The Billion Dollar Sure Thing Page 18

  “You’re right, Martha. It’s not so pleasant at the moment. The same old story. You do X, and the next year everybody expects you to do X plus one. And the year after, plus two. And so forth. One has to run faster and faster just to maintain the appearance of infallibility, of never making a mistake. Every year, deposits must grow 15 percent, profits 20 percent, bad loans zero percent. At this point, just one slight stumble and the word will be out that Hofer is over the hill. It’s not always so easy.”

  “Why don’t you think slowly about giving it up then? There’s really nothing much more that you can hope to add to that which you’ve already done. You know that you get very little thanks for all you do anyway. Why go on and on and on, until something happens?”

  “Not yet. Maybe in two or three years. But not now.”

  “Why not?”

  “Martha, you know that I never like to go into details about the bank. But still, I’ll try to explain very generally. Due to this craze for growth and for profits during the past ten years, we’ve been slowly building up a group of loans that we should have been writing off the books but didn’t. It wouldn’t have looked good. The competition would have laughed themselves sick. Not that they don’t have the same problem. But try to prove it. Now we are faced with three new loans that must join the crowd. It’s no real problem, when you consider our overall picture. None. But if we wiped that whole slate clean, it would also nearly wipe out our profits for a year. Maybe two. Then everything would be shipshape again for the next ten years.”

  “Well, if it’s got to be done, I would not worry about those fools who have been envious of you for God knows how long. You always have the last laugh, Walter.”

  “It’s not that easy. If I did it that way, the shareholders would be yelling for a younger man immediately. I know those birds. No, I’ve got to work it out during the time I’ve got left.”

  “Now Walter, you’re not exactly eighty, you know.”

  “Still, I want that place perfectly clean before I leave. I don’t want anybody moving into my chair who would whisper around town about the mess he inherited from old Hofer. Oh, no! But don’t worry, I have something in the works that may solve the problem right away. What bothers me is that the thing I was betting on most might be blowing up in my face.”

  “You mean all that stuff on TV about gold and the dollar?”

  “Martha, you old fox. And you always tell me that you can’t tell the difference between a mark, franc, and lira when we go on vacation.”

  “Walter, things always work out, you know. They always have. You’ll find the way. Come now, let’s have a good bottle of wine together. I’ll go right down to the cellar and get one of your favourites.”

  And she did. They sat talking until almost eleven. Then Martha’s sister came home. She insisted on explaining in slangy American English the entire plot of the play which she had just seen staged in German. Hofer could only take so much of that and soon excused himself.

  The moment he reached his bedroom, he picked up the phone and dialed twelve digits. He was through immediately.

  “Sir Robert, this is Walter Hofer in Zurich. Sorry to call you so late.”

  “Not at all. In fact, I’m very happy you called. What’s going wrong?”

  “We’re not quite sure, but this we do know: Two major buyers hit the gold market simultaneously at the afternoon fixing session. Both are here in Zurich. One we know: It’s a private client of ours. The other may or may not be the Russians. We don’t know. Another bank is involved and they’re not talking.”

  “Did you make the deal in Johannesburg?” was Sir Robert Winthrop’s next worried question.

  “The final signing will take place tomorrow here in Zurich.”

  “Tomorrow?”

  “Yes.”

  “Well, how do you propose we cope with this situation?”

  “I’ll cope. But both of us must insure that the gold price stays below $80 tomorrow. We have to meet every buy order with a matching sell order. As simple as that. We’ll just have to stop these fellows cold.”

  “Yes, but could this not ultimately mean that we will have thrown good money after bad if they refuse to sign tomorrow?”

  “Sir Robert, you know as well as I that there are high risks in the gold market. We knew that from the very beginning. And we made our commitments in that full knowledge. I think I need hardly remind you that when I make a commitment it is met. Just today our people told me that we have already taken the entire $35 million of your bogus Transcontinental Airlines notes off your hands. It took us less than two weeks.”

