew what Eisman thought of these subprime lenders but didn't see the need for him to express it here in this manner. For Eisman wasn't raising his hand to ask a question. He had his thumb and index finger in a big circle. He was using his fingers to speak on his behalf. Zero! they said.

"Yes?" the C.E.O. said, obviously irritated. "Is that another question?"

"No," said Eisman. "It's a zero. There is zero probability that your default rate will be 5 percent." The losses on subprime loans would be much, much greater. Before the guy could reply, Eisman's cell phone rang. Instead of shutting it off, Eisman reached into his pocket and answered it. "Excuse me," he said, standing up. "But I need to take this call." And with that, he walked out.

Eisman's willingness to be abrasive in order to get to the heart of the matter was obvious to all; what was harder to see was his credulity: He actually wanted to believe in the system. As quick as he was to cry bullshit when he saw it, he was still shocked by bad behavior. That night in Vegas, he was seated at dinner beside a really nice guy who invested in mortgage C.D.O.'s—collateralized debt obligations. By then, Eisman thought he knew what he needed to know about C.D.O.'s. He didn't, it turned out.

Later, when I sit down with Eisman, the very first thing he wants to explain is the importance of the mezzanine C.D.O. What you notice first about Eisman is his lips. He holds them pursed, waiting to speak. The second thing you notice is his short, light hair, cropped in a manner that suggests he cut it himself while thinking about something else. "You have to understand this," he says. "This was the engine of doom." Then he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB tranche—the bonds Eisman had shorted. But Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a "particularly egregious" C.D.O. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA. These bonds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities. "I cannot fucking believe this is allowed—I must have said that a thousand times in the past two years," Eisman says.

His dinner companion in Las Vegas ran a fund of about $15 billion and managed C.D.O.'s backed by the BBB tranche of a mortgage bond, or as Eisman puts it, "the equivalent of three levels of dog shit lower than the original bonds."

FrontPoint had spent a lot of time digging around in the dog shit and knew that the default rates were already sufficient to wipe out this guy's entire portfolio. "God, you must be having a hard time," Eisman told his dinner companion.

"No," the guy said, "I've sold everything out."

After taking a fee, he passed them on to other investors. His job was to be the C.D.O. "expert," but he actually didn't spend any time at all thinking about what was in the C.D.O.'s. "He managed the C.D.O.'s," says Eisman, "but managed what? I was just appalled. People would pay up to have someone manage their C.D.O.'s—as if this moron was helping you. I thought, You prick, you don't give a fuck about the investors in this thing."

Whatever rising anger Eisman felt was offset by the man's genial disposition. Not only did he not mind that Eisman took a dim view of his C.D.O.'s; he saw it as a basis for friendship. "Then he said something that blew my mind," Eisman tells me. "He says, 'I love guys like you who short my market. Without you, I don't have anything to buy.' "

That's when Eisman finally got it. Here he'd been making these side bets with Goldman Sachs and Deutsche Bank on the fate of the BBB tranche without fully understanding why those firms were so eager to make the bets. Now he saw. There weren't enough Americans with shitty credit taking out loans to satisfy investors' appetite for the end product. The firms used Eisman's bet to synthesize more of them. Here, then, was the difference between fantasy finance and fantasy football: When a fantasy player drafts Peyton Manning, he doesn't create a second Peyton Manning to inflate the league's stats. But when Eisman bought a credit-default swap, he enabled Deutsche Bank to create another bond identical in every respect but one to the original. The only difference was that there was no actual homebuyer or borrower. The only assets backing the bonds were the side bets Eisman and others made with firms like Goldman Sachs. Eisman, in effect, was paying to Goldman the interest on a subprime mortgage. In fact, there was no mortgage at all. "They weren't satisfied getting lots of unqualified borrowers to borrow money to buy a house they couldn't afford," Eisman says. "They were creating them out of whole cloth. One hundred times over! That's why the losses are so much greater than the loans. But that's when I realized they needed us to keep the machine running. I was like, This is allowed?"

This particular dinner was hosted by Deutsche Bank, whose head trader, Greg Lippman, was the fellow who had introduced Eisman to the subprime bond market. Eisman went and found Lippman, pointed back to his own dinner companion, and said, "I want to short him." Lippman thought he was joking; he wasn't. "Greg, I want to short his paper," Eisman repeated. "Sight unseen."

Eisman started out running a $60 million equity fund but was now short around $600 million of various ­subprime-related securities. In the spring of 2007, the market strengthened. But, says Eisman, "credit quality always gets better in March and April. And the reason it always gets better in March and April is that people get their tax refunds. You would think people in the securitization world would know this. We just thought that was moronic."

He was already short the stocks of mortgage originators and the homebuilders. Now he took short positions in the rating agencies—"they were making 10 times more rating C.D.O.'s than they were rating G.M. bonds, and it was all going to end"—and, finally, the biggest Wall Street firms because of their exposure to C.D.O.'s. He wasn't allowed to short Morgan Stanley because it owned a stake in his fund. But he shorted UBS, Lehman Brothers, and a few others. Not long after that, FrontPoint had a visit from Sanford C. Bernstein's Brad Hintz, a prominent analyst who covered Wall Street firms. Hintz wanted to know what Eisman was up to. "We just shorted Merrill Lynch," Eisman told him.

"Why?" asked Hintz.

"We have a simple thesis," Eisman explained. "There is going to be a calamity, and whenever there is a calamity, Merrill is there." When it came time to bankrupt Orange County with bad advice, Merrill was there. When the internet went bust, Merrill was there. Way back in the 1980s, when the first bond trader was let off his leash and lost hundreds of millions of dollars, Merrill was there to take the hit. That was Eisman's logic—the logic of Wall Street's pecking order. Goldman Sachs was the big kid who ran the games in this neighborhood. Merrill Lynch was the little fat kid assigned the least pleasant roles, just happy to be a part of things. The game, as Eisman saw it, was Crack the Whip. He assumed Merrill Lynch had taken its assigned place at the end of the chain.

There was only one thing that bothered Eisman, and it continued to trouble him as late as May 2007. "The thing we couldn't figure out is: It's so obvious. Why hasn't everyone else figured out that the machine is done?" Eisman had long subscribed to Grant's Interest Rate Observer, a newsletter famous in Wall Street circles and obscure outside them. Jim Grant, its editor, had been prophesying doom ever since the great debt cycle began, in the mid-1980s. In late 2006, he decided to investigate these things called C.D.O.'s. Or rather, he had asked his young assistant, Dan Gertner, a chemical engineer with an M.B.A., to see if he could understand them. Gertner went off with the documents that purported to explain C.D.O.'s to potential investors and for several days sweated and groaned and heaved and suffered. "Then he came back," says Grant, "and said, 'I can't figure this thing out.' And I said, 'I think we have our story.' "

Eisman read Grant's piece as independent confirmation of what he knew in his bones about the C.D.O.'s he had shorted. "When I read it, I thought, Oh my God. This is like owning a gold mine. When I read that, I was the only guy in the equity world who almost had an orgasm."

On July 19, 2007, the same day that Federal Reserve Chairman Ben Bernanke told the U.S. Senate that he anticipated as much as $100 billion in losses in the subprime-mortgage market, FrontPoint did something unusual: It hosted its own conference call. It had had calls with its tiny population of investors, but this time FrontPoint opened it up. Steve Eisman had become a poorly kept secret. Five hundred people called in to hear what he had to say, and another 500 logged on afterward to listen to a recording of it. He explained the strange alchemy of the C.D.O. and said that he expected losses of up to $300 billion from this sliver of the market alone. To evaluate the situation, he urged his audience to "just throw your model in the garbage can. The models are all backward-looking.

The models don't have any idea of what this world has become…. For the first time in their lives, people in the asset-backed-securitization world are actually having to think." He explained that the rating agencies were morally bankrupt and living in fear of becoming actually bankrupt. "The rating agencies are scared to death," he said. "They're scared to death about doing nothing because they'll look like fools if they do nothing."

