investor in the world to assume there's a Japanese pullout underway.
But why the grandstand play? Sure, he'd made a pile, but he didn't seem
like a guy who had to sweat his mortgage payments. Nor did this kind of
market manipulation require a building in midtown Manhattan and a
computer setup to rival NORAD headquarters. Something more had to be
coming. And the only thing I could think of was that Noda's something
had a lot to do with my profession.
This was not a welcome piece of prognostication to loose upon the
world. Since the financial markets already had plenty of problems on
their plate, there wasn't all that much interest in speculating about
the next course. Consequently nobody made the slightest attempt to man
the ramparts for what was ahead. Our financial battleship had been
stopped dead in the water and its engines disabled, but nobody was even
bothering to prime the guns. This couldn't be an all-out attack. Right?
Wrong. The stage was now set for Noda's real move. The following
Saturday I was summoned to Dai Nippon's midtown fortress where I
watched my crazy theory become reality. Before anybody in our shell-
shocked financial centers had time to digest what had happened, Matsuo
Noda--his Dai Nippon Eight-Hundred-Year funds underwritten through a
syndicate of Japanese banks and insurance companies led by the Dai-Ichi
Credit Corporation, Ltd. of Tokyo--hit the beach.
In the days to come I did manage to assemble a rough outline of how
Noda pulled off his brilliant opening feint. It was elegant, and to
savor it fully requires a quick peek at his reserves--Japan's bankbook.
Start with personal savings, the hundreds of billions being squirreled
away by individual Japanese. Then add to those monies the assets of
Japanese pension funds, private savings organizations with several
hundred billion dollars to lend out. Next come insurance companies and
corporations, similarly awash in loose cash. Taken together, the total
amount of excess capital in Japan is now well over five trillion
dollars.
If all those zeros befuddle you as much as they do me, try thinking of
it like this: a trillion dollars is the size of the annual U.S. budget.
So if the Japanese regulators opened the floodgates and let all that
money roll, its citizens have the ready bucks to finance our
government's entire budget--Lockheed, stockpiles, and pork barrel--for at
least five years using just what's in their mattresses.
As it happens, all this Japanese cash has become an important, nay,
indispensable, component of the American financial scene. We and the
Japanese are like an old married couple: they're the wife who scrimps
and saves, we're the husband who borrows and squanders. The middlemen
who rifle her purse and ship the proceeds to us are, increasingly,
Japanese investment firms.
At least half a dozen major Japanese securities dealers with offices in
New York run big bond departments. The foremost of these is, of course,
Nomura Securities International, the world's largest brokerage house
(having aced out Merrill Lynch). With over two hundred billion dollars
in customer accounts, Nomura is now a primary dealer in U.S. Treasury
issues, meaning they can buy directly from the government and sell to
their clients. And since Treasuries pay several interest points better
in return than Japan's miserly savings accounts, their customers back
home think they're getting a terrific deal. Little wonder Japanese
investors finance a full third of America's budget overdrafts these
days.
Another major player is Daiwa Securities America, which also
underwrites federal paper on its own. Nor should we overlook Nikko
Securities and Yamaichi Securities, both handling money in the tens of
billions. These outfits and others are well past the beachhead stage of
entry into the world capital markets. They're entrenched; they're big;
and they know how to play hardball. Were they involved in Noda's
assault? Nobody ever knew for sure. But you figure it out.
Banks. As it happens, the biggest one in the world is Japanese. The
Dai-Ichi Kangyo Bank, Ltd. of Tokyo has unceremoniously reduced
Citicorp to second banana. Rounding out the top five worldwide are
Fuji, Sumitomo, and Mitsubishi. And worldwide means everywhere. Japan
controls ten percent of the U.S. banking business, a quarter of all
British banking. Of the ten largest banks in the sovereign state of
California, four are Japanese. Japan in brief has become banker to the
world, with more ready money than anybody else, and it also has a
battalion of financial samurai who know the game.
