Paul Erdman - The Billion Dollar Sure Thing

“And if the public hears about this?”

“Not a chance. We’ll use the hot line to Moscow. The news won’t get beyond this room and the Kremlin. Believe me, the Russians will keep quiet while they think things over.”

“And if they escalate?” interjected the secretary of state.

“Then we’ll escalate,” replied the president promptly. “But let’s move one step at a time. Everybody agree?”

They did.

The president turned back to his secretary of state.

“Could you start drafting that message right away? I’ll want to review it very carefully before we send it off. But it must go out no later than this evening.”

And then to Crosby. “Henry, you’d better get onto that fellow in Switzerland before things get out of hand over there.”

With that the meeting was adjourned.

The secretary of the treasury hurried back to his office, and had Dr. Bollinger of the BIS on the telephone within two minutes.

“Dr. Bollinger, this is Henry Crosby.”

“Yes, Mr. Secretary. Actually I tried to phone you a while ago, but your people told me you were unavailable at that time. It does not look too good, does it?”

“No. We’re going to have to ask you for some help. We want to have an immediate standby facility of $5 billion equivalent of European currencies, on a swap basis. We are going to stop this thing in the market. Right now.”

“This can prove enormously expensive.”

“We know it. The president has just made the decision.”

“But the plan is still on?”

“Yes.”

“I see.”

“Bollinger, now what about that swap?”

“As you know, almost all of this has been discussed previously. I shall have to finalize the arrangements immediately, but that should be possible within the hour. You realize, of course, that everyone will require an insurance clause. Along the lines agreed to by the British a number of years ago.”

“We agree. Put everything through to me directly as soon as you have the package together. I’ll not leave my office until I hear from you. Thank you very much, Dr. Bollinger. We won’t forget it.”

One hour and seven minutes later, the swap arrangement had been formally completed. It was the biggest single financial transaction ever made.

By three that afternoon the foreign exchange markets in New York had reached the boiling point. The United States government had pumped in almost $3 billion in foreign currencies to hold the dollar against the stampede of speculators who seemed hell-bent on bringing Uncle Sam to his knees. It was with the greatest possible relief that the banks in that city finally closed their doors. In Chicago and San Francisco they played it cute. The banks there had always had only a marginal involvement in international finance and especially foreign exchange. On this day they either refused to make a market or just shut off the telephones in their trading departments. Their attitude: Let the Japanese handle this hot potato next.

About the same time as the American banks had closed their doors to the public after a hectic day, Dr. Walter Hofer was finishing his coffee in his home, high above the Lake of Zurich. The first snow of the year was just starting to fall outside, and his wife had decided to light the fireplace to mark the occasion.

“What’s Mary all excited about?” he asked his wife.

“She’s got a date. Her first in Switzerland. With a young man from the bank, I forget his name.”

“Where’s her mother?”

“Walter, it’s not her mother, in that tone of voice. She’s my sister.”

“Well, I prefer to think of her as Mary’s mother, if you don’t mind. That super-American act of hers gets on my nerves every time she shows up here. She was born and raised right in Brugg just like you. Why in the world we have to speak English with her is beyond me.”

“Now, Walter. Thirty years in America is a long time. And you have to admit, she has done a very nice job in bringing up Mary.”

“Fine. Then where’s your sister?”

“She went to the theatre.”

The doorbell rang and Mrs. Hofer immediately rose. A minute later she returned with the young man. It was Zimmerer of the foreign exchange desk, scrubbed a healthy Swiss pink and embarrassed as hell.

“Walter, won’t you look after Mr. Zimmerer for a moment. I want to go up and tell Mary he’s here.”

It was not exactly Hofer’s style to entertain department heads of the bank in his living room, but he accepted the challenge fairly gracefully. Zimmerer turned down his offer of coffee but gratefully accepted a cognac.

“Well, well, Herr Zimmerer. Apparently my niece and you have found a common interest in foreign exchange.”

Zimmerer grunted something rather inaudible and took another slug of cognac. Hofer continued, “Actually, it’s very good that you dropped by. I hear that all hell broke loose in New York during the past couple of hours.”

“Yes, sir. The rumours that the dollar is under steady attack from Eastern Europe seem to be proving out. Now everybody’s getting into the act. I’m not sure how long the Americans can hold the dollar. Apparently, they have been massively intervening in the market all day in New York, but if the selling keeps up, it’s hard to say what will happen.”

“What do you think?”

“I really don’t know. I can say, however, that the bank’s in good shape. On balance, we are now about $2 billion short, just as you instructed, sir. But I’m afraid that we could not fill all the orders for some of our customers with the same idea. The markets were simply too hectic, and some of our major partner banks have simply stopped trading for the moment.”

“Is the word out that we’ve been selling a lot of dollars?”

“I’m afraid it is, sir. You know how these things work. When four or five banks keep getting selling orders from us, in time their traders start talking to each other. Very gossipy bunch, you know.”

“Fine, Zimmerer. Now until I say differently, I want you to stay right on the fence from now on. No more selling of dollars. But also no buying. Just keep trading within very very narrow margins. Come to think of it, if necessary buy more dollars than you sell tomorrow morning. And make sure everybody notices it.” He paused. “Now tell me about gold.”

“Well, Kellermann insisted we start executing those buy orders for that numbered account. And at the same time, the fellows across the street also came into the afternoon fixing with a very big purchase. The result was inevitable. The price had to be pushed up over $4 an ounce, unless somebody wanted to intervene.”

“And tomorrow?”

“It can only go higher. Much higher.”

“Well, I don’t want it to go higher. I want you to use the bank’s own gold stocks to meet every buy order tomorrow. I want the price to be kept below $80 an ounce. I’m holding you personally responsible for this.”

“Yes sir, I’ll be at the gold fixing meetings myself in that case. But although we can control the Zurich market, at least for a day or two, I’m afraid that there’s little we can do in London.”

“Let me worry about that, Zimmerer. You just carry out your instructions here.”

At this point, Hofer’s niece appeared. In contrast to her mother she thought Switzerland was just great. She had donned a white lace blouse and the type of dirndl so popular in the Alpine countries. Hofer, who had no children of his own, liked the young lady immensely and went out of his way to compliment her on how nice she looked. He escorted her and the young man to the door and even lingered a moment, watching them descend the stairs to the car parked below, chattering together.

“Walter,” called his wife, “please come back in. You’ll catch cold standing out there.”