On September 18, 2008, Danny Moses came to work as usual at 6:30 a.m. Earlier that week, Lehman Brothers had filed for bankruptcy. The day before, the Dow had fallen 449 points to its lowest level in four years. Overnight, European governments announced a ban on short-selling, but that served as faint warning for what happened next.

At the market opening in the U.S., everything—every financial asset—went into free fall. "All hell was breaking loose in a way I had never seen in my career," Moses says. FrontPoint was net short the market, so this total collapse should have given Moses pleasure. He might have been forgiven if he stood up and cheered. After all, he'd been betting for two years that this sort of thing could happen, and now it was, more dramatically than he had ever imagined. Instead, he felt this terrifying shudder run through him. He had maybe 100 trades on, and he worked hard to keep a handle on them all. "I spent my morning trying to control all this energy and all this information," he says, "and I lost control. I looked at the screens. I was staring into the abyss. The end. I felt this shooting pain in my head. I don't get headaches. At first, I thought I was having an aneurysm."

Moses stood up, wobbled, then turned to Daniel and said, "I gotta leave. Get out of here. Now." Daniel thought about calling an ambulance but instead took Moses out for a walk.

Outside it was gorgeous, the blue sky reaching down through the tall buildings and warming the soul. Eisman was at a Goldman Sachs conference for hedge fund managers, raising capital. Moses and Daniel got him on the phone, and he left the conference and met them on the steps of St. Patrick's Cathedral. "We just sat there," Moses says. "Watching the people pass."

This was what they had been waiting for: total collapse. "The investment-banking industry is fucked," Eisman had told me a few weeks earlier. "These guys are only beginning to understand how fucked they are. It's like being a Scholastic, prior to Newton. Newton comes along, and one morning you wake up: 'Holy shit, I'm wrong!' " Now Lehman Brothers had vanished, Merrill had surrendered, and Goldman Sachs and Morgan Stanley were just a week away from ceasing to be investment banks. The investment banks were not just fucked; they were extinct.

Not so for hedge fund managers who had seen it coming. "As we sat there, we were weirdly calm," Moses says. "We felt insulated from the whole market reality. It was an out-of-body experience. We just sat and watched the people pass and talked about what might happen next. How many of these people were going to lose their jobs. Who was going to rent these buildings after all the Wall Street firms collapsed." Eisman was appalled. "Look," he said. "I'm short. I don't want the country to go into a depression. I just want it to fucking deleverage." He had tried a thousand times in a thousand ways to explain how screwed up the business was, and no one wanted to hear it. "That Wall Street has gone down because of this is justice," he says. "They fucked people. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience."

Truth to tell, there wasn't a whole lot of hand-wringing inside FrontPoint either. The only one among them who wrestled a bit with his conscience was Daniel. "Vinny, being from Queens, needs to see the dark side of everything," Eisman says. To which Daniel replies, "The way we thought about it was, 'By shorting this market we're creating the liquidity to keep the market going.' "

"It was like feeding the monster," Eisman says of the market for subprime bonds. "We fed the monster until it blew up."

About the time they were sitting on the steps of the midtown cathedral, I sat in a booth in a restaurant on the East Side, waiting for John Gutfreund to arrive for lunch, and wondered, among other things, why any restaurant would seat side by side two men without the slightest interest in touching each other.

There was an umbilical cord running from the belly of the exploded beast back to the financial 1980s. A friend of mine created the first mortgage derivative in 1986, a year after we left the Salomon Brothers trading program. ("The problem isn't the tools," he likes to say. "It's who is using the tools. Derivatives are like guns.")

When I published my book, the 1980s were supposed to be ending. I received a lot of undeserved credit for my timing. The social disruption caused by the collapse of the savings-and-loan industry and the rise of hostile takeovers and leveraged buyouts had given way to a brief period of recriminations. Just as most students at Ohio State read Liar's Poker as a manual, most TV and radio interviewers regarded me as a whistleblower. (The big exception was Geraldo Rivera. He put me on a show called "People Who Succeed Too Early in Life" along with some child actors who'd gone on to become drug addicts.) Anti-Wall Street feeling ran high—high enough for Rudy Giuliani to float a political career on it—but the result felt more like a witch hunt than an honest reappraisal of the financial order. The public lynchings of Gutfreund and junk-bond king Michael Milken were excuses not to deal with the disturbing forces underpinning their rise. Ditto the cleaning up of Wall Street's trading culture. The surface rippled, but down below, in the depths, the bonus pool remained undisturbed. Wall Street firms would soon be frowning upon profanity, firing traders for so much as glancing at a stripper, and forcing male employees to treat women almost as equals. Lehman Brothers circa 2008 more closely resembled a normal corporation with solid American values than did any Wall Street firm circa 1985.

The changes were camouflage. They helped distract outsiders from the truly profane event: the growing misalignment of interests between the people who trafficked in financial risk and the wider culture.

I'd not seen Gutfreund since I quit Wall Street. I'd met him, nervously, a couple of times on the trading floor. A few months before I left, my bosses asked me to explain to Gutfreund what at the time seemed like exotic trades in derivatives I'd done with a European hedge fund. I tried. He claimed not to be smart enough to understand any of it, and I assumed that was how a Wall Street C.E.O. showed he was the boss, by rising above the details. There was no reason for him to remember any of these encounters, and he didn't: When my book came out and became a public-relations nuisance to him, he told reporters we'd never met.

Over the years, I'd heard bits and pieces about Gutfreund. I knew that after he'd been forced to resign from Salomon Brothers he'd fallen on harder times. I heard later that a few years ago he'd sat on a panel about Wall Street at Columbia Business School. When his turn came to speak, he advised students to find something more meaningful to do with their lives. As he began to describe his career, he broke down and wept.

When I emailed him to invite him to lunch, he could not have been more polite or more gracious. That attitude persisted as he was escorted to the table, made chitchat with the owner, and ordered his food. He'd lost a half-step and was more deliberate in his movements, but otherwise he was completely recognizable. The same veneer of denatured courtliness masked the same animal need to see the world as it was, rather than as it should be.

We spent 20 minutes or so determining that our presence at the same lunch table was not going to cause the earth to explode. We discovered we had a mutual acquaintance in New Orleans. We agreed that the Wall Street C.E.O. had no real ability to keep track of the frantic innovation occurring inside his firm. ("I didn't understand all the product lines, and they don't either," he said.) We agreed, further, that the chief of the Wall Street investment bank had little control over his subordinates. ("They're buttering you up and then doing whatever the fuck they want to do.") He thought the cause of the financial crisis was "simple. Greed on both sides—greed of investors and the greed of the bankers." I thought it was more complicated. Greed on Wall Street was a given—almost an obligation. The problem was the system of incentives that channeled the greed.

But I didn't argue with him. For just as you revert to being about nine years old when you visit your parents, you revert to total subordination when you are in the presence of your former C.E.O. John Gutfreund was still the King of Wall Street, and I was still a geek. He spoke in declarative statements; I spoke in questions.

But as he spoke, my eyes kept drifting to his hands. His alarmingly thick and meaty hands. They weren't the hands of a soft Wall Street banker but of a boxer. I looked up. The boxer was smiling—though it was less a smile than a placeholder expression. And he was saying, very deliberately, "Your…fucking…book."

I smiled back, though it wasn't quite a smile.

"Your fucking book destroyed my career, and it made yours," he said.

I didn't think of it that way and said so, sort of.

"Why did you ask me to lunch?" he asked, though pleasantly. He was genuinely curious.