What makes these Japanese players especially powerful is the kind of
bucks they represent. It's called hot money--cash lent out short-term
and therefore subject to immediate withdrawal. Instead of tying up
their overseas bankroll for years, they stick to offshore investments
that can be called in tomorrow. At home Japan invests for the long
horizon, but abroad the bulk of the money is short. Hot money.
Since foreign investors normally pick up well over half of a given
Treasury refunding, the paralysis when Japan began recalling its hot
money, thereby spooking buyers worldwide, was as predictable as the
sunrise. Matsuo Noda didn't have to be a Rhodes Scholar to realize how
much mileage there'd be in a big Japanese sell-off program and a "no
comment" from his dealers.
Here's how he orchestrated the details. Apparently it had all been very
Japanese, very consensus. A few phone calls, then a lot of meetings
over green tea. Later on, some late nights with sake. Noda, thanks to
his new clout, had been in the driver's seat from the start. The money
managers in Tokyo were all feeling the heat over demands by investors
that they participate in the multiple Eight-Hundred-Year funds he'd
floated. All across Japan people were starting to ask whether their
savings were out there waving the flag too. A lot of those managers
were starting to get edgy, so Noda thoughtfully struck a deal, a little
consensus.
Okay, hold your monies, but let's get organized. When the next Treasury
collection plate comes by, don't roll over any more short-term U.S. T-
bills and don't take a piece of the next sale of long bonds. In fact,
that's the day you begin to divest. Staggering losses? No problem. I
just happen to have everybody's portfolio insulated with futures
contracts. Sell away, and even when the price plummets, nobody's gonna
lose a yen. In fact, you can have a piece of the currency windfall I've
set up. Apparently everybody shook hands on it, or whatever they do in
Japan nowadays.
Consequently none of the big Japanese houses in New York had to take a
lot of risk. The sellers were covered by Noda's rate contracts, which I
later discovered he'd passed along (at cost) to anybody who needed
them. The rest he sold himself for a hefty profit. So in the course of
his play, he incidentally raised several billions in additional
operating capital for Dai Nippon while fully protecting the home team.
When the dust had finally settled, it turned out he didn't actually
liquidate very much Treasury paper after all. He didn't need to. In
fact Japan dumped only about eight percent of its
holdings. If you think about it a minute you realize they couldn't
possibly have hoped to divest everything they had in dollars. What
would they do with all that cash? Loan it to Brazil?
Veterans of world finance will tell you there were already precedents
for this kind of Japanese muscle. Back in the mid- eighties, Nomura
Securities had unsheathed its financial sword and totally controlled
the Eurobond markets for about a fortnight. They were just letting
everybody know they were in town. So there was nothing particularly
unprecedented about a little number whereby a handful of Japanese banks
and securities firms could, by concerted action, bring the U.S.
financial system to its knees.
Although I'd been convinced from the very first that Matsuo Noda had
engineered the whole move, I had no hard proof. Besides, what was I
supposed to do? No laws were broken. He was playing strictly by the
rules. So I just took cover like everybody else and watched the
marketplace disintegrate. My main preoccupation was a growing suspicion
that Noda was now moving up his battery of guns for the next round of
shelling.
I was right. His Treasury sell-off had merely been a demonstration of
firepower. Its effectiveness must have given confidence that his
beachhead was secured, since he came ashore at the end of the week to
take personal command of the real landing.
He and his general staff hit town quietly and with no fanfare on
Thursday, spent Friday in a strategy session, and on Saturday took over
the computerized command HQ on Third Avenue. That afternoon Tanaka
called and ordered me (very politely but curtly) to assemble my records
and come uptown. The operation was being consolidated and Noda-san
wanted me coordinated. From now on I would be working out of their
offices.
This was it. Just what I'd been waiting for. At last I could confront
the bastard, one-on-one. No way was I going to be part of the big
assault I saw directly ahead.
