The Tube Man and a Lesson in Credit Risk

By David von Leib

My dad passed away last week.  He had been a Specialist on the floor of the New York Stock Exchange for forty years, where he also loved to make football bets with his colleagues.  Sometimes some of these football bets would involve odd point spreads shifted away from those being displayed on the Las Vegas line, with one party then laying the other party odds about a given betting proposition.

It was arguably my first introduction to the equivalent of a sliced-and-diced structured product – where the bet structure can change the odds offered (think maybe of someone getting a higher payoff potential by taking all the default risk of a CLO equity tranche risk) – as well as to the concept of credit risk and tail risk.

The excerpt below from the 2015 book Not My Grandfather’s Wall Street is dedicated to my dad, Gordon.  Up in heaven, he would smile at its re-telling.


Thornton’s summer on the Floor of the NYSE in 1974 was overall an eye-opening experience.  He felt the pulse of capitalism as closely as any 15-year old kid possibly could – even if he would never have imagined all of the market-structure changes that would follow.

What struck him the most perhaps was the social ubiquity of the NYSE Floor.  People who might not otherwise hang out together beyond the Floor were notwithstanding often the best of friends on the Floor.  It was a true melting pot of American people trading American securities in a most American way.

One of the lowest paid Floor employees of the NYSE at the time was indeed the lowly “Tube Man,” and at Post 16 where Thornton stood, there was this Tube Man named Cliff, and he loved to gamble.  A tall slightly debonair looking bald man, Cliff could have passed for a European butler, but there he stood unfolding tube orders to make a living.

With a “shhhuwpp” sound, a tube order would arrive to the base of its pipe from an upstairs firm’s wire room.  Then, a “Tube Man” standing by the magic machine would remove and open the circular container, pull out the coveted small script of paper, while dropping the tube itself into the vat of empty used tubes. The order would be passed to a Specialist clerk, and in turn to the Specialist for execution, with a fill then scribbled on the order, and the slip of paper sent back through the tubes for a return voyage.

It was all pretty antiquated stuff, and a pretty lowly existence to be a Tube Man.  At most Cliff made $15,000 a year in this profession during that era.

And yet he stood there so near all these ultra-rich brokers.

And on the Floor, almost everyone loved to make a bet – to place a wager.

At first Cliff’s bets were pretty standard.  The Giants would be playing the Cowboys and were seven point underdogs.  Cliff might like the Cowboys and would look for a bet against someone else who was a Giants fan.  It was pretty harmless stuff.  Discussions and negotiations as to point spreads filled the otherwise dull moments at the Post when the order flow was light.

But then Cliff started to muck with the point spreads and the odds given.  He’d say that he wanted to bet on the Cowboys and receive an extra +10 points (instead of giving away the normal Las Vegas line of -7 points on the game), but for that less-than-generous point spread set-up that was very much in his favor, he would compensate by offering 10-1 odds to someone willing to accept the Giants at -10.

And despite being a Tube Man, Cliff would voice that he was willing to bet $1,000 versus a $10,000 potential risk if the Giants won big.  Somewhere in the sea of brokers, news of the odd bet proposition would circulate, and a “syndicate” of ten Giants fans would be found willing to risk maybe $100 apiece at the chance to receive $1000 apiece if the Giants romped.

In the end, a sea of well-paid NYSE brokers would be betting versus Cliff, The Tube Man.  Only in America!

Most of the time, Cliff won, of course.  The Cowboys, already the favorite, would either win or keep the game reasonably close.  Cliff might only have been making about $15,000 a year at his job, but he would typically pocket a nice chunk of gambling money on the side – maybe $1,000 on any given Monday morning after weekend football results were in.  And sometimes his take was even more.

And as he won, so too did Cliff’s willingness to bet in size.  Suddenly, he was looking to risk losing maybe $200,000 should some 20-1 skewed odds proposition happen to come in, with the most that he’d ever gain standing at $10,000.  Cliff undoubtedly saw this as his way to make ends meet at the behest of overly rich brokers who could afford to throw a bit of money away on unlikely betting propositions.

But then one day, well after Thornton had left the Floor in November 1974, there was a Knicks basketball game against a visiting underdog team.  Cliff actually liked the underdog who by Las Vegas odds was a 10-point underdog on a standard betting basis.  Cliff twisted the betting proposition odds around as follows:  He would take the underdog +40 points, but lay 50-1 odds to anyone willing to accept the Knicks -40.  The size of the betting had now grown to the point where Cliff was looking to make $20,000 on his bet against the risk of losing $1,000,000 should the Knicks somehow really romp and win by more than 40 points.  Most of the brokers knew that they would probably almost always lose giving away so many points, but the odds being offered seemed so attractive that for $10 or $20 dollars or even $100, they were willing to give the wildcard outcome a shot.

Gordon called Thornton at school.

“Do you remember Cliff, the Tube Man, Thorn? Well, he’s offering us 50-1 odds that the Knicks won’t win by more than 40 points tonight.  We’re putting together a syndicate to take him on.  You want in?”

So while still just a teenager, Thornton became part of the syndicate against Cliff, the Tube Man.  He risked $10 for the chance to make $500.  He hardly knew much about basketball and whether a 40 point winning spread in basketball was ever seen or not.  But he supposed that anything was possible.

That night in November 1974, the Knicks did indeed romp.  Thornton opened up the newspaper the next day to see the Knicks having scored 142 points versus 98 for the opposing team – an almost magical score that just covered the -40 point spread.   It hadn’t been the first time Cliff had been hit, but at a million-dollar payout, this was by far the largest gambling loss that anyone had ever seen experienced on the NYSE Floor for a sports bet at the time.

There was just one problem: Cliff didn’t show up for work that next morning.  He went AWOL.  Some feared that maybe he’d committed suicide.  Others suggested that he had fled the city.

With hindsight, one must wonder what an educated group of brokers really should have expected betting in such a manner with a Tube Man who made $15,000 a year in salary.

Thornton never got his $500, and remembered feeling cheated by someone.  If Cliff didn’t pay off, but Gordon had egged Thornton into participating in the syndicate, shouldn’t Gordon perhaps be on the hook to pay Thornton the missing winnings?

“Sorry, but that’s not the way credit risk works,” Gordon had explained to Thornton.  “None of us got paid.  We’re not even sure Cliff is still alive.  This is just not a bet that we’ll ever likely collect on.”

And so Thornton learned an early lesson in “tail risk” events and counterparty exposure.  Subconsciously, this bet story likely lingered longer than he realized.

Could a guy’s life really be ruined by the outcome of a Knicks basketball game?

On the Floor of the NYSE, in the late fall of 1974, the answer apparently was yes.

Not My Grandfather’s Wall Street is available on Amazon: