Dollar Down (22 page)

"How is your search for investors in your counter
instrument going?"

"Not good. We're up to a few hundred million. That's
not enough to push it one way or the other. I tried to get my
SEC friends to convince the Fed or Treasury that we might
have information they could use for intervention. If you look at
it from their perspective though, why would they listen to us?
They're bureaucrats. Their careers would be safer if they did
nothing than if they lost a few billion dollars based on info that
originated with some private detective. No offense."

"I might be able to contact someone a little more
desperate."

"Someone with a few billion dollars in foreign
currency?"

"More than four hundred billion in foreign exchange. A
lot of it in euros."

"Hah! Good luck Sanchez. I assume you have contacts
with our island friends. If you need help, let me know."

I could see Jim slapping his forehead. It hadn't taken
long for him to guess I was talking about Taiwan. China's four
trillion dollars in reserves dwarfed Taiwan's, but the island had
enough to move the market with a surprise entry and
leveraged instruments. With a good presentation, we might
convince the government to join Jim's party.

I called David and asked him to meet me. Then I called
Bizet and told him what I had in mind. He said he would clear
his calendar for us. As the son of an elite government official,
David must have been accustomed to a privileged lifestyle, but
when he saw Bizet's town home he was visibly impressed.

We worked on him for nearly an hour with CNN
playing in the background giving updates—between sports and
celebrity stories—on the dollar's fall, oil pricing and the Chinese
missile test. We had him talk to Jim Burroughs. Finally, he
agreed to contact his father. Bizet set up an Internet conference
call that included Burroughs. Things were worse than the news
reports. David Chou's father said that warships had sailed out
of Shanghai, Zhoushan and Fujian.

Since the end of the cold war, China has shifted its
military focus from defending against a massive land invasion
from Russia to its Navy. A particular emphasis has been on
strengthening its amphibious capabilities, including small,
armed "swimming" vehicles that can be launched from LSTs a
mile off shore. If it wanted to invade Taiwan, it had the
goods.

The test missile was fired from a Russian-built stealth
frigate. The fleet playing war games included destroyers armed
with Russian made cruise missiles that were nuclear capable.
They also carried antisubmarine helicopters.

Head-to-head, the Chinese surface fleet would not
survive a confrontation with the U.S. navy, even with support
from nuclear and conventional submarines and land-based
airplanes, but it wasn't necessary to win. All China needed to
do was inflict enough damage to prevent a timely rescue of
Taiwan.

It sounded like China would lose a big chunk of its
Navy in a fight. "I still have trouble accepting that China would
really pay that price," I said.

"Perhaps not," Mr. Chou said, "but there are higher
long-term stakes. China has a mid-term goal that it calls the
'green-water active defense strategy.' The idea is to develop
naval defenses that encompass an arc from Vladivostok to the
north, to the Strait of Malacca to the south. The arc would
extend eastward to the 'first island chain'—the Aleutians,
Kuriles, Ryukyus, Taiwan, Philippines and Greater Sunda
islands.

"Once that region is secured, the operational areas
would be pushed to the "second island chain"—the Bonins,
Guam, Marianas, and Palau islands. Beyond that there is a plan
to establish a base in Myanmar, which would give Chinese war
ships direct access to the Strait of Malacca and the Bay of
Bengal. That checks the Indian Navy and establishes Chinese
domination of the world's most vulnerable shipping lanes. I am
sure that occupation of Taiwan is pivotal to that plan."

The naval battle Chou described would also mean
severe U.S. losses. The contest then would be who could
rebuild faster. If the U.S. economy was severely distressed,
China would win. Reason enough for China to try to sink the
dollar. A good defense costs money. As for Chinese problems
with Europe in the Pacific, there weren't likely to be any. The
Continent's interests in that ocean extended to maybe Tahiti
and Pitcairn. With cash and Taiwan in its pockets, China's
green-water strategy would play out with virtually no
opposition.

Chou was antsy about the situation and was willing to
listen to informed ideas. Bizet and Burroughs weighed in with
as much as they knew of what was happening. I described
aspects of the murders.

Chou must have been convinced. He said he would
contact his boss, the National Security director, as well as the
minister of finance and ask for an emergency meeting with the
President.

I left David with Bizet. He would stay there until this
was over, so he could interface with his father. It would also
keep him safe in case Wu ever figured out what he was up to.
There was less than two hours in the LIFFE trading day by the
time I got back to Pascal's apartment. I wasn't there long
before Burroughs called.

"It's starting," he said. "There is major selling of the
dollar, and the action is widespread. It looks like the Fed is
using its exchange stabilization cache in the International
Monetary Fund, but it's miniscule. Malaysia has announced it
will begin pricing nickel in euros. I heard from my SEC friends
that the U.S. tried to cash in its special drawing rights with the
IMF, but the dollar fell too fast for that to make an
impact."

"Will it fall more than thirteen percent?"

"If it continues dropping tomorrow at the rate it has
over the past half hour, it will come close. My guess is that it
will pick up momentum on the down slope. The U.S. can't stop
it on its own, and doesn't have many dollar friends right now.
There's Japan, and their bureaucracy is calcified. We can't
expect action."

If Mr. Chou came through, there might be one ready to
act. Even if he did though, would the effect be big enough?

There didn't seem to be much to do, but wait to see if
Mumby could plant the bug on Tom Hall. If he couldn't, then
there was nothing to do at all. Chances are it wouldn't make
any difference, but we decided to try to keep watch on
everyone we could who was associated with any part of the
case. I got Wu's phone number from David, but he wasn't
answering. Neither was Alexandra or Ruiz. Pascal said there
had been no activity in Ruiz's apartment for more than
twenty-four hours. I called Gavizon in Venezuela to see if he knew
where Cervantes was. He said he didn't and told me again to
leave him alone. That left Gatineau.

I checked with Bizet to see if he knew the name of a
director in the Houston office of Winchell.

He did.

I gave it to Marie. She called Gatineau's secretary and
identified herself as the Houston director's personal assistant.
Gatineau was in a meeting. He would not be available for two
more hours. "Thank you," Marie said and told the Houston
assistant that a callback wasn't necessary.

Two hours gave us plenty of time to set up surveillance.
Then came the hard part. Waiting.

Marie had ridden a motorcycle and parked it within
easy access to the building where Winchell was. I rode with
Pascal who parked and stayed in the car. Marie kept close to
her bike, and I watched the entrance.

Frosty ears and tired feet later, I saw Gatineau leave. I
fell in behind him and called Marie and Pascal periodically to
keep them posted on my route. Marie was on her motorcycle.
When Gatineau got into his car, she led the surveillance. Pascal
picked me up and we followed.

We didn't have to go far. He drove to the Ledoyen
restaurant off the Champs Elysées near Place de la
Concorde. We couldn't go in without reservations. Besides he'd
recognize me. We found a place to park that provided a view of
the entrance. Pascal and I stayed in the car while Marie went to
a grocery for cheese bread and wine. It probably wasn't up to
the standard that Gatineau was enjoying, but it beat coffee and
donuts.

"So who wants to bet on who he's meeting?" Marie was
lying across the backseat of Pascal's car with her feet propped
on an armrest.

"Cervantes is my guess." I figured I'd run into him
before it was over.

"Ruiz," said Pascal. "That guy has to be
somewhere."

Marie put her money on the oil men. "The Saudi."

We were all wrong. A bottle of wine and a trip to the
loo later, Gatineau came out. He was with Oddsson and
Alexandra. I was prepared for several eventualities, but not
that.

Marie got out of the car and followed Gatineau on her
motorcycle. Later she said he went straight home.

Alexandra went with Oddsson. Pascal and I followed
them to his mansion. We stopped well away from it and
watched him open the remote controlled garage door.

We hung around long enough to see lights turn on
inside the house.

