The rest of the morning I just sat there and watched the market crater.
After bond futures prices on the Chicago exchanges had sunk the daily
limit, as far as they could drop in a single session, the action merely
moved elsewhere. A cash market developed off-exchange worldwide and was
going crazy, with spot quotes nose-diving. Prices now were only rumors,
but the satellite services were still trying to track them. At exactly
12:37 P.M. the President finally got around to issuing an Executive
Order suspending all trading at the exchanges in government bills,
notes, and bonds, including futures contracts, until further notice. It
turned out to have been about as effective as Prohibition. Besides, by
that time I figured Noda had already cleared at least fifty billion.
Enough. I couldn't watch anymore. All of a sudden I felt like a guy
who'd bailed out of his flaming F-16 only to see it total a
schoolhouse. I kicked off the computer, slipped on a suede jacket, and
headed for Bleecker Street to fortify myself with mussels marinara and
a stiff Bloody Mary. The early Post at the corner newsstand proclaimed
with characteristic understatement the imminent passing of the
civilized world.
Over cappuccino I finally started to think rationally. Nothing anybody
was saying added up to a full picture. There had to be more, or less,
to the story. . . .
Then the truth glimmered before my eyes, yet another transcendental
moment. What Noda was planning was obvious. At last I realized why he'd
hired me. Like a great chess player, he could see about ten moves
ahead. The question now was no longer what his next move would be. It
was when.
You want to win World War III with a quick blitzkrieg, knock America to
its knees? Simple. Go for the blind side. First you short a piece of
the debt market, then for fun you dump the currency in advance (since
it's just naturally gonna go the way of the peso when you make your
opening move, and you might as well squeeze the orange if it's just
lying there anyway). Next you kick things off by giving everybody the
impression you're divesting all Treasury paper, which causes the dollar
to predictably plummet. . . .
Christ! What about Amy's currency hedge! Three weeks ago I'd contracted
to sell the banks of New York ten million dollars she didn't own. In
all the pandemonium, I'd completely forgotten.
I threw down a twenty for the lunch and literally raced around the
corner to look for a pay phone on MacDougal. When I finally found one
that worked, I shoved in a quarter and dialed the FOREX desk at
Citibank for a dollar quote.
Henderson was right. Paper money is predicated on trust. It seems that
when the second largest industrial nation in the world apparently
doesn't think enough of the credit rating of the first largest
industrial nation in the world to loan it two cents, then talk about
the full faith and credit of said first largest, etc., doesn't cut much
ice. The Fed was out there buying dollars and dumping marks and yen and
pounds in the billions to try and keep the dollar afloat, but nobody
else in the Group of Five--those countries supposed to step in and buy
each other's faltering currencies to prop them up--was lifting a finger.
In spite of our treasury secretary yelling fire and damnation, all
they'd done was announce an evening meeting in Paris. Period. What,
they inquired, had the U.S. done lately to help out France, West
Germany, Britain, or Japan?
Behind our allies' diplomatic and not-so-diplomatic posturing lay a
simple, rhetorical question: Who needed passage on a sinking ship? At
the moment the only thing governments around the world wanted less than
U.S. Treasury debt was U.S. greenbacks. I'd contracted to swap ten
million of them for other currencies back when they were worth a
dollar. That afternoon I settled with bills worth eighty cents and
sinking. That's right. Amy's college-fund hedge cleared two mil.
And if you think Miss Amy Walton survived the dollar's crash intact,
what about Matsuo Noda, now holding tens and tens of billions in world
currency forwards?
What didn't prosper that Monday was a state of mind called Wall Street.
By mid-afternoon all the market indexes were down by half; exchange
trading had been halted in a good two- thirds of the Dow stocks; a
major brokerage house had frozen accounts and announced Chapter 11; and
gold futures were soaring. The October crash of '87 was now a nostalgia
item, remembered as a few sessions of light trading with a hint of
downside bias.