You can't really tell someone that you asked him to lunch to let him know that you don't think of him as evil. Nor can you tell him that you asked him to lunch because you thought that you could trace the biggest financial crisis in the history of the world back to a decision he had made. John Gutfreund did violence to the Wall Street social order—and got himself dubbed the King of Wall Street—when he turned Salomon Brothers from a private partnership into Wall Street's first public corporation. He ignored the outrage of Salomon's retired partners. ("I was disgusted by his materialism," William Salomon, the son of the firm's founder, who had made Gutfreund C.E.O. only after he'd promised never to sell the firm, had told me.) He lifted a giant middle finger at the moral disapproval of his fellow Wall Street C.E.O.'s. And he seized the day. He and the other partners not only made a quick killing; they transferred the ultimate financial risk from themselves to their shareholders. It didn't, in the end, make a great deal of sense for the shareholders. (A share of Salomon Brothers purchased when I arrived on the trading floor, in 1986, at a then market price of $42, would be worth 2.26 shares of Citigroup today—market value: $27.) But it made fantastic sense for the investment bankers.

From that moment, though, the Wall Street firm became a black box. The shareholders who financed the risks had no real understanding of what the risk takers were doing, and as the risk-taking grew ever more complex, their understanding diminished. The moment Salomon Brothers demonstrated the potential gains to be had by the investment bank as public corporation, the psychological foundations of Wall Street shifted from trust to blind faith.

No investment bank owned by its employees would have levered itself 35 to 1 or bought and held $50 billion in mezzanine C.D.O.'s. I doubt any partnership would have sought to game the rating agencies or leap into bed with loan sharks or even allow mezzanine C.D.O.'s to be sold to its customers. The hoped-for short-term gain would not have justified the long-term hit.

No partnership, for that matter, would have hired me or anyone remotely like me. Was there ever any correlation between the ability to get in and out of Princeton and a talent for taking financial risk?

Now I asked Gutfreund about his biggest decision. "Yes," he said. "They—the heads of the other Wall Street firms—all said what an awful thing it was to go public and how could you do such a thing. But when the temptation arose, they all gave in to it." He agreed that the main effect of turning a partnership into a corporation was to transfer the financial risk to the shareholders. "When things go wrong, it's their problem," he said—and obviously not theirs alone. When a Wall Street investment bank screwed up badly enough, its risks became the problem of the U.S. government. "It's laissez-faire until you get in deep shit," he said, with a half chuckle. He was out of the game.

It was now all someone else's fault.

He watched me curiously as I scribbled down his words. "What's this for?" he asked.

I told him I thought it might be worth revisiting the world I'd described in Liar's Poker, now that it was finally dying. Maybe bring out a 20th-anniversary edition.

"That's nauseating," he said.

Hard as it was for him to enjoy my company, it was harder for me not to enjoy his. He was still tough, as straight and blunt as a butcher. He'd helped create a monster, but he still had in him a lot of the old Wall Street, where people said things like "A man's word is his bond." On that Wall Street, people didn't walk out of their firms and cause trouble for their former bosses by writing books about them. "No," he said, "I think we can agree about this: Your fucking book destroyed my career, and it made yours." With that, the former king of a former Wall Street lifted the plate that held his appetizer and asked sweetly, "Would you like a deviled egg?"

Until that moment, I hadn't paid much attention to what he'd been eating. Now I saw he'd ordered the best thing in the house, this gorgeous frothy confection of an earlier age. Who ever dreamed up the deviled egg? Who knew that a simple egg could be made so complicated and yet so appealing? I reached over and took one. Something for nothing. It never loses its charm.

The Lost Years & Last Days of David Foster Wallace

The Lost Years & Last Days of David Foster Wallace
He was the greatest writer of his generation - and also its most tormented. In the wake of his tragic suicide, his friends and family reveal the lifelong struggle of a beautiful mind

DAVID LIPSKY

Posted Oct 30, 2008 12:31 PM


He was six-feet-two, and on a good day he weighed 200 pounds. He wore granny glasses with a head scarf, points knotted at the back, a look that was both pirate-like and housewife-ish. He always wore his hair long. He had dark eyes, soft voice, caveman chin, a lovely, peak-lipped mouth that was his best feature. He walked with an ex-athlete's saunter, a roll from the heels, as if anything physical was a pleasure. David Foster Wallace worked surprising turns on nearly everything: novels, journalism, vacation. His life was an information hunt, collecting hows and whys. "I received 500,000 discrete bits of information today," he once said, "of which maybe 25 are important. My job is to make some sense of it." He wanted to write "stuff about what it feels like to live. Instead of being a relief from what it feels like to live." Readers curled up in the nooks and clearings of his style: his comedy, his brilliance, his humaneness.

His life was a map that ends at the wrong destination. Wallace was an A student through high school, he played football, he played tennis, he wrote a philosophy thesis and a novel before he graduated from Amherst, he went to writing school, published the novel, made a city of squalling, bruising, kneecapping editors and writers fall moony-eyed in love with him. He published a thousand-page novel, received the only award you get in the nation for being a genius, wrote essays providing the best feel anywhere of what it means to be alive in the contemporary world, accepted a special chair at California's Pomona College to teach writing, married, published another book and, last month, hanged himself at age 46.

"The one thing that really should be said about David Foster Wallace is that this was a once-in-a-century talent," says his friend and former editor Colin Harrison. "We may never see a guy like this again in our lifetimes — that I will shout out. He was like a comet flying by at ground level."

His 1996 novel, Infinite Jest, was Bible-size and spawned books of interpretation and commentary, like Understanding David Foster Wallace — a book his friends might have tried to write and would have lined up to buy. He was clinically depressed for decades, information he limited to family and his closest friends. "I don't think that he ever lost the feeling that there was something shameful about this," his father says. "His instinct was to hide it."

After he died on September 12th, readers crowded the Web with tributes to his generosity, his intelligence. "But he wasn't Saint Dave," says Jonathan Franzen, Wallace's best friend and the author of The Corrections. "This is the paradox of Dave: The closer you get, the darker the picture, but the more genuinely lovable he was. It was only when you knew him better that you had a true appreciation of what a heroic struggle it was for him not merely to get along in the world, but to produce wonderful writing."

David grew up in Champaign, Illinois. His father, Jim, taught philosophy at the University of Illinois. His mother, Sally, taught English at a local community college. It was an academic household — poised, considerate — language games in the car, the rooms tidy, the bookcase the hero. "I have these weird early memories," Wallace told me during a series of interviews in 1996. "I remember my parents reading Ulysses out loud to each other in bed, holding hands and both lovin' something really fiercely." Sally hated to get angry — it took her days to recover from a shout. So the family developed a sort of interoffice conflict mail. When his mother had something stern to say, she'd write it up in a letter. When David wanted something badly — raised allowance, more liberal bedtime — he'd slide a letter under his parents' door.

David was one of those eerie, perfect combinations of two parents' skills. The titles of his father's books — Ethical Norms, Particular Cases — have the sound of Wallace short-story titles. The tone of his mother's speaking voice contains echoes of Wallace's writing voice: Her textbook, Practically Painless English, sounds like a Wallace joke. She uses phrases like "perishing hot" for very hot, "snoof" for talking in your sleep, "heave your skeleton" for go to bed. "David and I both owe a huge debt to my mother," says his sister, Amy, two years younger. "She has a way of talking that I've never heard anywhere else."

David was, from an early age, "very fragile," as he put it. He loved TV, and would get incredibly excited watching a program like Batman or The Wild Wild West. (His parents rationed the "rough" shows. One per week.) David could memorize whole shows of dialogue and predict, like a kind of plot weatherman, when the story was going to turn, where characters would end up. No one saw or treated him as a genius, but at age 14, when he asked what his father did, Jim sat David down and walked him through a Socratic dialogue. "I was astonished by how sophisticated his understanding was," Jim says. "At that point, I figured out that he really, really was extraordinarily bright."

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David was a big-built kid; he played football — quarterback — until he was 12 or 13, and would always speak like an athlete, the disappearing G's, "wudn't," "dudn't" and "idn't" and "sumpin'." "The big thing I was when I was little was a really serious jock," Wallace told me. "I mean, I had no artistic ambition. I played citywide football. And I was really good. Then I got to junior high, and there were two guys in the city who were better quarterbacks than me. And people started hitting each other a lot harder, and I discovered that I didn't really love to hit people. That was a huge disappointment." After his first day of football practice at Urbana High School, he came home and chucked it. He offered two explanations to his parents: They expected him to practice every day, and the coaches did too much cursing.

