Debt of Honor Read online

  The first rumblings of that stampede had already started. The sell-off of Treasury notes was duly reported on the floor, and the people there traded nervous looks and headshakes at the unreasonable development. Then they learned that the Fed had responded sharply. The strong statement from the chairman didn‘t—couldn’t—disguise his unease, and would not have mattered in any case. Few people listened to the statement beyond the announcement of a change in the Discount Rate. That was the news. The rest of it was spin control, and investors discounted all of that, preferring to rely on their own analysis.

  The sell orders started coming. The floor trader who specialized in bank stocks was stunned by the phone call from Columbus, but that didn’t matter. He announced that he had “five hundred Citi at three,” meaning five hundred thousand shares of the stock of First National City Bank of New York at eighty-three dollars, two full points under the posted price, clearly a move to get out in a hurry. It was a good, attractive price, but the market hesitated briefly before snapping them up, and then at “two and a half.”

  Computers also kept track of trading because the traders didn’t entirely trust themselves to stay on top of everything. A person could be on the phone and miss something, after all, and therefore, to a remarkable degree, major institutions were actually managed by computers, or more properly the software that resided on them, which was in turn written by people who established discrete sets of monitoring criteria. The computers didn’t understand the market any more than those who programmed them, of course, but they did have instructions: If “A” happens, then do “B.” The new generation of programs, generically called “expert systems” (a more attractive term than “artificial intelligence”) for their high degree of sophistication, were updated on a daily basis with the status of benchmark issues from which they electronically extrapolated the health of whole segments of the market. Quarterly reports, industry trends, changes in management, were all given numerical values and incorporated in the dynamic databases that the expert systems examined and acted upon, entirely without the judgmental input of human operators.

  In this case the large and instant drop in the value of Citibank stock announced to the computers that they should initiate sell orders on other bank stocks. Chemical Bank, which had had a rough time of late, the computers remembered, had also dropped a few points in the last week, and at the three institutions that used the same program, sell orders were issued electronically, dropping that issue an instant point and a half. That move on Chemical Bank stock, linked with the fall of Citibank, attracted the immediate attention of other expert systems with the same operational protocols but different benchmark banks, a fact that guaranteed a rippling effect across the entire industry spectrum. Manufacturers Hanover was the next major bank stock to head down, and now the programs were starting to search their internal protocols for what a fall in bank-stock values indicated as the next defensive move in other key industries.

  With the money realized by the Treasury sales, Columbus started buying gold, both in the form of stocks and in gold futures, starting a trend from currency and into precious metals. The sudden jump there went out on the wires as well, and was noted by traders, both human and electronic. In all cases the analysis was pretty much the same: a sell-off of government bonds, plus a sudden jump in the Discount Rate, plus a run on the dollar, plus a building crash in bank stocks, plus a jump in precious metals, all combined to announce a dangerous inflationary predictor. Inflation was always bad for the equities market. You didn’t need to have artificial intelligence to grasp that. Neither computer programs nor human traders were panicking yet, but everyone was leaning forward and watching the wires for developing trends, and everyone wanted to be ahead of the trend, the better to protect their own and their clients’ investments.

  By this time the bond market was seriously rattled. Half a billion dollars, dumped at the right time, had shaken loose another ten. The Eurodollar managers who had been called back to their offices were not really in a fit state to make rational decisions. The days and weeks had been long of late with the international trade situation, and arriving singly back at their offices, each asked the others what the devil was going on, only to learn that a lot of U.S. Treasuries had been sold very short, and that the trend was continuing, now augmented by a large and very astute American institution. But why? they all wanted to know. That set them to looking at additional data on the wires, trying to catch up with the information streaming from America. Eyes squinted, heads shook, and these traders, lacking the time to review everything, turned to their own expert systems to make the analyses, because the reasons for the swift movements were simply not obvious enough to be real.

  But it didn’t really matter why, did it? It had to be real. The Fed had just gone up a full point on the discount rate, and that hadn’t happened by accident. For the moment, they decided, in the absence of guidance from their governments and central banks, they would defer buying U.S. Treasuries. They also began immediate examinations of their equity holdings, because stocks looked as though they were going to drop, and drop rapidly.

  “ ... between the people of Russia and the people of America,” President Grushavoy concluded his toast, the host answering President Durling, the guest, as the protocol for such things went. Glasses were raised and tipped. Ryan allowed a drop or two of the vodka to pass his lips. Even with these thimble glasses, you could get pretty wasted—waiters stood everywhere to replenish them—and the toasting had just begun. He’d never been to a state affair this ... loose. The entire diplomatic community was here—or at least the ambassadors from all the important countries were present. The Japanese Ambassador in particular seemed jovial, darting from table to table for snippets of conversation.