A lot of investors went to cash, but most switched into money funds
(what else could they do?). While sophisticated players were shorting
the stock indexes and futures, the newsletter gurus--who charged two
hundred dollars a year for hot tips about equal in worth to those of a
New York cabbie--were calling their major clients. A big sell signal was
emblazoned in the streets of lower Manhattan. Everybody assumed the
situation was temporary, but nobody needed to ride the ship down. By
the closing bell the Dow had sunk over eleven hundred and fifty points.
And don't forget, the DJ Average represents blue chips; prices for
over-the-counter outfits like Widget-tronics Inc. just packed up and
headed south for the winter.
The way I figured it, Noda was probably more or less on schedule. By
nightfall the stock exchanges had blood on the floor, a dollar was
worth roughly two-thirds what it had been at sunup, and the U.S.
Treasury couldn't have panhandled a nickel anywhere in the Free World.
I've mentioned Jack O'Donnell a time or so previously, the Columbia
University professor turned politico. Jack was the junior senator from
New York: Irish idealism goes to Washington. I'd gotten to know him
reasonably well, thanks mainly to a series of rubber-chicken dinners
I'd pitched in to help him with.
Needless to say, O'Donnell's well-known attitude toward fiscal sleight-
of-hand in the corporate sector had made raising money on Wall Street a
decidedly uphill endeavor. His Insider of the Month award was
especially unpopular. That was a large gold-plated screw, suitable for
mounting, which he regularly bestowed on any corporate board members
who'd just happened to dump big blocks of their personal holdings about
a week before a disappointing quarterly report sent their company's
stock price through the floor. For some reason Jack never seemed to buy
their collective "Gee, we had no idea" explanation.
Jack always assumed that corporate managements would walk off with
anything not securely riveted to the floor. He also believed most of
the corporate takeovers these days were about as helpful to America's
competitiveness as masturbation was to population growth, a viewpoint I
tended to share--which is one reason why I helped him raise money from
time to time. More than that, though, I admired him immensely. The man
was a real samurai. Unfortunately, however, he was his own worst enemy
half the time when it came to soliciting campaign checks; he could
never understand why executive dining rooms weren't necessarily the
optimum terrain to start raising hell about shareholders' rights. I
once sent him a dog muzzle for Christmas after he pulled just that
trick at a CEO fundraiser I'd carefully set up in one of those private
suites atop the World Trade Center.
He'd been especially busy this session. When he did come to New York,
he spent most of his time up at the West Side apartment of a female
aide of his, where they reportedly were polishing a lot of position
papers these days. Monday, however, he had only one thing on his mind:
how to keep the U.S. monetary system from going belly up. Trouble was,
he had no idea what to do. Naturally he immediately canceled his
subcommittee hearings for the day--an inquiry into how charge cards and
the banks touting them (loving those wonderful loan-shark rates) were
lofting consumer debt to dizzying heights. That afternoon he began
working on a speech for the Senate floor, a hellfire preachment
intended to shame the administration into some kind of action.
After thinking about it awhile, he'd decided that, since all the
nervousness in the market was traceable to an apparently total Japanese
loss of confidence in U.S. government obligations, he'd have his staff
call around concerning what other Japanese moves were underway. He had
questions such as: If they're pulling out of Treasuries, are they
dumping corporate bonds too? Real estate? Where in blazes is it going
to stop?
Simple questions, maybe, but tough ones to attack on short notice,
given the clampdown at the source. So his people started making calls,
and finally one of them got hold of Charlie Mercer, an Executive VP at
Shearson. Purely chance. Did Charlie happen to know any big Japanese
players in town?
Well, yes and no, replied Charlie. Strictly off the record, one of his
biggest personal clients lately was an attorney here in New York, who
always paid with corporate checks bearing the logo of a Japanese-
sounding outfit. But it was a purely private arrangement and he was
sure . . .
The staffer immediately told him to please hold while she switched the
call to Senator O'Donnell.