He had also picked up a racket. "I discovered tennis on my own," Wallace said, "taking public-park lessons. For five years, I was seriously gonna be a pro tennis player. I didn't look that good, but I was almost impossible to beat. I know that sounds arrogant. It's true." On court, he was a bit of a hustler: Before a match, he'd tell his opponent, "Thank you for being here, but you're just going to cream me."

By the time he was 14, he felt he could have made nationals. "Really be in the junior show. But just at the point it became important to me, I began to choke. The more scared you get, the worse you play." Plus it was the Seventies — Pink Floyd, bongs. "I started to smoke a lot of pot when I was 15 or 16, and it's hard to train." He laughed. "You don't have that much energy."

It was around this time that the Wallaces noticed something strange about David. He would voice surprising requests, like wanting to paint his bedroom black. He was constantly angry at his sister. When he was 16, he refused to go to her birthday party. "Why would I want to celebrate her birthday?" he told his parents.

"David began to have anxiety attacks in high school," his father recalls. "I noticed the symptoms, but I was just so unsophisticated about these matters. The depression seemed to take the form of an evil spirit that just haunted David." Sally came to call it the "black hole with teeth." David withdrew. "He spent a lot of time throwing up junior year," his sister remembers. One wall of his bedroom was lined with cork, for magazine photos of tennis stars. David pinned an article about Kafka to the wall, with the headline THE DISEASE WAS LIFE ITSELF.

"I hated seeing those words," his sister tells me, and starts to cry. "They seemed to sum up his existence. We couldn't understand why he was acting the way he was, and so of course my parents were exasperated, lovingly exasperated."

David graduated high school with perfect grades. Whatever his personal hurricane was, it had scattered trees and moved on. He decided to go to Amherst, which is where his father had gone, too. His parents told him he would enjoy the Berkshire autumn. Instead, he missed home — the farms and flat horizons, roads stretching contentedly nowhere. "It's fall," David wrote back. "The mountains are pretty, but the landscape isn't beautiful the way Illinois is."

Wallace had lugged his bags into Amherst the fall of 1980 — Reagan coming in, the Seventies capsized, preppies everywhere. He brought a suit to campus. "It was kind of a Sears suit, with this Scotch-plaid tie," says his college roommate and close friend Mark Costello, who went on to become a successful novelist himself. "Guys who went to Amherst, who came from five prep schools, they always dress a notch down. No one's bringing a suit. That was just the Wallace sense that going East is a big deal, and you have to not embarrass us. My first impression was that he was really very out of step."

Costello came from working-class Massachusetts, seven kids, Irish-Catholic household. He and Wallace connected. "Neither of us fit into the Gatsby-ite mold," Costello says. At Amherst David perfected the style he would wear for the rest of his life: turtleneck, hoodie, big basketball shoes. The look of parking-lot kids who in Illinois were called Dirt Bombs. "A slightly tough, slightly waste-product-y, tennis-playing persona," Costello says. Wallace was also amazingly fast and good company, even just on a walk across campus. "I'd always wanted to be an impressionist," Wallace said, "but I just didn't have an agile enough vocal and facial register to do it." Crossing a green, it was The Dave Show. He would recount how people walked, talked, held their heads, pictured their lives. "Just very connected to people," Costello recalls. "Dave had this ability to be inside someone else's skin."

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Observing people from afar, of course, can be a way of avoiding them up close. "I was a complete just total banzai weenie studier in college," Wallace recalled. "I was really just scared of people. For instance, I would brave the TV pit — the central TV room — to watch Hill Street Blues, 'cause that was a really important show to me."

One afternoon, April of sophomore year, Costello came back to the dorm they shared and found Wallace seated in his chair. Desk clean, bags packed, even his typewriter, which weighed as much as the clothes put together.

"Dave, what's going on?" Costello asked.

"I'm sorry, I'm so sorry," Wallace said. "I know I'm really screwing you."

He was pulling out of college. Costello drove him to the airport. "He wasn't able to talk about it," Costello recalls. "He was crying, he was mortified. Panicky. He couldn't control his thoughts. It was mental incontinence, the equivalent of wetting his pants."

"I wasn't very happy there," Wallace told me later. "I felt kind of inadequate. There was a lot of stuff I wanted to read that wasn't part of any class. And Mom and Dad were just totally cool."

Wallace went home to hospitalization, explanations to his parents, a job. For a while, he drove a school bus. "Here he was, a guy who was really shaky, kind of Holden Caulfield, driving a school bus through lightning storms," Costello recalls. "He wrote me a letter all outraged, about the poor screening procedures for school-bus drivers in central Illinois."

Wallace would visit his dad's philosophy classes. "The classes would turn into a dialogue between David and me," his father remembers. "The students would just sit looking around, 'Who is this guy?' " Wallace devoured novels — "pretty much everything I've read was read during that year." He also told his parents how he'd felt at school. "He would talk about just being very sad, and lonely," Sally says. "It didn't have anything to do with being loved. He just was very lonely inside himself."

He returned to Amherst in the fall, to room with Costello, shaky but hardened. "Certain things had been destroyed in his head," Costello says. "In the first half of his Amherst career, he was trying to be a regular person. He was on the debate team, the sort of guy who knows he's going to be a success." Wallace had talked about going into politics; Costello recalls him joking, "No one is going to vote for somebody who's been in a nuthouse." Having his life fall apart narrowed his sense of what his options were — and the possibilities that were left became more real to him. In a letter to Costello, he wrote, "I want to write books that people will read 100 years from now."

Back at school junior year, he never talked much about his breakdown. "It was embarrassing and personal," Costello says. "A zone of no jokes." Wallace regarded it as a failure, something he should have been able to control. He routinized his life. He'd be the first tray at the dining hall for supper, he'd eat, drink coffee dipped with tea bags, library study till 11, head back to the room, turn on Hawaii Five-O, then a midnight gulp from a scotch bottle. When he couldn't turn his mind off, he'd say, "You know what? I think this is a two-shot night," slam another and sleep.

In 1984, Costello left for Yale Law School; Wallace was alone senior year. He double-majored — English and philosophy, which meant two big writing projects. In philosophy, he took on modal logic. "It looked really hard, and I was really scared about it," he said. "So I thought I'd do this kind of jaunty, hundred-page novel." He wrote it in five months, and it clocked in at 700 pages. He called it The Broom of the System.

Wallace published stories in the Amherst literary magazine. One was about depression and a tricyclic anti-anxiety medication he had been on for two months. The medication "made me feel like I was stoned and in hell," he told me. The story dealt with the in-hell parts:

You are the sickness yourself.... You realize all this...when you look at the black hole and it's wearing your face. That's when the Bad Thing just absolutely eats you up, or rather when you just eat yourself up. When you kill yourself. All this business about people committing suicide when they're "severely depressed;" we say, "Holy cow, we must do something to stop them from killing themselves!" That's wrong. Because all these people have, you see, by this time already killed themselves, where it really counts.... When they "commit suicide," they're just being orderly.

It wasn't just writing the novel that made Wallace realize his future would lie in fiction. He also helped out friends by writing their papers. In a comic book, this would be his origin story, the part where he's bombarded with gamma rays, bitten by the spider. "I remember realizing at the time, 'Man, I'm really good at this. I'm a weird kind of forger. I can sound kind of like anybody.' "

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Grad school was next. Philosophy would be an obvious choice. "My dad would have limbs removed without anesthetic before ever pushing his kids about anything," Wallace said. "But I knew I was gonna have to go to grad school. I applied to these English programs instead, and I didn't tell anybody. Writing The Broom of the System, I felt like I was using 97 percent of me, whereas philosophy was using 50 percent."