  Secretary of State Brett Hanson stood next, raising his glass and stumbling through a prepared ode to the far-seeing Russian Foreign Ministry, celebrating their cooperation not merely with the United States, but all of Europe. Jack checked his watch: 10:03 local time. He already had three and a half drinks down, and deemed himself to be the most sober person in the room. Cathy was getting a little giggly on him. That hadn’t happened in a very long time, and he knew that he’d be razzing her about it for years to come.

  “Jack, you have no taste for our vodka?” Golovko asked. He also was hitting it pretty hard, but Sergey appeared to be used to it.

  “I don’t want to make too much of a fool out of myself,” Ryan replied.

  “It would be difficult for you to do that, my friend,” the Russian observed.

  “That’s because you’re not married to him,” Cathy noted with a twinkle in her eye.

  “ Now wait a minute,” a bond specialist said to his computer in New York. His firm managed several large pension funds, which were responsible for the retirement security of over a million union workers. Just back from a normal lunch at his favorite deli, he was offering Treasuries at bargain prices on orders from upstairs, and for the moment they were just sitting out there awaiting a buyer. Why? A cautious order appeared from a French bank, apparently a hedge against inflationary pressure on the franc. That was a mere billion, bid atoff the opening value, the international equivalent of armed robbery. But Columbus, he saw, had bitten the bullet and taken the francs, converting them almost instantly into D-marks in a hedge move of its own. Still digesting his corned-beef sandwich, the man felt his lunch turn into a ball of chilled lead.

  “Somebody making a run on the dollar?” he asked the trader next to him.

  “Sure looks that way,” she answered. In an hour, future options on the dollar had dropped the maximum-allowed limit for a day after having climbed all morning.

  “Who?”

  “Whoever it is, Citibank just took one in the back. Chemical’s sliding, too.”

  “Some kind of correction?” he wondered.

  “Correction from what? To what?”

  “So what do I do? Buy? Sell? Hide?” He had decisions to make. He had the life savings of real people to pro
tect, but the market wasn’t acting in a way he understood. Things were going in the shitter, and he didn’t know why. In order to do his job properly, he had to know.

  “Still heading west to meet us, Shoho,” Fleet Operations told Admiral Sato. “We should have them on radar soon.”

  “Hai. Thank you, Issa,” Sato replied, an edge on his good humor now. He wanted it that way, wanted his people to see him like that. The Americans had won the exercise, which was hardly a surprise. Nor was it surprising that the crewmen he saw were somewhat depressed as a result. After all the workups and drills, they’d been administratively annihilated, and the resentment they felt, while not terribly professional, was entirely human. Again, they thought, the Americans have done it to us again. That suited the fleet commander. Their morale was one of the most important considerations in the operation, which, the crewmen didn’t know, was not over, but actually about to begin.

  The event that had started with T-Bills was now affecting all publicly traded bank issues, enough so that the chairman of Citibank called a press conference to protest against the collapse of his institution’s stock, pointing to the most recent earnings statement and demonstrable financial health of one of the country’s largest banks. Nobody listened. He would have been better advised to make a few telephone calls to a handful of chosen individuals, but that might not have worked either.

  The one banker who could have stopped things that day was giving a speech at a downtown club when his beeper went off. He was Walter Hildebrand, president of the New York branch of the Federal Reserve Bank, and second in importance only to the man who ran the headquarters in Washington. Himself a man of great inherited wealth who had nonetheless started at the bottom of the financial industry (albeit living in a comfortable twelve-room condo as he did so) and earned his way to the top, Hildebrand had also earned his current job, which he viewed as his best opportunity for real public service. A canny financial analyst, he had published a book examining the crash of October 19, 1987, and the role played by his predecessor at the New York Fed, Gerry Lornigan, in saving the market. Having just delivered a speech on the ramifications of the Trade Reform Act, he looked down at his beeper, which unsurprisingly told him to call the office. But the office was only a few blocks away, and he decided to walk back instead of calling, which would have told him to go to the NYSE. It would not have mattered.

  Hildebrand walked out of the building by himself. It was a clear, crisp day, a good one to walk off some of his lunch. He hadn’t troubled himself to use a bodyguard, as some of his antecedents had, though he did have a pistol-carry permit and sometimes used it.