Actually I'd known Charlie for years, and I also knew the poor guy's
wife had some kind of esoteric bone cancer that meant ten thou a month
in radiation therapy. So I'd let him set up an account on the side and
do some full commission churning in the name of one of Dai Nippon's
dummy fronts. Why not?
Then Jack came on the line. "Mr. Mercer, am I to understand you've been
handling heavy trades for a Japanese firm?"
"Nothing illegal about that, is there, Senator?" Charlie was growing
nervous, suddenly seeing himself under the hot glare of TV lights in
Jack's finance committee. "Truthfully, the man I actually deal with is
an American attorney here named Walton."
"Matt Walton?" roared Jack.
"You know Matthew, Senator?" inquired Charlie, stunned by the sound of
the august public figure abruptly bellowing in his ear.
"Know him? I may kill the prick for not talking to me sooner."
Approximately five seconds after this conversation my phone erupted.
"Tell me, Judas," he yelled, "is it true you're helping them out? I
want the goddamn truth and I want it now."
"Jack?" I finally recognized the voice. "Helping who?"
"You know who, you fucker. Our good friends the goddam Japs, that's
who. They're--"
"Jack, calm down a second," I interrupted. "It's just possible this
whole thing is some kind of scam. Not at all what it seems."
"Talk to me."
"Not over the phone. Client confidentiality. But if you're coming up
anytime soon, I'm mad enough to give you a full rundown of all I know,
strictly off the record."
"I'm scheduled in on the six o'clock shuttle. Where can we meet?"
"How about the club? I promise you an earful."
"The Centurion?" He inquired sourly. I knew how he hated it.
"Jack, wouldn't kill you to rub elbows now and then with an actual
capitalist. Don't worry. There won't be any photos to sully your
reputation."
I suggested the place partly to pay my respects to a wounded ward after
the day's carnage and partly for Jack's convenience. It was a combined
press hangout and "new money" convocation, located just around the
corner from his New York office in one of those old mansions right off
Fifth, midtown. They'd just begun allowing the fair sex to cross their
hallowed doorstep (after a lawsuit), a move certain diehards felt
signaled the curtain raiser on the West's Decline. For my own part I'd
actually put up Donna for membership as pan of the test case. We
eventually established that the Centurion's unwritten membership
criteria were actually pretty simple: in addition to being white and
male, you also needed to be either rich or well-known. Being all four
made you a shoo-in.
A couple of us fortunate enough to have friends on the circuit bench
called in a few favors and arranged for a black, female judge to hear
the case. The proceeding was over in time for lunch.
"Is eight okay?"
"Done," he said. "I'll be there on the dot."
He was late as usual, but I managed to pass the time. It was enough
just to sip a Perrier and observe the shell-shocked faces of golden boy
brokers presently mainlining martinis down the bar. Fortunately the
place was on the ground floor so nobody could take a dive out a high
window, but the crowd had all the insouciance of hookers working a
Salvation Army convention. I checked over the room--lots of designer
suits topped off by long faces--and wondered how many millions had been
dropped that day by those present. Booze was flowing across the
mahogany bar as if there were no tomorrow. Maybe there wasn't.
At a quarter to nine Jack O'Donnell marched up the blue marble steps, a
man in from the war front.
O'Donnell was a big guy who looked every inch a senator, right down to
the thirty-dollar haircut and the eight-hundred-dollar suit. I think it
was his overcompensation for being Irish and being crapped on by the
Columbia University administration most of his days. A so-so academic,
he'd blossomed as a politician--firm handshake and steel eye--and had
easily devastated the smooth-talking Long Island party hack the big
money had thrown against him. The man was a straight shooter who
believed the purpose of capitalism was to make a better place for all
Americans, not merely enrich the unscrupulous or crafty few. As a
result, his Senate harangues were a lonesome cry in the
takeover/arbitrage/leveraging/executive-perk wilderness. His contempt
for overpaid investment bankers was exceeded only by his disdain for
overpaid corporate CEOs.