After Amherst, Wallace went to the University of Arizona for an MFA. It was where he picked up the bandanna: "I started wearing them in Tucson because it was a hundred degrees all the time, and I would perspire so much I would drip on the page." The woman he was dating thought the bandanna was a wise move. "She was like a Sixties lady, a Sufi Muslim. She said there were various chakras, and one of the big ones she called the spout hole, at the very top of your cranium. Then I began thinking about the phrase 'Keeping your head together.' It makes me feel kind of creepy that people view it as a trademark or something — it's more a recognition of a weakness, which is that I'm just kind of worried that my head's gonna explode."

Arizona was a strange experience: the first classrooms where people weren't happy to see him. He wanted to write the way he wanted to write — funny and overstuffed and nonlinear and strange. The teachers were all "hardass realists." That was the first problem. Problem two was Wallace. "I think I was kind of a prick," he said. "I was just unteachable. I had that look — 'If there were any justice, I'd be teaching this class' — that makes you want to slap a student." One of his stories, "Here and There," went on to win a 1989 O. Henry Prize after it was published in a literary magazine. When he turned it in to his professor, he received a chilly note back: "I hope this isn't representative of the work you're hoping to do for us. We'd hate to lose you."

"What I hated was how disingenuous it was," Wallace recalled. "'We'd hate to lose you.' You know, if you're gonna threaten, say that."

Wallace sent his thesis project out to agents. He got a lot of letters back: "Best of luck in your janitorial career." Bonnie Nadell was 25, working a first job at San Francisco's Frederick Hill Agency. She opened a letter from Wallace, read a chapter from his book. "I loved it so much," Nadell says. It turned out there was a writer named David Rains Wallace. Hill and Nadell agreed that David should insert his mother's maiden name, which is how he became David Foster Wallace. She remained his agent for the rest of his life. "I have this thing, the nearest Jewish mother, I will simply put my arms around her skirt and just attach myself," Wallace said. "I don't know what it means. Maybe sort of WASP deprivation."

Viking won the auction for the novel, "with something like a handful of trading stamps." Word spread; professors turned nice. "I went from borderline ready-to-get-kicked-out to all these tight-smiled guys being, 'Glad to see you, we're proud of you, you'll have to come over for dinner.' It was so delicious: I felt kind of embarrassed for them, they didn't even have integrity about their hatred."

Wallace went to New York to meet his editor, Gerry Howard, wearing a U2 T-shirt. "He seemed like a very young 24," Howard says. The shirt impressed him. "U2 wasn't really huge then. And there's a hypersincerity to U2, which I think David was in tune with — or that he really wanted to be sincere, even though his brain kept turning him in the direction of the ironic." Wallace kept calling Howard — who was only 36 — "Mr. Howard," never "Gerry." It would become his business style: a kind of mock formality. People often suspected it was a put-on. What it was was Midwestern politeness, the burnout in the parking lot still nodding "sir" to the vice principal. "There was kind of this hum of superintelligence behind the 'aw, shucks' manner," Howard recalls.

The Broom of the System was published in January of 1987, Wallace's second and last year at Arizona. The title referred to something his mother's grandmother used to say, as in, "Here, Sally, have an apple, it's the broom of the system." "I wasn't aware David had picked up on that," his mother says. "I was thrilled that a family expression became the title of his book."

The novel hit. "Everything you could hope for," Howard says. "Critics praised it, it sold quite well, and David was off to the races."

His first brush with fame was a kind of gateway experience. Wallace would open The Wall Street Journal, see his face transmuted into a dot-cartoon. "Some article like 'Hotshot's Weird New Novel,' " he said. "I'd feel really good, really cool, for exactly 10 seconds. Probably not unlike a crack high, you know? I was living an incredibly American life: 'Boy, if I could just achieve X, Y and Z, everything would be OK.' " Howard bought Wallace's second book, Girl With Curious Hair, a collection of the stories he was finishing up at Arizona. But something in Wallace worried him. "I have never encountered a mind like David's," he says. "It functioned at such an amazingly high level, he clearly lived in a hyperalert state. But on the other hand, I felt that David's emotional life lagged far behind his mental life. And I think he could get lost in the gap between the two."

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Wallace was already drifting into the gap. He won a Whiting Writers' Award — stood on a stage with Eudora Welty — graduated Arizona, went to an artists' colony, met famous writers, knew the famous writers were seeing his name in more magazines ("absolutely exhilarating and really scary at the same time"), finished the stories. And then he was out of ideas. He tried to write in a cabin in Tucson for a while, then returned home to write — Mom and Dad doing the grocery shopping. He accepted a one-year slot teaching philosophy at Amherst, which was strange: Sophomores he had known were now his students. In the acknowledgments for the book he was completing, he thanks "The Mr. and Mrs. Wallace Fund for Aimless Children."

He was balled up, tied up. "I started hating everything I did," he said. "Worse than stuff I'd done in college. Hopelessly confused, unbelievably bad. I was really in a panic, I didn't think I was going to be able to write anymore. And I got this idea: I'd flourished in an academic environment — my first two books had sort of been written under professors." He applied to graduate programs in philosophy, thinking he could write fiction in his spare time. Harvard offered a full scholarship. The last thing he needed to reproduce his college years was to reactivate Mark Costello.

"So he comes up with this whole cockamamie plan," Costello recalls. "He says, 'OK, you're going to go back to Boston, practice law, and I'm going to go to Harvard. We'll live together — it'll be just like the house we had at Amherst.' It all ended up being a train wreck."

They found an apartment in Somerville. Student ghetto: rickety buildings, outdoor staircases. Costello would come home with his briefcase, click up the back stairs, David would call out, "Hi, honey, how was your day?" But Wallace wasn't writing fiction. He had thought course work would be a sideline; but professors expected actual work.

Not writing was the kind of symptom that presents a problem of its own. "He could get himself into places where he was pretty helpless," Costello says. "Basically it was the same symptoms all along: this incredible sense of inadequacy, panic. He once said to me that he wanted to write to shut up the babble in his head. He said when you're writing well, you establish a voice in your head, and it shuts up the other voices. The ones that are saying, 'You're not good enough, you're a fraud.' "

"Harvard was just unbelievably bleak," Wallace said. It became a substance marathon: drinking, parties, drugs. "I didn't want to feel it," he said. "It was the only time in my life that I'd gone to bars, picked up women I didn't know." Then for weeks, he would quit drinking, start mornings with a 10-mile run. "You know, this kind of very American sports training — I will fix this by taking radical action." Schwarzenegger voice: "If there's a problem, I will train myself out of it. I will work harder."

Various delays were holding up the publication of his short-story collection Girl With Curious Hair. He started to feel spooked. "I'm this genius writer," he remembered. "Everything I do's gotta be ingenious, blah, blah, blah, blah." The five-year clock was ticking again. He'd played football for five years. Then he'd played high-level tennis for five years. Now he'd been writing for five years. "What I saw was, 'Jesus, it's the same thing all over again.' I'd started late, showed tremendous promise — and the minute I felt the implications of that promise, it caved in. Because see, by this time, my ego's all invested in the writing. It's the only thing I've gotten food pellets from the universe for. So I feel trapped: 'Uh-oh, my five years is up, I've gotta move on.' But I didn't want to move on."

Costello watched while Wallace slipped into a depressive crisis. "He was hanging out with women who were pretty heavily into drugs — that was kind of alluring to Dave — skanking around Somerville, drinking himself blotto."

It was the worst period Wallace had ever gone through. "It may have been what in the old days was called a spiritual crisis," he said. "It was just feeling as though every axiom of your life turned out to be false. And there was nothing, and you were nothing — it was all a delusion. But you were better than everyone else because you saw that it was a delusion, and yet you were worse because you couldn't function."

By November, the anxieties had become locked and fixed. "I got really worried I was going to kill myself. And I knew, that if anybody was fated to fuck up a suicide attempt, it was me." He walked across campus to Health Services and told a psychiatrist, "Look, there's this issue. I don't feel real safe."