My first look at the revised operation uptown confirmed my worst fears.
The technical analysts had been replaced by a new set of troops: money
men. Open collars were gone, supplanted by a lot of business-school
types wearing thin black ties. Tanaka's office had been moved off to
the side; the corner office now belonged to Dai Nippon's four-star
commanding general: Matsuo Noda. After I'd cleared security, that's
where I was led.
"Mr. Walton, how good to see you again." He looked up from a printout,
his silver hair perfectly groomed. "I do hope today is convenient for
you."
"This is going to be brief." I ignored the chair he rose to adjust for
me. "I'm only here to advise you that my participation is officially
terminated as of this moment. I'll be sending you a final invoice next
week. You can find yourself another attorney."
"But your work has scarcely begun." He appeared to be mildly puzzled,
as though I'd just made a small misstatement about the weather or some
such. "We expect your participation to be crucial."
"Surely you're joking." I was turning to leave.
"Mr. Walton." He shifted the printout around and shoved it across the
desk. "Contrary to what you may presume, we are here to help this
country. You might wish to look over our program for the near term."
"This I've got to see." I came back and studied it for a few seconds .
. . then stared back at him.
"Impossible." I finally realized he was serious. "Whatever you're
thinking, I'll tell you right now you don't have a chance. These
outfits have lawyers. Hundreds of them."
"Ah, but that's why you are on our staff. This is your specialty." He
smiled. "Remember the Book of Five Rings by the swordsman Miyamoto
Musashi? In it he describes the three kinds of attack. There is the Ken
no Sen, where you move first and catch your opponent unprepared; next
is the Tai no Sen, whereby your initial move occurs a split second
after your opponent's; and finally there is the Taitai no Sen, in which
you and he attack at the same instant. What has happened up until today
might be likened to the Ken no Sen. We have made sure that nothing was
anticipated. Very soon, however, we will have to move to the Tai no
Sen, responding with lightning speed to the moves of those who would
thwart us. Miyamoto Musashi declared correctly that if you are attacked
with force, you must counterattack with even greater force and thereby
upset momentarily your opponent's rhythm. That moment can mean victory,
but only if you are totally prepared." He leaned back. "We must be
totally prepared."
"Why in hell would I want to help you? I guess you didn't hear me. I've
just resigned." I turned for the door. "Besides, nobody could pull off
what you're planning. You're going to have battalions of attorneys
moving against you."
"I expect that." He stopped smiling. "But that area is your
responsibility now, Mr. Walton. A good swordsman does not think, he
acts. Intuitively."
"And if I refuse?"
"You cannot possibly."
"Try me."
"Only you can handle this, Mr. Walton. Betray us, and you may well
witness the disappearance of America as an industrial nation. The time
is now or never."
That zinger gave me pause. He meant it. But before I had a chance to
tell him he was completely crazy, he went on to sketch out what he
claimed was his objective. How he planned to address the American
"crisis" and resolve it.
Let me tell you my first impression of Matsuo Noda's scenario. It was
legal, it was legit, and it was--as Joanna's teenage niece used to
describe notable phenomena--totally fucking awesome.
What's more, he wanted me to stay on as tail-gunner. The truth? I felt
the disorientation of a kid who'd been fooling around in the Soap Box
Derby suddenly being handed a slot in the Indianapolis 500.
The most astonishing part of all was, I had the feeling he just might
pull it off.
You're right. I should have said no, not on your life, this is way out
of my league, never in a million years. . . .
Instead I said I'd think about it.
Good, he said. Why didn't I stick around till Monday and get a feeling
for the operation?
I didn't shake his hand. I just walked out and poured myself a cup of
green tea from the huge urn there in the middle of the floor. Walton,
you idiot, how did you get yourself into this?
Which is when I spotted a sporty looking lady way across on the other
side of the floor, over by the climate-controlled NEC mainframe.
Something about her seemed vaguely familiar. Definitely not DNI staff.
