Gold (18 page)

Drew was exasperated. He knew Carol was right, but he knew as well that their instinct for what was happening would be difficult to convey to those not familiar with financial markets.

“There’s something more,” Drew continued. “I feel very much personally involved in all this. It was my colleague—my subordinate—who swindled the market and got himself killed in the process. It was my story—my decision—that closed financial markets around the world.”

He paused; Carol waited patiently.

“If the story was wrong, if the South Africans are somehow still supplying gold to the market, do you realize how that would make me feel?”

“It’s not your fault, Drew. No more than the debt crisis is the Fed’s fault. You were doing your job.”

“My job is to report what’s going on. I’m trained to sift out truth from lies, but this time I may have made a mistake and passed on a whopper.”

“You had every reason to accept the report. Agencies bigger than yours, journalists older than you, accepted the declaration of the South African government.”

“But my report made it possible for them to accept it. It tipped the balance in making Pretoria’s announcement credible.”

Drew punctuated this last statement by pounding his fist onto the table.

“I can’t just sit and wait for things to happen,” he continued. “Marcus is playing a key role, so I’ve got Hannes digging into his operation. And if I can get to Van der Merwe—”

“Has it occurred to you that Van der Merwe might be dead too?”

Drew looked at Carol. The whole conversation seemed ludicrous. Carol’s features were alluring in the semidarkness of the pub, and he wished he could devote himself to her. She was right, though, Drew realized for the first time. After everything that had happened, he had to face the possibility that his stringer had met a fate similar to MacLean’s.

“Did you know Martinez shot himself?” Carol said.

“The Mexican finance minister?” Drew was genuinely shocked. “The wires said he died of a heart attack in his office.”

“They’re trying to hush it up. Halden called me on Monday.”

“Is the situation in Latin America so critical?”

“The Mexican president is threatening repudiation. The gold crisis has dried up liquidity so much that all the makeshift solutions to the debt crisis don’t work anymore.”

Drew was silent as he tried to work out all the connections. Carol took his hand.

“There’s a meeting in Rio at the end of the week,” she said softly. “I’m meeting Halden there.”

The next couple of days were very full. Drew rode herd on the nervous markets. The gold situation and the declarations of the Mexican president—as well as the suspicious death of the finance minister—brought the markets to a near standstill, interspersed with bouts of frantic trading.

As Drew anticipated, the South Africans granted him a visa quickly. They could not risk arousing any suspicions regarding their own truthfulness.

Carol meanwhile interviewed executives and traders and the major British clearers and merchant banks. She worked late into the evenings writing her report, calling Halden with a brief summary each day.

Wednesday and Thursday passed quickly. Carol’s flight for Rio was at ten o’clock Friday morning; Drew was to leave for Johannesburg on Saturday. They had no time for each other.

TEN

The girl was stunning—tall, her tawny skin darkened further by the sun, the silky brown hair flowing down her back, stopping just above her shorts, which two elegantly molded legs kept swinging suggestively back and forth.

“It seems such a waste,” Halden said, watching the girl’s progress in front of them. “To come all the way down here, spend two days in a hotel, and then just leave.”

Carol murmured something that Halden construed as agreement. She had been withdrawn since her arrival from London. Her report on the gold market had been extraordinary, even by the high standards she set. It had all the usual detail and thoroughness, but also an unusual amount of feeling, of involvement in the subject. She looked tired, though.

“Be nice to take some time off—spend a day on the beach, night on the town,” Halden continued as they reached the end of the airport concourse and their gate. He had done neither in years.

The Brazilian girl had disappeared as they checked in on the Varig flight to New York. Most of the passengers were already on the plane, so the two boarded immediately in the first class section.

“So much for what history will record as the Rio Conference.” Halden grunted as the plane banked, giving them a glimpse of the harbor made famous by countless movies and posters.

“It was a tough one,” Carol said.

“Tough is hardly the word; I think it means the end,” Halden said, becoming pensive.

Mexico’s ultimatum had inspired new courage in the Latin American countries. They had jointly declared suspension of all debt payments and threatened to repudiate all sovereign debt. All the countries attending—Brazil, Mexico, Argentina, Peru, Venezuela, Chile, even forlorn little Bolivia—signed the final communiqué declaring war on Yankee capitalism. The prolonged agony of the debt crisis had unified the Latin American countries for the first time since they won independence. If the Latin Americans followed through on their declared intentions, Western banks faced staggering write-offs of hundreds of billions of dollars.

“The initial impact of the declaration will be in the interbank lines,” Carol ventured in the silence.

“I’m not so sure; I hope we can keep bank lines on ice for another week or two,” Halden responded, as much to himself as to his companion. Halden’s safety net of Fed support in the interbank market had succeeded in calming the turbulence there.

The Fed guarantee of interbank lines had given Halden enough leverage to win one concession at the conference: the Latin Americans would wait two weeks to implement any decision to repudiate the debt. Even though most of the countries had already ceased making any payments on their debt, a formal repudiation would shock the market psychologically. Halden wanted to mitigate the shock by postponing formal default as long as possible.

“Will we go to Washington right away?” Carol asked.

“I’ll go. Roberts and Johnson will be waiting for me. You’ll have to brief the fellows in New York.”