"It was a big deal for me, because I was so embarrassed," Wallace said. "But it was the first time I ever treated myself like I was worth something."

By making his announcement, Wallace had activated a protocol: Police were notified, he had to withdraw from school. He was sent to McLean, which, as psychiatric hospitals go, is pedigreed: Robert Lowell, Sylvia Plath, Anne Sexton all put in residences there; it's the setting for the memoir Girl, Interrupted. Wallace spent his first day on suicide watch. Locked ward, pink room, no furniture, drain in the floor, observation slot in the door. "When that happens to you," David said, smiling, "you get unprecedentedly willing to examine other alternatives for how to live."

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Wallace spent eight days in McLean. He was diagnosed as a clinical depressive and was prescribed a drug, called Nardil, developed in the 1950s. He would have to take it from then on. "We had a brief, maybe three-minute audience with the psychopharmacologist," his mother says. Wallace would have to quit drinking, and there was a long list of foods — certain cheeses, pickles, cured meats — he would have to stay away from.

He started to clean up. He found a way to get sober, worked very hard at it, and wouldn't drink for the rest of his life. Girl With Curious Hair finally appeared in 1989. Wallace gave a reading in Cambridge; 13 people showed up, including a schizophrenic woman who shrieked all the way through his performance. "The book's coming out seemed like a kind of shrill, jagged laugh from the universe, this thing sort of lingering behind me like a really nasty fart."

What followed was a phased, deliberate return to the world. He worked as a security guard, morning shift, at Lotus Software. Polyester uniform, service baton, walking the corridors. "I liked it because I didn't have to think," he said. "Then I quit for the incredibly brave reason that I got tired of getting up so early in the morning."

Next, he worked at a health club in Auburndale, Massachusetts. "Very chichi," he said. "They called me something other than a towel boy, but I was in effect a towel boy. I'm sitting there, and who should walk in to get their towel but Michael Ryan. Now, Michael Ryan had received a Whiting Writers' Award the same year I had. So I see this guy that I'd been up on the fucking rostrum with, having Eudora Welty give us this prize. It's two years later — it's the only time I've literally dived under something. He came in, and I pretended not very subtly to slip, and lay facedown, and didn't respond. I left that day, and I didn't go back."

He wrote Bonnie Nadell a letter; he was done with writing. That wasn't exactly her first concern. "I was worried he wasn't going to survive," she says. He filled in Howard, too. "I contemplated the circumstance that the best young writer in America was handing out towels in a health club," Howard says. "How fucking sad."

Wallace met Jonathan Franzen in the most natural way for an author: as a fan. He sent Franzen a nice letter about his first novel, The Twenty-Seventh City. Franzen wrote back, they arranged to meet in Cambridge. "He just flaked," Franzen recalls. "He didn't show up. That was a fairly substance-filled period of his life."

By April of 1992, both were ready for a change. They loaded Franzen's car and headed for Syracuse to scout apartments. Franzen needed "somewhere to relocate with my wife where we could both afford to live and not have anyone tell us how screwed up our marriage was." Wallace's need was simpler: cheap space, for writing. He had been researching for months, haunting rehab facilities and halfway houses, taking quiet note of voices and stories, people who had fallen into the gaps like him. "I got very assertive research- and finagle-wise," he said. "I spent hundreds of hours at three halfway houses. It turned out you could just sit in the living room — nobody is as gregarious as somebody who has recently stopped using drugs."

He and Franzen talked a lot about what writing should be for. "We had this feeling that fiction ought to be good for something," Franzen says. "Basically, we decided it was to combat loneliness." They would talk about lots of Wallace's ideas, which could abruptly sharpen into self-criticism. "I remember this being a frequent topic of conversation," Franzen says, "his notion of not having an authentic self. Of being just quick enough to construct a pleasing self for whomever he was talking to. I see now he wasn't just being funny — there was something genuinely compromised in David. At the time I thought, 'Wow, he's even more self-conscious than I am.' "

Wallace spent a year writing in Syracuse. "I lived in an apartment that was seriously the size of the foyer of an average house. I really liked it. There were so many books, you couldn't move around. When I'd want to write, I'd have to put all the stuff from the desk on the bed, and when I'd want to sleep, I would have to put all the stuff on the desk."

Wallace worked longhand, pages piling up. "You look at the clock and seven hours have passed and your hand is cramped," Wallace said. He'd have pens he considered hot — cheap Bic ballpoints, like batters have bats that are hot. A pen that was hot he called the orgasm pen.

In the summer of 1993, he took an academic job 50 miles from his parents, at Illinois State University at Normal. The book was three-quarters done. Based on the first unruly stack of pages, Nadell had been able to sell it to Little, Brown. He had put his whole life into it — tennis, and depression, and stoner afternoons, and the precipice of rehab, and all the hours spent with Amy watching TV. The plot motor is a movie called Infinite Jest, so soothing and perfect it's impossible to switch off: You watch until you sink into your chair, spill your bladder, starve, die. "If the book's about anything," he said, "it's about the question of why am I watching so much shit? It's not about the shit. It's about me: Why am I doing it? The original title was A Failed Entertainment, and the book is structured as an entertainment that doesn't work" — characters developing and scattering, chapters disordered — "because what entertainment ultimately leads to is 'Infinite Jest,' that's the star it's steering by."

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Wallace held classes in his house, students nudging aside books like Compendium of Drug Therapy and The Emergence of the French Art Film, making jokes about Mount Manuscript, David's pile of novel. He had finished and collected the three years of drafts, and finally sat down and typed the whole thing. Wallace didn't really type; he input the giant thing twice, with one finger. "But a really fast finger."

It came to almost 1,700 pages. "I was just terrified how long it would end up being," he said. Wallace told his editor it would be a good beach book, in the sense that people could use it for shade.

It can take a year to edit a book, re-edit it, print it, publicize it, ship it, the writer all the time checking his watch. In the meantime, Wallace turned to nonfiction. Two pieces, published in Harper's, would become some of the most famous pieces of journalism of the past decade and a half.

Colin Harrison, Wallace's editor at Harper's, had the idea to outfit him with a notebook and push him into perfectly American places — the Illinois State Fair, a Caribbean cruise. It would soak up the side of Wallace that was always on, always measuring himself. "There would be Dave the mimic, Dave the people-watcher," Costello says. "Asking him to actually report could get stressful and weird and complicated. Colin had this stroke of genius about what to do with David. It was a much simpler solution than anyone ever thought."

In the pieces, Wallace invented a style writers have plundered for a decade. The unedited camera, the feed before the director in the van starts making choices and cuts. The voice was humane, a big, kind brain tripping over its own lumps. "The Harper's pieces were me peeling back my skull," Wallace said. "You know, welcome to my mind for 20 pages, see through my eyes, here's pretty much all the French curls and crazy circles. The trick was to have it be honest but also interesting — because most of our thoughts aren't all that interesting. To be honest with a motive." He laughed. "There's a certain persona created, that's a little stupider and schmuckier than I am."

The cruise-ship piece ran in January 1996, a month before David's novel was published. People photocopied it, faxed it to each other, read it over the phone. When people tell you they're fans of David Foster Wallace, what they're often telling you is that they've read the cruise-ship piece; Wallace would make it the title essay in his first collection of journalism, A Supposedly Fun Thing I'll Never Do Again. In a way, the difference between the fiction and the nonfiction reads as the difference between Wallace's social self and his private self. The essays were endlessly charming, they were the best friend you'd ever have, spotting everything, whispering jokes, sweeping you past what was irritating or boring or awful in humane style. Wallace's fiction, especially after Infinite Jest, would turn chilly, dark, abstract. You could imagine the author of the fiction sinking into a depression. The nonfiction writer was an impervious sun.

The novel came out in February of 1996. In New York Magazine, Walter Kirn wrote, "The competition has been obliterated. It's as though Paul Bunyan had joined the NFL, or Wittgenstein had gone on Jeopardy! The novel is that colossally disruptive. And that spectacularly good." He was in Newsweek, Time, Hollywood people appeared at his readings, women batted their eyelashes, men in the back rows scowled, envied. A FedEx guy rang his bell, watched David sign for delivery, asked, "How's it feel to be famous?"