Wearing jeans, dark hair in a nice designer cut, handled herself like a
mover. Not to mention a world-class bottom inside those tight, shapely
Calvins. From all appearances she actually seemed to be second-in-
command. She was reading the riot act to Tanaka about something to do
with the computer, had the self-important little fucker bobbing and
weaving. Who was that? Hadn't seen her around here before.
Well, now, no time like the present to head on over and check into
this. A fellow _gaijin_. Could be she'll explain what in hell's going
on. Is Noda real?
Suddenly she turned around, saw me, and stopped. I stopped. We both
just stood there trying to remember. She hit pay dirt first, but I was
only microseconds behind.
Want to know my first thought, my very first thought? Matsuo Noda, you
son of a bitch, you're even smarter than I'd given you credit for.
You've hired the best, the very best.
"Is this how you pick up your women these days, Matt? Given up on
vegetable stands?" She was walking toward me wearing a smile. I tried
to grin back. "How are you, Matthew? Good to see you've still got your
hair. Well, most of it."
"Tam Richardson, I don't believe this. Now I know it all is a dream.
Please tell me you were kidnapped. None of this is really happening,
right? It's just a very big, very bad dream. We'll all wake up tomorrow
and go to the beach."
"Welcome aboard, partner." She stuck out her hand. "It's going to be a
wild trip."
"No kidding." I looked her over as I took her hand. Nice and warm. Time
had treated her well. Very well. "How long have you known Noda?"
"Less than a month." She was checking me over too. Wonder how I was
doing. "How long have you been helping him?"
It occurred to me that we both should have been using that classic
hooker response when the guy asks his young companion how long she's
been in her particular field of endeavor and she replies, "Long enough
to know better."
"Few months now. Noda is pretty impressive." I tried to sound casual.
"Not to mention persuasive."
"That he is."
"Well, let's have a toast to winning this." I turned to the urn. "How
about some tea, Professor?"
"Love it."
"Tam, let's just hope these guys don't suddenly decide to eat us
alive." I passed it over. "What do you think our chances of survival
are?"
That one startled her. I got the impression she was half thinking the
same thing. Then she managed a thin laugh.
"We'll eat them first if they try."
"You still talk tough. I always told you you should have been a
lawyer."
But she was right. Once the cards are dealt, you play to win.
Which is exactly what I planned to do. Since my own part was still down
the road, that weekend I just sat in their offices watching spellbound
as Noda and Dr. Tamara Richardson reviewed the data and put together
the financial details. Next, a lot of coded telexes were sent out to
pile up somewhere in Tokyo with instructions for routing of the funds.
After I'd digested his opening move, I did have occasion to ask the
boss a few pointed questions. Such as, wasn't he at all nervous that
Wall Street might rebound before he could get rolling? He replied,
correctly as usual, that the total collapse in the financial markets
would last for a while. Even though the dollar was still down for the
count (over forty percent), he figured only the most intrepid foreign
speculators would go plunging into the American stock market looking
for bargains. As for American investors, most of them, including the
institutions, were still in shock. He rightly forecast that the herd
mentality of the Street hadn't been repealed. War stories of '87 were
going around and nobody wanted to make the textbooks as a fool. Better
a little profit forgone than more money lost. The mutual fund managers,
most of whom had been caught with their pants at half-mast, were
devoting their energies that weekend to composing creative
explanations.
Events Monday proved him to be essentially on target. There was an
eerie quiet over the financial landscape. Everybody was waiting for
somebody else to try breathing life back into the corpse.
Then a few analysts noticed something peculiar. Anonymous buy orders
were coming in, more and more, for stocks in the sector hardest hit,
high tech. Maybe it was bargain hunters, but the buyers weren't any of
the "growth" mutual funds that might have been expected to lead the
action. In fact, many of those hotshot managers were relieved to part
with some of the dogs they'd ridden down that long, lonesome decline of
the week before.