  The streets of lower Manhattan are narrow and busy, populated mostly by delivery trucks and yellow-painted taxicabs that darted from corner to corner like drag racers. The sidewalks were just as narrow and crowded. Just walking around meant taking a crooked path, with many side-steps. The clearest path was most often that closest to the curb, and that is what Hildebrand took, moving as rapidly as the circumstances permitted, the faster to get to his office. He didn’t note the presence of another man, just behind him, only three feet, in fact, a well-dressed man with dark hair and an ordinary face. It was just a matter of waiting for the right moment, and the nature of the traffic here made it inevitable that the moment would come. That was a relief to the dark-haired man, who didn’t want to use his pistol for the contract. He didn’t like noise. Noise attracted looks. Looks could be remembered, and though he planned to be on a plane to Europe in just over two hours, there was no such thing as being too careful. So, his head swiveled, watching the traffic ahead and behind, he chose the moment with care.

  They were approaching the corner of Rector and Trinity. The traffic light ahead turned green, allowing a two-hundred-foot volume of automobiles to surge forward another two hundred feet. Then the light behind changed as well, releasing the pent-up energy of a corresponding number of vehicles. Some of them were cabs, which raced especially fast because cabs loved to change lanes. One yellow cab jumped off the light and darted to its right. A perfect situation. The dark-haired man increased his pace until he was right behind Hildebrand, and all he had to do was push. The president of the New York Fed tripped on the curb and fell into the street. The cabdriver saw it, and turned the wheel even before he had a chance to swear, but not far enough. For all that, the man in the camel-hair overcoat was lucky. The cab stopped as fast as its newly refurbished brakes allowed, and the impact speed was under twenty miles per hour, enough to catapult Walter Hildebrand about thirty feet into a steel lightpole and break his back. A police officer on the other side of the street responded at once, calling for an ambulance on his portable radio.

  The dark-haired man blended back into the crowd and headed for the nearest subway station. He didn’t know if the man was dead or not. It wasn’t really necessary to kill him, he’d been told, which had seemed odd at the time. Hildebrand was the first banker he’d been told not to kill.

  The cop hovering over the fallen businessman noted the beeper’s repeated chirping. He’d call the displayed number as soon as the ambulance arrived. His main concern right now was in listening to the cabdriver protest that it wasn’t his fault.

  The expert systems “knew” that when bank stocks dropped rapidly, confidence in the banks themselves was invariably badly shaken, and that people would think about moving their money out of the banks that appeared to be threatened. That would force the banks in turn to pressure their borrowers to pay back loans, or, more importantly to the expert systems and their ability to read the market a few minutes faster than everyone else, because banks were turning into investment institutions themselves, to liquidate their own financial holdings to meet the demands of depositors who wanted their deposits back. Banks were typically cautious investors on the equity market, sticking mainly to blue chips and other bank stocks, and so the next dip, the computers thought, would be in the major issues, especially the thirty benchmark stocks that made up the Dow Jones Industrial Average. As always, the imperative was to see the trend first and to move first, thus safeguarding the funds that the big institutions had to protect. Of course, since all the institutions used essentially the same expert systems, they all moved at virtually the same time. With the sight of a single thunderbolt just a little too close to the herd, all of the herd members started moving away from it, in the same direction, slowly at first, but moving.

  The men on the floor of the exchange knew it was coming. Mostly people who received programmed-trade orders, they had learned from experience to predict what the computers would do. Here it comes was the murmur heard in all three trading rooms, and the very predictability of it should have been an indicator of what was really happening, but it was hard for the cowboys just to stay outside the herd, try to find a way to direct it, turn it, pacify it—and not be engulfed by it. If that happened, they stood to lose because a serious downward turn could obliterate the thin margins on which their firms depended.

  The head of the NYSE was now on the balcony, looking down, wondering where the hell Walt Hildebrand was. That’s all they needed, really. Everybody listened to Walt. He lifted his cellular phone and called his office again, only to hear from Walt’s secretary that he hadn’t returned to the office from his speech yet. Yes, she had beeped him. She really had.

  He could see it start. People moved more rapidly on the floor. Everyone was there now, and the sheer volume of noise emanating from the floor was reaching deafening levels. Always a bad sign when people started shouting. The electronic ticker told its own tale. The blue chips, all three-letter acronyms as well known to him as the names of his children, were accounting for more than a third of the notations, and the numbers were trending sharply down. It took a mere twenty minutes for the Dow to drop fifty points, and as awful and precipitous as that was, it came as a relief. Automatically, the computers at the New York Stock Exchange stopped accepting computer-generated sell orders from their electronic brethren. The fifty-point mark was called a “speed bump.
” Set in place after the 1987 crash, its purpose was to slow things down to a human pace. The simple fact that everyone overlooked was that people could take the instructions—they didn’t even bother calling them recommendations anymore—from their computers and forward the sell orders themselves by phone or telex or electronic mail, and all the speed bump accomplished was to add another thirty seconds to the transaction process. Thus, after a hiatus of no more than a minute, the trading pace picked up yet again and the direction was down.