Halden was worried, but he hoped to keep the situation stable for the next week or two. The Fed guarantee, comforting calls to the banks, confident statements to the press would calm the incipient panic. Fortunately, the Latin Americans had issued many ultimatums before; the U.S. Press was likely to view the latest declarations with skepticism. They would expect someone to come up with yet another face-saving agreement so the world’s money machine could keep clunking along.

But Halden knew this declaration was different, and he was fairly sure that neither the administration nor Congress was in the mood for further concessions.

Even if American public opinion could be coddled along to avoid a panic and a run on the banks—no small “if” in itself— Halden was more worried about the effect of an international run of confidence on the dollar.

“It could be awful,” he said aloud.

Carol pretended not to hear. She continued writing up her notes from the conference.

“Do you think there could be a run on the dollar with the announcement of the payments moratorium?” Halden asked her.

“Isn’t the problem still the same—run from the dollar to where?”

“The yen, deutsche mark, Swiss franc, even the pound sterling.” Halden listed the other main international currencies.

“Those currencies don’t have the depth; the countries would stop exchanging them.” Carol repeated the consensus view.

“Gold?” Halden suggested softly. That was the real wild card. What was happening with gold? How much gold was there in the market? That was the big mystery. If the market knew for sure there was enough gold, there might be a massive flight of capital out of the dollar.

“The gold supply is limited,” Carol responded. “And now production is supposed to be greatly impaired.”

Halden looked at the economist sharply. He had noted the qualification in her statement and looked to see how significant she meant it to be. Carol’s face was impassive.

“What you say is logical, but people aren’t always logical in a panic situation,” he said.

“But the moratorium doesn’t change that much, in reality. The market will see through it,” Carol said.

“Yes, but the balance is so delicate,” the Fed president said. “What would happen if there was a crash?”

Carol faltered momentarily at the unexpected question. “A financial crash can lead to war,” she ventured.

“It did in the 1930s,” Halden conceded. “But there were a couple of crashes in the nineteenth century that didn’t. Besides, the only dangerous war nowadays would be between the Americans and the Russians, and the Russians wouldn’t really be affected by a crash too much.”

“But the Soviet Union might invade the Middle East or even Western Europe if the financial system collapsed,” Carol protested.

Halden continued as though she had not spoken. He did not hear the undertone of anxiety in her voice. “Who would be in the best position—natural resources, energy, industrial base, internal market?” Halden’s question this time was rhetorical. “We’d certainly be better off than Japan or Europe.”

A crash would wipe out Japan’s mortgage on the United States, the billions of dollars of government debt and other dollar assets Japan had acquired with the surplus it earned on its exports to the United States—earned by postponing the prosperity of their own people, by taking advantage of America’s open borders and high standard of living.

“In fact, we’d be in a fairly strong position to dictate the terms of a new monetary system, wouldn’t we?” Halden pursued his flight of fancy.

Carol smiled uneasily, acknowledging her superior’s joke.

“Makes you wonder why we try so hard to avoid a crash, doesn’t it?”

Halden lapsed into a long silence during the generous meal served in first class. He only picked at his food. He thought of José Martinez. More than anything else, the Mexican’s suicide made Halden think that some radical, cleansing solution was needed.

He saw the outlines of how the United States could take the initiative to wipe out all the distortions of the past few years, how they could regain control of the situation. He could work out the details; Peter Wagner would help him.

But he needed to know what was happening in the gold market. He could not leave anything to chance.

“Your conclusion, if I read correctly, was that the gold market will remain unstable in the near future?” Halden asked.

“Until there’s some clarity about the supply, yes.”

Halden studied her for a moment. “Did you see much of this journalist, Dumesnil?”

“We met a couple of times,” Carol said. She smiled. “He’s actually quite nice.”

“Do you think he can get to the bottom of this gold business?”

“If anybody can, he will.”

“Keep in touch with him. Let me know what he’s doing.”

Carol looked at him noncommittally. “He’s very keen on journalistic independence.”

“Yes,” agreed Halden. “But he’s smart. He appreciates our position.”

Carol did not respond.

~

Blacky shuffled out of the room with more purpose then usual. Hannes Kraml assumed he was going to confer with Marcus. For once Frey, the chief dealer, was also absent. The market was like a graveyard. It was Monday afternoon, the Rio communiqué had made a slight ripple, but most operators had simply squared positions and were waiting to see what would happen.

Kraml saw his opportunity. He started working his keyboard. His previous furtive attempts to enter the master dealing program had been quickly blocked. Marcus had a sophisticated software that restricted access to only a few of the dealers.

Kraml drew on his systems experience. He had worked together with computer specialists to design two major programs. He had learned a few secrets from the specialists, secret passageways that might not have been sealed up in Marcus’s program.

Kraml worked intensely, quickly. He found an opening and worked back until he had the key to entering the program. Apparently Marcus had not anticipated this type of security breach and had taken few precautions against it.

Kraml’s console was situated so that he could keep an eye on the door into the dealing room.

The trader found his way to the gold master program, the internal record of Marcus’s position. He saw accumulated futures contracts confirming that Marcus was massively shorting gold. Perhaps it was just a hedge, Kraml thought, a cheap way of protecting a long position in the spot market, although he would have thought that a decline in the gold price was unlikely in view of the South African situation.

Kraml had to work a little harder to get to the bullion position, but he finally had the picture on his screen. What he saw stunned him. They were just digits shimmering on the cathode-ray tube, but for Kraml the impact was as breathtaking as for Ali Baba stumbling upon the treasure hoard of the forty thieves.