T. Bunn - Drummer in the Dark

“You’ll have to ask Esther.”

“You know precisely how far that would get me.”

Further guarded inspection, then, “All I have to go on are my own conjectures.”

He moved back out of her space. “That’s fine.”

“There is a growing sentiment among many economists and pundits that our banking system is on the verge of a very real crisis. Hedge funds like Hayek are what you might call the worst of the worst. A malignant vein pumping poison though the system.”

She seemed to recognize his interest as genuine, for she revealed a hint of new energy, or perhaps one long submerged. “Hedge funds deal in any number of markets, but they specialize in foreign exchange and related derivatives. The problem with forex derivatives is precisely what appeals to these funds. No super-regulator. There is no body with the power to control the movement of funds. And so forex funds can get away with things that would have them screaming bloody murder in the world’s stock exchanges or standard banking markets. Like collusion, where insiders profit from the trading of supposedly secret information. Or operating on tiny margins, thus opening themselves and their investors to huge risks. They regularly assume market positions that anybody in their right mind would consider truly insane. In short, they whip exchange rates around just as much as they can.”

Wynn was not the least disturbed by just how little he understood. If it was important, he could ask more later. For the moment, it was enough to watch her reveal this utterly new side of herself. “So why isn’t a watchdog agency established?”

“Two reasons. First, because globalization means an increasingly porous economy. We live and breathe from exports and imports. People worry that any forex restriction would choke off the flow of goods.”

“Would it?”

“No.” She came back definite and hard. “This is all smoke and mirrors manufactured by lobbyists for the banking industry. The fact is, curbs on wild forex fluctuations would be good for business. But that brings up the other problem, which is, any regulating body would have to be international to be effective.”

“I think I see.”

“Sure you do. Any time people start talking about reining in the market’s excesses, the banks and their hired guns wave the red flag of international government. They start talking about American sovereignty, and financial meddling, and all the other buzz words that send Joe Q. Public into high-altitude orbit.” She stared unseeing at the night. “There used to be three carefully designated markets for currency exchange-cash, forwards, and futures. But those precisely drawn lines have been erased by the derivatives market. If currency futures have seen explosive growth, derivatives have gone off like a nuclear detonator. It’s an utterly unregulated market, and that is exactly how the banks want it to stay. They pay the K Street lobbyists huge bucks just to make sure no little surprise regulation is slipped into some bill. Regulation would slow things down and restrict new financial maneuvers. So for the moment at least, the best way to describe derivatives is, Anything goes.”

But Wynn’s mind was snagged by the term, “K Street.”

“That’s where the most powerful lobbyists dwell. Using that address is like planting a flag.” Her pace continued to accelerate, her mind clicking into a long-disused gear. The words became clipped and precise and trimmed to perfection. “Derivatives traders have poured unbelievable amounts into the pockets of Washington lobbyists, paying them to keep things free and easy. These funds make more money on trades than on holding. They often buy only because they think they can swiftly resell, tacking on their percentage as they do so. This tactic is called flipping, or washing. On a hectic day of derivatives trading, where the backroom lags three or four hours behind the traders, the floor may close without anyone knowing the fund’s actual position. They could be holding ten billion dollars in high risk D-mark futures they thought they had balanced against something else, only to discover that another trader sold their safety net ninety minutes earlier. They simply mark it down as what will be the next day’s first sale. To them it’s only paper. The fact that the existence of a medium-size bank, one that’s been around for a hundred years, might be destroyed because of this super-fast washing, means nothing. To them it’s only paper.”

“Sorry, I’m playing catch-up here. Why do the traders care about Washington politics?”

“They care because the lack of regulation is how they make their money. Today’s currency market is based on a ludicrous system of easy credit. Imagine the oldest, most stable company in the world going into a bank and saying, hey, I want to borrow ten billion dollars with nothing down. No collateral, no margin, just my good name. They’d escort him straight to the loony bin. Yet the funds do this in currency derivatives every day of the week. It’s standard practice.

“The answer is to regulate the currency market just like all the others. This was the basis of my master’s thesis. All other markets require a margin up front and a clearing of all debts before the end of that business day. Simple. That way, the winners pay the losers every single night. They immediately know the status of everyone’s business. If someone is in trouble, at least the risk is restricted to one bad apple and not a total collapse of the banking system.”

“But that’s not the case?”

She looked at him, but he was not sure she actually recognized who he was. “Ever hear of Nick Leeson?”

“No.”

“He brought down one of the oldest banks in the world, Barings. Single-handedly. He traded over his limits on the Singapore and Tokyo exchanges. How? Because no system is in place to detect any fund’s end-of-day position.”

He noted with admiration, “Your voice has changed.”

She halted in the process of reaching for her glass. “What?”

“The way you talk. It’s changed. You’re all charged up.”

She left her glass where it was. “I think we’re done here.”

“I’m sorry I said anything.”

But she was already rising to her feet. “We should be going.”

“Jackie-”

“We need to see about your sister, isn’t that what you said? Ask for the bill.”

Jackie was grateful for the driver’s cheerful chatter. She needed time to sort through the confusion. The day had obviously been too potent, a draft more stimulating than her system could handle. That was the only excuse for the closeness she had felt over dinner. And, if truth be known, still felt now.

Even the streetlights seemed different here in Rome, turning old stone into theater backdrops, making artwork from shadows. As they crossed a bridge strung across mystic dusk, the hotel driver talked of how the Trastevere area had formerly housed Rome’s working poor. Now it was a place of nightlife and romance, he said, then leered until Wynn reminded him they were going to Sant’Egidio. But it was Wynn’s demeanor more than his words that finally silenced the young man.

They left the car and followed a cobblestone alley to a night-washed piazza. Anywhere but Rome, the church she faced would have been preserved, vacuum packed, and turned into a museum. Here it merely anchored another square, this one without the attractions of a working fountain or Bellini statue. The church’s exterior was unadorned brick, a manifestation of poorer past centuries. The interior was a mosaic of battered grandeur. In this visual banquet of a city, it offered nothing extraordinary. Tourists did not come. Which was a good thing, Jackie decided. There would be no room for them.

Jackie found the evening service remarkably moving, despite its simplicity. The church was meant to hold perhaps seven hundred people, but tonight contained well over a thousand. Black, Asian, Hispanic, Roman, Scandinavian blonds and the stylish backpackers of America-they all were present here. The Bible reading and the brief sermon were done in three languages. The prayers were sung chants, and translated on leaflets scattered among the benches. There was no priest in attendance. People from the assembly came up to lead various segments of the service, then resumed their seats. All in an orderly yet casual fashion.