  “Walter, I know that, and I will be eternally grateful. I have no intention of backing out on anything we agreed upon. I’ll be in the gold market with everything we have tomorrow.”

  “Good.”

  “What does David Mason think about all this?”

  “He totally agrees with the strategy. He was with me in Johannesburg, you know. He’s got almost $500 million on the line in this deal. So all three of us are totally committed.”

  “Well,” said Sir Robert Winthrop, “at least we’re doing great on the dollar. Our fellows pulled out all the stops today, and I figure we must be ahead a good $25 million since lunch. I assume David has been pursuing the same course.”

  “Yes, but Robert, remember we’ve all agreed not to overdo it.”

  “Right. We shall stick to our agreement right down the line. Anything else?”

  “No. Just remember to do everything in your power to keep the lid on the gold market tomorrow.”

  14

  THURSDAY, November 6. Two days before the Great Dollar Devaluation. As a result of the decision of somebody, maybe Bishop Usher, that one day ends and the next day starts in the middle of the Pacific Ocean, the first metropolis to enjoy the new dawn was Tokyo. The excitement in the financial world had moved with the sun. In Japan it took on new dimensions. The Tokyo stock exchange was struck by a wave of buying unprecedented even in its confused history. The orders had been stacking up at the brokerage houses the entire preceding night, coming first from Zurich and Frankfurt, then from London, the process culminating in a massive influx of buy orders by telephone, Telex, and cable from New York, Chicago, San Francisco, and Los Angeles. It seemed as though everybody was counting on the Japanese yen as the best money haven on earth and the purchase of Japanese stocks as the easiest way to buy a currency insurance policy. Thus, during the first hour of trading, the Japanese equivalent of the Dow Jones Industrial Average rose 226 points.

  This was in complete contrast to what had happened the preceding afternoon in New York. There the Dow Jones—the real one—had literally collapsed in the last hour of trading. Prices had been retreating and volume rising gradually all day long, so that by two o’clock the DJI was down just a shade over twelve points and volume was 15 million shares. Then the panic started. The session closed 42 points down, and the final volume stood at 32 million shares. The odd-lotters had the biggest day in the history of exchange. The story that afternoon was the same in every brokerage house on Wall Street. Instructions to get the hell out. Liquidate, sell—don’t worry about prices—and then get the proceeds out of the country. Put them into something solid: Swiss bank deposits, German railroad bonds, South African gold mines, British consols. Anything not denominated in dollars. Tokyo, due to its cunning location, was the first beneficiary of the flight from the dollar. The result was near chaos that morning.

  But already by midday profit taking, Japanese profit taking set in. The temptation for Japanese banks and brokerage houses to unload their cats and dogs and squirrels into the laps of the great wise men of the West ultimately proved too great. Shares that had sunk into obscurity months, even years, ago were dusted off and these marvelous discoveries grudgingly passed into foreign ownership. One Oriental wit calculated that within three hours 20 percent of the ownership of Nippon Gold Corporation, an obscure little company in the dental materials business in Sapporo, had been transferred to a
group of clever investors from San Diego, California, all ex-navy. All this was reported with pride by the early editions of the afternoon newspapers. For it demonstrated beyond any doubt that Japan had been accepted as being eligible for full-fledged participation in a worldwide financial panic.

  Financial panics are a funny thing. They bring out the lemming in the human race as no other event does. Sure, wars, especially invasions, do a pretty good job in the panic field. The flight from Paris in 1940 or the flood of Germans who moved west before the Red Army in 1945 demonstrated this quite amply. The plague could also move people rather smartly in the Middle Ages: a few bodies in the street, and whole cities would be temporarily abandoned. Earthquakes also make good people movers. But in all such cases—wars, pestilences, natural catastrophes—panics tend to be local affairs. It takes money, or rather the fear of the loss thereof, to panic people on a worldwide scale—as on this November day.