Watching Alexandra with Oddsson had bothered me
more than it should have. I went back to the hotel room that
we once shared and called McNulty. He said he had invaded
Tom Hall's home and planted a bug in his briefcase. If he kept it
at his desk we should have live feed. I relayed that news to
Burroughs and Bizet.

Then Pascal, Marie and I went to Bizet's town home to
wait. David had convinced his father that Bizet could be trusted.
Burroughs had also provided evidence that he was in fact who
he said he was, the inventor of the PetaGrid. Mr. Chou had
heard of him and was impressed. So too were Taiwan's
president, finance minister and central bank governor. That
information together with input from intelligence agents was
enough to convince Taiwan to invest in the forex market as
Burroughs advised.

None of us had gotten much sleep last night. There
were a lot of red eyes and droopy expressions in the room. I
wondered how Oddsson and Alexandra had done in that
regard. Probably just fine.

We had a three-way relay set up in Bizet's office, which
was equipped with Bloomberg terminals set up to track dollar
trends in real time. McNulty was getting voice transmissions
from Hall and calling them in to Bizet's phone, which was set
on speaker mode. Bizet then transferred the instructions to
Burroughs, who explained to Taiwan's central bank governor
how he should intervene. It was a clumsy arrangement, but we
didn't have to beat a real-time trader. If, as we suspected, Hall
was manipulating the computer system to accumulate trading
orders and time their closing to tweak the market, then all we
had to do was counter his moves to tweak it the other
way.

It was going well. Tom Hall was getting orders directly
through computer transmissions, but he was confirming them
by phone, just in case someone had made an errant keystroke
or noise or other glitch in the network had caused a data error.
Those things can happen.

Phone lines were vulnerable too, but they used a code.
There was no way for them to know that we had broken
it.

Before the start of trade in London, China announced
that it was abandoning the dollar as its primary reserve
currency and would replace it with a basket led by the euro. By
mid-morning, the dollar had fallen five percent from its
previous opening price, undermined by bad news and heavy
selling. If its rate of decline continued into the afternoon, it
would easily close below the thirteen percent minimum target.
At 10:45 a.m., the Taiwanese announced they were buying and
made their first swap—one point three five billion euros for
dollars. The decline of the dollar stalled. There was a swap
about every fifteen minutes, and by noon the scale had
escalated to nearly five billion euros per transaction.

Taiwan's central bank governor was on the call and
said he didn't want to commit any more money. He sounded
nervous.

Burroughs tried to convince him to anticipate Hall's
actions and take the lead. It would be more effective to make
Hall follow. He refused. That would be speculation, not
defensive action.

"But Hall might see the pattern and get wise,"
Burroughs said.

"The Bank of China does not speculate," the governor
said. "Period."

At 1:20 p.m. the dollar was holding at about eleven
percent of yesterday's reference rate. It looked good for our
side.

McNulty said he was hearing some desperation in Jim
Hall's language.

Burroughs called his SEC pal and asked them to urge
the Fed to sell everything it could for dollars. Too late. The U.S.
had already effectively depleted its foreign currency reserve
and was asking Japan for help.

The Bank of Japan intervened marginally. Japan's
prime minister said he was working to try to reach an
understanding with the Bank of Japan and the Ministry of
Finance for more aggressive measures.

Good luck,
I thought. The bank and the
ministry had been at loggerheads since they were
founded.

For its part, all the Fed had left was gold, about one
hundred sixty million troy ounces. That was another two
hundred billion or so at current rates. A quick sell off wouldn't
work. It would only drive down the price. When the gold was
gone, America's Federal Reserve would be as broke as the Bank
of England on Black Wednesday in 1992, when George Soros
and fellow raiders made a bear run on the pound. That episode
forced Britain to leave the European Exchange Rate
Mechanism.

If America's Federal Reserve went broke, the upheaval
would be global.

"Tell them to sell the gold now," Burroughs
advised.

"That's not likely," said his SEC friend.

"Tomorrow will be too late," said Burroughs. "If
China's derivatives pay off, dollars will start doing
impersonations of Weimar marks. This is only the
beginning."