Anyway, we settled into the leather chairs of the back room while he
ordered a medicinal Scotch, double. After his nerves stabilized a bit,
I suggested he let me give him an informal rundown of what little I
knew.
"High goddam time." He grimly extracted a notebook.
"Jack, here's the _mea culpa_. I now confess before God and you that
I've been a very uneasy point man for an outfit that calls itself Dai
Nippon, International. They have been playing a little game with
interest-rate futures and currency forwards in quantities that stagger
the mind. Thus far, however, their activity has been strictly legal and
right out there for everybody to watch. I also tried to warn anybody
who would listen. Consequently any of our financial analysts who didn't
see this brouhaha coming a mile away has been suffering a severe
rectal-cranial inversion."
He snorted and pulled at his drink. "Okay, since you seem to know so
much about this Dai Nippon outfit, care to clue me in on what's down
the road?"
"Jack, I think the answer is one nobody's figured." Then I delivered my
brand-new theory.
He stared at me skeptically, sipping at his drink. "Good God, you've
gone off the deep end, Walton. I always assumed it would happen
someday."
"Jack, from what I hear, none of the big Japanese securities dealers
here will even pick up their phone. What does that tell you? They're
softening us up using the weapon the market dreads the most.
Uncertainty. What better way to terrify the Street? Christ, let
somebody start a rumor the President has a toothache, and they
practically have to shut down trading."
"Matt, nobody's going to believe your crazy scenario.
Matter of fact, I don't either. It's too wild. I'll tell you what most
people are saying. All the news shows tonight hauled out our doomsday
economists, Lester Thurow and his ilk, to declare we had this one
coming. The consensus going around is the Japanese are finally fed up
hearing us bellyache about trade barriers; so they've decided to treat
us to a pointed demonstration concerning exactly who needs who. That's
all. Japan now controls America's destiny. But since a few people here
still have the idea we won the last war, Tokyo just wants to make sure
we get our history straightened out."
Could be, I answered. But I still thought everybody was missing the
forest for the trees. Then I went on to describe Noda's building, his
high-security computer setup. Nobody would install an elaborate
headquarters like that merely to get your attention.
He listened in uncharacteristic silence, beginning to appear a little
more convinced. "Well, let's run with your cockamamie theory a second."
He rattled his ice cubes, a habit of his I always found distracting.
"Say something bigger is coming up, and this is just the pre-game warm-
up. What can we do?"
My suggestion, that the President close down all our financial markets
immediately to keep Noda's hands off them, was not received
enthusiastically.
"You want me to stand up in the Senate and propose that?" His already
ruddy cheeks were beginning to redden even more as he glared around the
paneled room. "Matt, I'd be tarred and feathered by every stockholder
in the country."
Maybe so, I said. But what about Noda's vast Third Avenue nerve center?
His supercomputer? The Uzis? It had ominous portent. "Tell you the
truth, Jack, I'm not even sure I should be talking to you. After what
happened today, that guy scares hell out of me."
We ran through the known facts a couple of times more, not getting any
closer to agreeing on the big picture. Finally he summed up his own
fears: "In my view, we weathered the October '87 crash because the Fed
still had some control over liquidity. When money started disappearing
out of the market, they just printed more. They countered deflation
with inflation, kept the dollar in balance. This time, though, we've
lost all three pillars under our financial house--stocks, bonds, and the
dollar. There's nothing the government can do to stop this one."
At that moment there was a tap on my shoulder, and I looked up to see
Eduardo, the club's recent attempt at Hispanic affirmative action,
handing me a cordless phone. Then I remembered I'd set up things
downtown to forward calls to the bar. The next sounds in my ear were
the mellifluous profanities of Dr. William Henderson.