  Lots of nervous money, lots of greed, lots of fear, no government interference. Together they meant that once again the necessary components for a great financial panic were present. It just required somebody to really get it rolling. The Russians seemed predestined for this role, as the sun, having left Tokyo behind, brought a new day to Moscow.

  The lot which boarded the Moscow subway on that morning was not much different than that one could meet at the crack of dawn in the Paris Métro or the London Underground. The scent of alcohol and soap joined forces, as the drunks and street cleaners crossed paths.

  Comrade Melekov, though undoubtedly an eager beaver, did not exactly fit into this early morning crowd. But there he was, Bally shoes, Pucci tie, Rolex watch, Cuban cigar, and all. It was not the first time that he had smoked a Cuban cigar at this hour. But that was when he was moving in the other direction, after a hard night out. Right now he was on the way to the office.

  He was deep in thought, as he swayed back and forth with the movement of the train. Obviously that Ford dealer in Helsinki was a complete bust. After three telegrams and two telephone calls the new gas pump had finally arrived. It did not fit. Melekov did not intend to start commuting by subway. Nor was he going to revert back to one of those automotive marvels of Soviet advanced technology. The only answer was to switch makes. An Oldsmobile 98. That should be just about right. A Mercedes would be in bad political taste. A Cadillac would be going too far. He had heard from a number of fellows in the Foreign Ministry that the General Motors service in Finland was excellent. But what about the Thunderbird? A bit racey for most of the government people. Hockey players or football stars—that’s obviously where the secondhand market lay. They had the dollars, and had learned to appreciate such things. He decided to get immediately in touch with GM that very same day. Must get the brochures and start working on the extras. This time the stereo tape recorder had better work.

  Shortly after seven Melekov emerged at the Bolshoi Theatre station and a few minutes later entered the Foreign Trade Bank. The two porters just inside the seedy entrance barely looked up as he started to climb the stairs. That’s one thing he would change. One of the most important banks in the world, and it didn’t have an elevator. Even the stairs creaked.

  It was going to be a full day. The contract signing formalities with the Germans had, of course, not taken place on schedule yesterday afternoon. But, as usual, it was not the Germans’ fault. Some jackass in the Ministry of Technology had apparently insisted on some last-minute change. Melekov hoped that that had been settled and that the whole deal could be put to bed before the weekend.

  Melekov unlocked his desk and took out his agenda. The weekly meeting of the management was scheduled for eight-fifteen. That would give him ample time to check all the closing positions from the night before.

  His secretary, dressed as usual in brown and getting fatter every day, brought in his coffee and the bundles of tear-offs from the Teletype machine.

  Melekov started reading. Fantastic! The summary of the coverage in the Times was especially good.

  His phone rang.

  “Melekov,” he automatically answered.

  “Good morning.” It was the big boss himself. “About the management meeting this morning, it’s been decided that we will move it over to the National Bank. The people there feel that a joint consultation on the situation is required between our two institutions. So nine o’clock on Radislov Street, third-floor conference room—you know, the big one. See you there.” Bang.

  Aha, thought Melekov. The big play. Fine. The timing could not be better.

  “Comrade Lofkin to see you. Will you receive him?” asked his secretary from just inside the door leading to her adjoining office.

  “Sure. Send him right in,” Melekov answered.

  The young man appeared immediately.

  “Lofkin, have a seat. Care for a cigar?”

  “Don’t mind if I do. Unbelievable, huh?” said the head of the bank’s foreign exchange department.

  “Absolutely fantastic. Have you got our closing positions from last night with you?”

  Lofkin had. He moved his chair around closer to Melekov and explained the key numbers on the sheets he had brought along.

  After a minute Melekov interrupted. “Look, why don’t you just sum it up.”

  “All right. If I take the total position of the bank into account, we at the present time have a net short position on the U.S. dollar of $3.16 billion. I’ve tried to really spread it around. I would guess that Paris, Frankfurt, and Amsterdam took about the same amounts. We did the bigger volume over in Zurich, London, and New York, of course. Especially New York. Boy, we really dumped there.”

