combat was ritualized, as mounted warriors rode out, announced their
lineage (to the SEC?), then matched up with men of equal renown. The
samurai prized flexibility over brute strength; they had steel swords
that handled like scalpels and body armor that was a woven mesh of
lacquered-iron scales laced together in rows to create a "fabric" of
metal. Those weapons and armor made for agile movement, easy feints,
fast changes in strategy--all trademarks of mine on the corporate
takeover battlefield.
As a result, I fancied myself some kind of samurai too. . . .
The question was, how did _Noda _know this?
For some reason just then I glanced over toward Akira Mori. She
appeared to be studying a scroll with the detachment of a Zen monk in
_zazen_ meditation, but she wasn't missing a syllable.
"Care to run through whatever it is you have in mind?" I indicated one
of the ottomans along the side of the room, now clearing as bidders
rose to go inside. I watched as the dark- suited Japanese businessmen
filed past, none with Noda's sense of style, and noticed that several
seemed acquainted with him, pausing to offer obsequious bows.
"With pleasure." He settled himself. Mori, now looking over some
screens, still didn't elect to join us. "First, may I presume you
already know something of Nippon, Inc.?"
"No more than what I gleaned from that package you forwarded. Almost
nothing, really."
He laughed, a flash of even teeth. "Perhaps I should be pleased. These
days too much visibility in the U.S. can sometimes stir up 'friction'."
"Your prospectus indicated you help banks manage capital, so I assume
you're looking to enter the financial picture here."
That was the funny part, recall? There was no indication of any U.S.
action in his prospectus. Yet I knew that, overall, Japan's U.S.
investment, private and public, was in the tens and hundreds of
billions. Pension funds and industries were building factories,
financing corporations, snapping up Treasury paper. Japan had become a
major source of fresh money for the U.S. and for the world. But Nippon,
Inc. wasn't one of the players.
"Yes, we intend to be concerned, initially, with the position of
Japanese capital in the U.S. We are particularly interested in the
matter of Treasury debentures."
That was what anybody would have figured. Just that week the Journal
had noted that Japanese investors were expected to cover half of our
Treasury overdrafts for the year. They were advancing us the bucks to
keep up that spending spree known as the national deficit. They sold us
Toyotas; we sold them federal IOUs, using the proceeds to buy more
Toyotas. In effect they were financing the good life, supplying us the
"revolving credit" to buy their cars and DVDs and semiconductors.
"Treasuries always make a lot of sense." I picked up the thread. "Full
faith and credit of the U.S. government, all the rest."
"Quite so, Mr. Walton, but since all things are theoretically possible,
over the past few months I've undertaken a small program through
subsidiaries of Nippon, Inc. to begin cushioning Japan's exposure in
your Treasury market somewhat." He paused. "Now that my effort may be
expanding significantly, I was wondering if perhaps you might consent
to serve as our American agent in that endeavor."
For a second I didn't grasp what he was driving at, probably because my
involvement seemed totally unnecessary. Surely he realized Treasuries
were bought and sold here every day on the open market through dealer
banks? No big deal. Why bother hiring a middleman?
"I can make this quick. Why don't you just contact some of the
authorized Japanese brokers here in New York? You must have used them
before. Nomura Securities is well respected. There's also Nikko
Securities. And Daiwa Securities America. They're all primary dealers
in Treasury paper now. Buy or sell whatever you like."
Noda nodded. "Of course. But we both know the financial markets can be
very delicate. Impressions count for much, which is why I have chosen
to keep a low profile. Consequently, I would prefer to continue to
operate for a time outside normal channels. And in that regard, I now
believe it would be desirable to have an experienced American financial
specialist assist us. You, in particular, would be ideal."
I studied him. "Let me make sure I understand this. You're asking me to
step in and begin fronting for you here in the Treasury market?"
"That is correct, Mr. Walton." He rose and strolled over to the row of
_tachi _swords, where Miss Mori was still standing. They were lying on
a spread of dark velvet, and she was scrutinizing them with a
connoisseur's eye.
Now, I'd like to think I was a quick study of a situation, but this one
was definitely out of whack somehow. If all Noda wanted was to roll
over a little government paper, why the hush-hush? More to the point,
why a whole building in midtown? He could easily do it from Tokyo. The
scenario didn't compute.
"Before this conversation goes any further, I'd like a better idea of
the kind of activity you're talking about. Selling Treasuries? Moving
the funds into corporate bonds or munis? Commercial paper, equities."
"Sell?" He abruptly paused to watch as the staff began carefully
assembling the weapons to take inside for the sale, and his mind seemed
to wander. "You know, Mr. Walton, the sword always has held the
greatest fascination for me. To make one of these, layers of steel of
different hardnesses were hammered together like a sandwich, then
reheated, hammered out, folded, again and again, until there were
perhaps a million paper-thin layers." He pointed to one of the long
blades now glistening in the light. "You cannot see it, of course, but
they used a laminate of soft steel for the core, harder grades for the
cutting edge. And whereas the edge was tempered quickly to preserve its
sharpness, the core was made to cool very slowly, leaving it pliant."
He suddenly smiled with what seemed embarrassment and turned back. "I
take great inspiration from the sword, Mr. Walton. The man holding one
must learn to meld with the spirit in the steel. He must become like
it. What better than to meet the world with your hardest surface, yet
maintain an inner flexibility, able to bend to circumstance as the need
may arise?"
He stood a moment as though lost in some reverie then chuckled.
"Sometimes I do tend to go on and on. I believe it was selling you
asked about. The fact is you would not be actually selling Treasury
obligations."
"Then what . . . ?"
"Are you familiar with interest-rate futures?"
"Of course." The question was so unexpected I answered almost before I
thought. Futures contracts were part of the big new game on Wall
Street, although most of the action was still out in Chicago, places
like the Merc and the Board of Trade, left over from the old days when
farmers sold their crops in advance at an agreed-upon price. The farmer
"sold" his grain harvest to a speculator while it was still nothing but
green sprouts. He was worried the price might drop before he got it to
market; the speculator was praying it would head up. The farmer,
interestingly, was selling something he didn't yet have. But even if
the price of wheat suddenly tanked, he was covered.
These days futures contracts were traded for all kinds of things whose
value might change with time. High on that list were financial
instruments such as Treasury notes and bonds, whose resale worth could
drop if interest rates unexpectedly rose. If you owned a bond and were
worried it might go down in value, you could hedge your exposure with a
futures contract, in effect "selling" it in advance at the current
price and letting somebody else assume the risk of future market
uncertainty.
Modern finance being the marvel it is, you could even sell bonds you
didn't own, just like the farmer's nonexistent grain. The Wall Street
crowd called this a "naked" contract, since you were obligated to go
out and acquire that bond in the open market on the day you'd agreed to
deliver it, even if the price had skyrocketed in the meantime. Or you
had to try and buy back the contract. Of course, you were betting that
price would go down, letting you pocket the difference.
Pious spirits on the futures exchanges called these deals high finance
and risk hedging. They operated, however, remarkably like legalized
gambling. Dabbling in interest-rate futures was not for those with a
dicey heart.
"Our objective," Noda went on, "is to cushion Japan's exposure
somewhat."
"With futures contracts?"
"Precisely. U.S. Treasury obligations are held by a variety of
investors in Japan, but up until now we have made very little use of
the protection possible in your futures markets. Nippon, Inc. will
concern itself with that."
I listened thoughtfully. "So you're saying you want to create an
insurance program for Japanese investors in case the price of
Treasuries weakens?"
It made sense. If interest rates went up here, reducing the value of
their government paper, then the price of his futures contracts would
rise to offset the loss.