Bill had just gotten off a plane after spending a few days loosening up
at the Sandy Lane in Barbados, assaulting its reserves of Sugar Cane
Brandy, and he was mad as hell. His "Georgia Mafia" had been caught
flat-footed. Why hadn't I warned him that the Japs had scheduled this
move? Surely I must have had an inkling. He would have shorted the
market and scored a pile.
I suggested he calm down, that nobody, me included, had seen it coming.
What's more, I had a strong feeling it was all--
"What the hell's next?" Bill continued, oblivious. "What's Noda
saying?"
"Nothing here but speculation. He's probably getting his beauty sleep
at the moment. But take some of your own advice, friend, and stand
clear. I've got a feeling there's less here, and more, than meets the
eye. Don't, repeat, don't get the idea you can outguess Matsuo Noda. I
think he's pulling a number, but--" "
Bill interjected something brief and unrepeatable and rang off,
undoubtedly headed for consolation.
"Was that Henderson?" Jack asked, then watched me nod. Bill had pitched
in to help Jack out of a few tight spots on the money front, in
appreciation of which O'Donnell had proposed him for the Council of
Economic Advisers--and shortly thereafter forfeited all credibility with
the administration. These days he couldn't have gotten into the White
House on a VFW tour. "Well, the man's got no idea when to keep his
mouth shut with the press, but he's nobody's idea of a fool. What does
he think this is all about?"
"Sounds like he's just studying the tea leaves like everybody else."
Jack sighed, then rattled his cubes some more. "Well, if Henderson
can't figure out what's going on, then nobody can. That in itself ought
to tell us there's a patch of slippery ice down the road. My own guess
is the Japanese have decided to play a little poker with the American
markets without having the damnedest idea of the consequences."
"Jack, what if they _do_?"
After we sat there gazing at the gilded plasterwork ceiling for a
while, we started getting caught up on old times. He inquired what I
thought the press would do to him if he married one of his staffers. My
guess was that a photo of Washington's most eligible divorce veteran at
the altar once more would probably make the cover of People. Everybody
loves a lover. That possibility seemed to cheer him up a bit.
It was round about then, probably close to ten-thirty P.M., that
another call came through. This time I already had a feeling who it
was, and I momentarily considered not taking it. But then, why not let
O'Donnell have the story straight from the source.
The caller was, of course, Matsuo Noda. It must have been late morning,
Japan time, after a very long night.
What, he inquired, was my on-the-spot reading of the scene?
"I don't know." The phone had that same funny whine I remembered, as
though he had a private phone system worldwide. "Maybe you should be
telling me."
Noda-san, no surprise, didn't seem particularly unsettled by the
developments.
"I assure you there is no cause for alarm, Mr. Walton. The situation
may seem temporarily unfortunate, but I have long believed all things
turn out for the best."
"Could have fooled me. But while we're all waiting for the silver
lining to this cloud, you could do everybody a favor and get your
goddam securities dealers here to issue a statement clarifying their
intentions."
"Mr. Walton"---he chuckled--"you ascribe far too much influence to me. I
am merely a banker, one of many in Japan. I have no control over what
our institutions choose to do or not do."
"I wish I could believe that."
"Well, I suppose there are many things about Dai Nippon that need to be
explained more fully. I look forward to seeing you next week. We can
talk then."
Upon which he advised me just to sit tight. All further communications
would be routed through their office uptown. And with that dictum in
place, he suddenly had better things to do and said thanks for all my
help. There was the sound of some satellite bleeps, then silence.
Welcome to the Brave New World, I thought. Again I had this definite
feeling the DNI rodeo had just begun.
By then Jack was nearing terminal exhaustion. I passed along Noda's
cryptic refusal to lift a hand, advised him to make a statement
tomorrow that the U.S. financial markets could be dangerous to
everybody's health, and helped him into a cab for his aide's place
uptown. The evening was fizzling out with nobody left at the bar but
regulars. Thus I went home alone to check in with Amy and then drift
off into a very unsettling dream.
My nightmare was over by morning. America's was just beginning.