  “On what average basis?”

  “Almost all of it is in the form of three months forward contracts. And the prices are damn good. I figure if we covered this morning, we would already be ahead a good $100 million. Not bad, is it?”

  Melekov puffed away on his cigar. “May I keep these sheets for the time being?”

  “Sure. What now?”

  “Nothing. Just sit absolutely tight. We’re having a management meeting over at the National Bank within less than an hour. I’ll let you know right after that.”

  “If you don’t mind, I’d like to get back to my office. Our fellows are absolutely buried in paperwork after yesterday. I don’t want there to be any foulups on the confirmations. Not the way we’re sitting right now.”

  “Go ahead. Tell me one more thing, though. Do you think the dollar can hold through today?”

  “Well, my opinion is that there’s not a chance in hell. We should know around lunchtime. If the Western Europeans decide to really dump, that will be it.”

  “See you later.”

  Melekov returned to the position sheets after his assistant had left. No doubt Lofkin was right. Melekov knew that there were at least $40 billion in private hands in Western Europe. When one thought just of the immense number of Eurodollar bonds which had been sold to the Europeans during the past ten years—probably $15 billion right there. The aftermarket for these bonds could not be thinner. Even in quiet times the sale of a block of a couple of million dollars of such bonds was a big deal. Dumping in that market would provide no solution. The only protection would be in the foreign exchange market. Sell dollars short against the box, as they said in New York. This could be unbelievable. Nobody would buy another dollar bond for the next ten years.

  Melekov picked up the phone and called the head of the National Bank. “Roskin. Melekov here. What do you think?”

  “By God, I think you’ve done it. I always knew you were a smart son of a bitch, but this is really something. You’ve heard about the meeting.”

  “Right. At your place,” Melekov answered.

  “Yes, but that’s not what I mean. Both Litnovich and Slavic from the Central Committee will be there. I got a call very late last night asking me to make the arrangements. My friend, we’ve shaken them right to the top. How’s our position look?”

  “I just checked. We’re just a bit over $3
billion short. At the closing quotes in New York we’re already about $100 million ahead, Lofkin tells me. And we picked up 5 million ounces of gold at an average price of $78 an ounce in Zurich.”

  Roskin appeared to hardly know quite what to say. Then he proceeded. “Melekov, have you given some thought as to where we go from here?”

  “Well, I think we have made an excellent beginning in the markets. Now must come the massive follow-through. With all we’ve got. It must be quick and perfectly coordinated.”

  Roskin, who was a good solid banker of the old school, had known for years that he had never been in the same class as his younger colleague at the Bank for Foreign Trade. But he was cunning enough to know a good ally. A man with a future. So he had decided to establish a relationship over the head of Melekov’s boss, or behind his back, depending upon the point of view. With Melekov as the brain, the chief theoretician, Roskin had no doubt that the two of them would end up jointly controlling the Soviet financial system. This coup would put the seal on it. When Melekov had approached him a couple of weeks ago with the plan, Roskin had at first been shocked. The daring of it, the risk involved—all went against his banker’s grain. Because there was no precedent.

  Russia had always been ultraconservative in the area of international monetary affairs. To be sure, this stood in great contrast to the country’s aggressive use of its economic power in other ways. High Aswan dam, the Cuban sugar arrangements, the gas and oil contracts with Iran and especially Iraq, those loans to Indonesia, the support of Chile, and of Indira Gandhi in India. And most important of all, the silent war of attrition on the economic stability of the United States through the eternal prolongment of the Vietnam conflict, a project that had been successful beyond belief. But it had taken a Melekov to realize that now was the time to take advantage of the weakened position of the United States through a spectacular attack on its soft underbelly—the international position of the dollar. Roskin had seen Melekov’s point immediately, and when Melekov had demonstrated a completely atypical cocksureness on timing, he had decided to back the man. The results thus far had confirmed his confidence. But—