I Think Icahn, I Think Icahn . . .
Carl Icahn’s resignation as adviser to Donald Trump is as good an occasion as any to tell the story of how I once dealt baccarat to Icahn in Atlantic City.
I’ve described my Atlantic City experiences elsewhere. Suffice it to say that my time as a table games dealer was a too-prolonged attempt to expose myself to the sad human spectacle of the casino floor, as described in Dostoyevsky’s The Gambler. I watched a man die right in front of me, I lost a friend to suicide, and over and over I bore witness to infantile tantrums thrown by grown adults playing games they knew they should lose.
In addition to being an endlessly running conveyor of middle class self-harm, the casinos gave B-list celebrities a venue to bask in stale fame. I witnessed unflattering appearances by Paul Anka, Joey Buttafuoco, Pete Rose, and others. So I wasn’t surprised when, one afternoon, a couple who looked vaguely familiar wandered into the high action pit where I was working and sat down at an empty baccarat game in a semi-private back room.
It took me a while to place them. I knew something was up when I asked my floorperson who they were and received only a Jersey-drawl of a reply: “Donworryboudit.” A short time later, the wife, visibly bored by the whole experience, made a cell phone call and gave instructions for a plane to be made ready for departure. “This is Mrs. Icahn,” the call began.
That did it. I recognized Icahn from the press he’d received in the eighties as a pioneer of the corporate takeover.
This was 1999, give or take a year, and looking back the story might be more interesting if it had been one of the three casinos that Donald Trump owned in Atlantic City at the time. But it wasn’t. Or maybe it’s more interesting that even then Carl Icahn seems not to have wanted to bet against Donald Trump. In any event, Icahn today owns a casino in Atlantic City, and until recently owned two of the former Trump properties; in February, he sold Trump’s most famous failure, the Trump Taj Mahal hotel and casino.
Dealing to Icahn was notable for what he played and how he played it.
He preferred speed over drama, played dispassionately, and wore a pair of ratty shorts and t-shirt for the occasion.
The word “baccarat” may derive from a Provençal expression for “going bankrupt,” and you probably know the basic milieu from older James Bond movies featuring the pomp and drama of chemin de fer, a close cousin of baccarat. The modern game has all the same aristocratic snootinalia, and what one sees when large groups of people play together is a kind of superstitious little-train-that-could effort to will long winning streaks into being. Truth to tell, Icahn didn’t go in for any of that. He preferred speed over drama, played dispassionately, and wore a pair of ratty shorts and t-shirt for the occasion.
As to the game itself, all you need to know is that baccarat is a card game with two sides, and it’s designed to be as close to 50-50 as possible. Players can bet on either side, and if you win on the side that has a slight advantage you pay a small commission (or vigorish). The odds in baccarat are not bad, but you’re losing either way.
More tellingly, Icahn was employing a betting strategy known as the “martingale system.”
Etymologically, “martingale” traces back to either a piece of leather tack affixed to horses in order to keep them from moving their heads from side to side (which perhaps suggests that the better system requires unflinching focus), or to the residents of the French town of Martigues, who were once regarded as uniquely naïve (which perhaps implies that it is stupid). One eighteenth-century French dictionary noted that “To play the Martingale is to always bet all that was lost,” and another claimed that the system was employed “in order to quit with a sure profit, provided that [the gambler] wins once.”
That’s a little obtuse. Here’s how it works. Start with a small wager: $5. If you lose, double your bet. If you lose $10, double that to $20. Etc. When you win, at any point in the sequence, you will have won $5. Obviously, if you win the first hand, you have won $5. Keep your bet the same. But every time you lose, double it. And every time you win, return to $5.
Here it is a little more graphically. Say you lose five hands in a row:
5 + 10 + 20 + 40 + 80 = 155
Doubling your last bet of $80, you now bet $160. If you win, you’re ahead $5 for the sequence of six hands.
The only things that can beat the martingale system are either a maximum bet imposed by the casino that prevents another doubled wager—or the more familiar constraint on unfettered casino betting: the player lacking the cash to cover the next bet. Both outcomes are not merely likely in the long run; they’re inevitable. And that’s why the martingale system is as much a loser as any other system.
Our former casino proprietor of a president has transformed himself into a classic martingale bettor.
It’s not surprising that Icahn had stumbled onto the martingale. Gamblers have argued the merits of the martingale to probabilists for hundreds of years, and the story of how martingales evolved from philosophy into economics and finally into the theory of financial markets traces through the likes of Blaise Pascal, Joseph Doob, and Richard von Mises. I don’t claim to be an expert, but I imagine the system is relevant to rationalizing the risk of significant capital in order to ensure a modest short-term gain.
Icahn’s initial wager was $1,000. He played with a kind of insouciance, and he wore a malign little grin as though the whole exercise was about seeing whether this martingale thing really worked. That’s strange, because he could have just done the math. Several times he lost a number of hands in a row, and at least once he ran a cold streak up to the table maximum of $150,000. I don’t recall whether he won, but if he’d lost it all—which is what you lose when you lose with the martingale—I think I would remember it.
The experience now seems sadly relevant. Our former casino proprietor of a president has transformed himself into a classic martingale bettor: he is unable to turn his head from his path, and he is naïve in the extreme. He’s doubling his wager after every political loss, and we’re all watching his stack of chips diminish exponentially. Carl Icahn was once willing to sit and play with Trump, but now he’s gone—and his realization was perhaps two-fold: a string of losses was inevitable, and a good gambler knows when to cut and run.