At the end of his book tour, I spent a week with David. He talked about the "greasy thrill of fame" and what it might mean to his writing. "When I was 25, I would've given a couple of digits off my non-use hand for this," he said. "I feel good, because I wanna be doing this for 40 more years, you know? So I've got to find some way to enjoy this that doesn't involve getting eaten by it."

He was astonishingly good, quick company, making you feel both wide awake and as if your shoes had been tied together. He'd say things like, "There's good self-consciousness, and then there's toxic, paralyzing, raped-by-psychic-Bedouins self-consciousness." He talked about a kind of shyness that turned social life impossibly complicated. "I think being shy basically means being self-absorbed to the point that it makes it difficult to be around other people. For instance, if I'm hanging out with you, I can't even tell whether I like you or not because I'm too worried about whether you like me."

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He said one interviewer had devoted tons of energy to the genius question. "That was his whole thing, 'Are you normal?' 'Are you normal?' I think one of the true ways I've gotten smarter is that I've realized that there are ways other people are a lot smarter than me. My biggest asset as a writer is that I'm pretty much like everybody else. The parts of me that used to think I was different or smarter or whatever almost made me die."

It had been difficult, during the summer, to watch his sister get married. "I'm almost 35. I would like to get married and have kids. I haven't even started to work that shit out yet. I've come close a few times, but I tend to be interested in women that I turn out to not get along very well with. I have friends who say this is something that would be worth looking into with someone that you pay."

Wallace was always dating somebody. "There were a lot of relationships," Amy says. He dated in his imaginative life too: When I visited him, one wall was taped with a giant Alanis Morissette poster. "The Alanis Morissette obsession followed the Melanie Griffith obsession — a six-year obsession," he said. "It was preceded by something that I will tell you I got teased a lot for, which was a terrible Margaret Thatcher obsession. All through college: posters of Margaret Thatcher, and ruminations on Margaret Thatcher. Having her really enjoy something I said, leaning forward and covering my hand with hers."

He tended to date high-strung women — another symptom of his shyness. "Say what you want about them, psychotics tend to make the first move." Owning dogs was less complicated: "You don't get the feeling you're hurting their feelings all the time."

His romantic anxieties were full-spectrum, every bit of the mechanics individually examined. He told me a joke:

What does a writer say after sex?

Was it as good for me as it was for you?

"There is, in writing, a certain blend of sincerity and manipulation, of trying always to gauge what the particular effect of something is gonna be," he said. "It's a very precious asset that really needs to be turned off sometimes. My guess is that writers probably make fun, skilled, satisfactory, and seemingly considerate partners for other people. But that the experience for them is often rather lonely."

One night Wallace met the writer Elizabeth Wurtzel, whose depression memoir, Prozac Nation, had recently been published. She thought he looked scruffy — jeans and the bandanna — and very smart. Another night, Wallace walked her home from a restaurant, sat with her in her lobby, spent some time trying to talk his way upstairs. It charmed Wurtzel: "You know, he might have had this enormous brain, but at the end of the day, he still was a guy."

Wallace and Wurtzel didn't really talk about the personal experience they had in common — depression, a substance history, consultations at McLean — but about their profession, about what to do with fame. Wallace, again, had set impossible standards for himself. "It really disturbed him, the possibility that success could taint you," she recalls. "He was very interested in purity, in the idea of authenticity — the way some people are into the idea of being cool. He had keeping it real down to a science."

When Wallace wrote her, he was still curling through the same topic. "I go through a loop in which I notice all the ways I am self-centered and careerist and not true to standards and values that transcend my own petty interests, and feel like I'm not one of the good ones. But then I countenance the fact that at least here I am worrying about it, noticing all the ways I fall short of integrity, and I imagine that maybe people without any integrity at all don't notice or worry about it; so then I feel better about myself. It's all very confusing. I think I'm very honest and candid, but I'm also proud of how honest and candid I am — so where does that put me?"

Success can be as difficult to recover from as failure. "You know the tic big-league pitchers have," his mother says, "when they know that they've pitched a marvelous game — but gee, can they do it again, so they keep flexing that arm? There was some of that. Where he said, 'OK. Good, that came out well. But can I do it again?' That was the feeling I got. There was always the shadow waiting."

Wallace saw it that way too. "My big worry," he said, "is that this will just up my expectations for myself. And expectations are a very fine line. Up to a certain point they can be motivating, can be kind of a flamethrower held to your ass. Past that point they're toxic and paralyzing. I'm scared that I'll fuck up and plunge into a compressed version of what I went through before."

Mark Costello was also worried. "Work got very hard. He didn't get these gifts from God anymore, he didn't get these six-week periods where he got exactly the 120 pages he needed. So he found distraction in other places." He would get engaged, then unengaged. He would call friends: "Next weekend, Saturday, you gotta be in Rochester, Minnesota, I'm getting married." But then it would be Sunday, or the next week, and he'd have called it off.

"He almost got married a few times," Amy says. "I think what ultimately happened is he was doing it more for the other person than himself. And he realized that wasn't doing the other person any favors."

Wallace told Costello about a woman he had become involved with. "He said, 'She gets mad at me because I never want to leave the house.' 'Honey, let's go to the mall.' 'No, I want to write.' 'But you never do write.' 'But I don't know if I'm going to write. So I have to be here in case it happens.' This went on for years."

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In 2000, Wallace wrote a letter to his friend Evan Wright, a Rolling Stone contributor: "I know about still having trouble with relationships. (Boy oh boy, do I.) But coming to enjoy my own company more and more — most of the time. I know about some darkness every day (and some days, it's all dark for me)." He wrote about meeting a woman, having things move too easily, deciding against it. "I think whatever the pull is for me is largely composed of wanting the Big Yes, of wanting someone else to want you (Cheap Trick lives). . . . So now I don't know what to do. Probably nothing, which seems to be the Sign that the universe or its CEO is sending me."

In the summer of 2001, Wallace relocated to Claremont, California, to become the Roy Edward Disney Chair in Creative Writing, at Pomona College. He published stories and essays, but was having trouble with his work. After he reported on John McCain's 2000 presidential campaign for this magazine, he wrote his agent that it would show his editor that "I'm still capable of good work (my own insecurities, I know)."

Wallace had received a MacArthur "genius" award in 1997. "I don't think it did him any favors," says Franzen. "It conferred the mantle of 'genius' on him, which he had of course craved and sought and thought was his due. But I think he felt, 'Now I have to be even smarter.' " In late 2001, Costello called Wallace. "He was talking about how hard the writing was. And I said, lightheartedly, 'Dave, you're a genius.' Meaning, people aren't going to forget about you. You're not going to wind up in a Wendy's. He said, 'All that makes me think is that I've fooled you, too.'"

Wallace met Karen Green a few months after moving to Claremont. Green, a painter, admired David's work. It was a sort of artistic exchange, an inter-disciplinary blind date. "She wanted to do some paintings based on some of David's stories," his mother says. "They had a mutual friend, and she thought she would ask permission."

"He was totally gaga," Wright recalls. "He called, head over heels, he was talking about her as a life-changing event." Franzen met Green the following year. "I felt in about three minutes that he'd finally found somebody who was up to the task of living with Dave. She's beautiful, incredibly strong, and a real grown-up — she had a center that was not about landing the genius Dave Wallace."

They made their debut as a couple with Wallace's parents in July 2003, attending the Maine culinary festival that would provide the title for his last book, Consider the Lobster. "They were both so quick," his father says. "They would get things and look at each other and laugh, without having to say what had struck them as funny." The next year, Wallace and Green flew to his parents' home in Illinois, where they were married two days after Christmas. It was a surprise wedding. David told his mother he wanted to take the family to what he called a "high-gussy" lunch. Sally Wallace assumed it was Karen's influence. "David does not do high gussy," she says. "His notion of high gussy is maybe long pants instead of shorts or a T-shirt with two holes instead of 18." Green and Wallace left the house early to "run errands," while Amy figured out a pretext to get their parents to the courthouse on the way to the lunch. "We went upstairs," Sally says, "and saw Karen with a bouquet, and David dressed up with a flower in his buttonhole, and we knew. He just looked so happy, just radiating happiness." Their reception was at an Urbana restaurant. "As we left in the snow," Sally says, "David and Karen were walking away from us. He wanted us to take pictures, and Jim did. David was jumping in the air and clicking his heels. That became the wedding announcement."

According to Wallace's family and friends, the last six years — until the final one — were the best of his life. The marriage was happy, university life good, Karen and David had two dogs, Warner and Bella, they bought a lovely house. "Dave in a real house," Franzen says, laughing, "with real furniture and real style."

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To Franzen's eye, he was watching Wallace grow up. There had been in David a kind of purposeful avoidance of the normal. Once, they'd gone to a literary party in the city. They walked in the front door together, but by the time Franzen got to the kitchen, he realized Wallace had disappeared. "I went back and proceeded to search the whole place," Franzen recalled. "He had walked into the bathroom to lose me, then turned on his heels and walked right back out the front door."

Now, that sort of thing had stopped. "He had reason to hope," Franzen said. "He had the resources to be more grown-up, a wholer person."

And then there were the dogs. "He had a predilection for dogs who'd been abused, and unlikely to find other owners who were going to be patient enough for them," Franzen says. "Whether through a sense of identification or sympathy, he had a very hard time disciplining them. But you couldn't see his attentiveness to the dogs without getting a lump in your throat."

Because Wallace was secure, he began to talk about going off Nardil, the antidepressant he had taken for nearly two decades. The drug had a long list of side effects, including the potential of very high blood pressure. "It had been a fixture of my morbid fear about Dave — that he would not last all that long, with the wear and tear on his heart," Franzen says. "I worried that I was going to lose him in his early 50s." Costello said that Wallace complained the drug made him feel "filtered." "He said, 'I don't want to be on this stuff for the rest of my life.' He wanted to be more a member of the human race."

In June of 2007, Wallace and Green were at an Indian restaurant with David's parents in Claremont. David suddenly felt very sick — intense stomach pains. They stayed with him for days. When he went to doctors, he was told that something he'd eaten might have interacted with the Nardil. They suggested he try going off the drug and seeing if another approach might work.

"So at that point," says his sister Amy, with an edge in her voice, it was determined, 'Oh, well, gosh, we've made so much pharmaceutical progress in the last two decades that I'm sure we can find something that can knock out that pesky depression without all these side effects.' They had no idea that it was the only thing that was keeping him alive."

Wallace would have to taper off the old drug and then taper on to a new one. "He knew it was going to be rough," says Franzen. "But he was feeling like he could finally afford a year to do the job. He figured that he was going to go on to something else, at least temporarily. He was a perfectionist, you know? He wanted to be perfect, and taking Nardil was not perfect."

That summer, David began to phase out the Nardil. His doctors began prescribing other medications, none of which seemed to help. "They could find nothing," his mother says softly. "Nothing." In September, David asked Amy to forgo her annual fall-break visit. He wasn't up to it. By October, his symptoms had become bad enough to send him to the hospital. His parents didn't know what to do. "I started worrying about that," Sally says, "but then it seemed OK." He began to drop weight. By that fall, he looked like a college kid again: longish hair, eyes intense, as if he had just stepped out of an Amherst classroom.

When Amy talked to him on the phone, "sometimes he was his old self," she says. "The worst question you could ask David in the last year was 'how are you?' And it's almost impossible to have a conversation with someone you don't see regularly without that question." Wallace was very honest with her. He'd answer, "I'm not all right. I'm trying to be, but I'm not all right."

Despite his struggle, Wallace managed to keep teaching. He was dedicated to his students: He would write six pages of comments to a short story, joke with his class, fight them to try harder. During office hours, if there was a grammar question he couldn't answer, he'd phone his mother. "He would call me and say, 'Mom, I've got this student right here. Explain to me one more time why this is wrong.' You could hear the student sort of laughing in the background. 'Here's David Foster Wallace calling his mother.' "

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In early May, at the end of the school year, he sat down with some graduating seniors from his fiction class at a nearby cafe. Wallace answered their jittery writer's-future questions. "He got choked up at the end," recalls Bennett Sims, one of his students. "He started to tell us how much he would miss us, and he began to cry. And because I had never seen Dave cry, I thought he was just joking. Then, awfully, he sniffled and said, 'Go ahead and laugh — here I am crying — but I really am going to miss all of you.' "

His parents were scheduled to visit the next month. In June, when Sally spoke with her son, he said, "I can't wait, it'll be wonderful, we'll have big fun." The next day, he called and said, "Mom, I have two favors to ask you. Would you please not come?" She said OK. Then Wallace asked, "Would your feelings not be hurt?"

No medications had worked; the depression wouldn't lift. "After this year of absolute hell for David," Sally says, "they decided to go back to the Nardil." The doctors also administered 12 courses of electroconvulsive therapy, waiting for Wallace's medication to become effective. "Twelve," Sally repeats. "Such brutal treatments," Jim says. "It was clear then things were bad."
Wallace had always been terrified of shock therapy. "It scares the shit out of me," he told me in 1996. "My brain's what I've got. But I could see that at a certain point, you might beg for it."

In late June, Franzen, who was in Berlin, grew worried. "I actually woke up one night," he says. "Our communications had a rhythm, and I thought, 'It's been too long since I heard from Dave.' " When Franzen called, Karen said to come immediately: David had tried to kill himself.

Franzen spent a week with Wallace in July. David had dropped 70 pounds in a year. "He was thinner than I'd ever seen him. There was a look in his eyes: terrified, terribly sad, and far away. Still, he was fun to be with, even at 10 percent strength." Franzen would sit with Wallace in the living room and play with the dogs, or step outside with David while he smoked a cigarette. "We argued about stuff. He was doing his usual line about, 'A dog's mouth is practically a disinfectant, it's so clean. Not like human saliva, dog saliva is marvelously germ-resistant.'" Before he left, Wallace thanked him for coming. "I felt grateful that he allowed me to be there," Franzen says.

Six weeks later, Wallace asked his parents to come to California. The Nardil wasn't working. It can happen with an antidepressant; a patient goes off, returns, and the medication has lost its efficacy. Wallace couldn't sleep. He was afraid to leave the house. He asked, "What if I meet one of my students?" "He didn't want anyone to see him the way he was," his father says. "It was just awful to see. If a student saw him, they would have put their arms around him and hugged him, I'm sure."

His parents stayed for 10 days. "He was just desperate," his mother says. "He was afraid it wasn't ever going to work. He was suffering. We just kept holding him, saying if he could just hang on, it would straighten. He was very brave for a very long time."

Wallace and his parents would get up at six in the morning and walk the dogs. They watched DVDs of The Wire, talked. Sally cooked David's favorite dishes, heavy comfort foods — pot pies, casseroles, strawberries in cream. "We kept telling him we were so glad he was alive," his mother recalls. "But my feeling is that, even then, he was leaving the planet. He just couldn't take it."

One afternoon before they left, David was very upset. His mother sat on the floor beside him. "I just rubbed his arm. He said he was glad I was his mom. I told him it was an honor."

At the end of August, Franzen called. All summer long he had been telling David that as bad as things were, they were going to be better, and then he'd be better than he'd ever been. David would say, "Keep talking like that — it's helping." But this time it wasn't helping. "He was far away," Franzen says. A few weeks later, Karen left David alone with the dogs for a few hours. When she came home that night, he had hanged himself.

"I can't get the image out of my head," his sister says. "David and his dogs, and it's dark. I'm sure he kissed them on the mouth, and told them he was sorry."

[From Issue 1064 — October 30, 2008]