Paul Erdman - The Billion Dollar Sure Thing

“And you must not forget article xvi of the agreement. Both parties have pledged to maintain absolute secrecy concerning the existence and terms of this contract for at least ten years. If the South African government chooses, and I now suspect it might, it can easily conceal everything by merely making up the difference between what it will be getting from us and what the mines expect to get for their gold output after the American decision. They can take it from treasury funds. I’m sure they could bury the amounts involved in the defence budget. Such things have been done before, you know, especially in your country, David. No, gentlemen, all contingencies have been foreseen and covered.”

Sir Robert Winthrop and David Mason were convinced. Then Winthrop asked the question, and he asked it softly.

“Walter, how much will our profit be?”

“Substantial, in fact quite substantial. I made a rough calculation last night after watching the president’s speech on television. The Swiss TV carried it, you know. I must say, he made a very convincing presentation.”

“I agree,” said David Mason, “but what did your calculations show?”

“Let’s take the first year,” said Hofer. “Mine output next year is projected at 33 million ounces. Our gross cost, at $80 an ounce, will be $2.640 billion. Our receipts, upon resale to any central bank at $125 an ounce, will be $4.125 billion. That leaves a gross margin of $1.485 billion. Let’s call it one and a half billion. Intergold expenses will be minimal, really nothing much more than the cost of compensating our banks for their performance guarantees. And transport and insurance, of course. In any case, I foresee a profit before taxes the first year of about $1.4 billion. The canton of Zug, where we have incorporated, has entered into a tax agreement with Intergold. The maximum tax rate will be 12 percent. That leaves an after-tax net profit of just a shade over $1.2 billion.

“My God!” exclaimed Mason.

“Yes,” said Hofer, “it is quite amazing, isn’t it. Of course, you must not forget that we have agreed to increase the price by 5 percent each year. It’s a pity, but it couldn’t be helped. That will mean that by the fifth year our gross margin will drop to under a billion. But for the five-year life of the contract, we should be able to clear $6 billion gross and well over $5 billion net after taxes.”

“Absolutely astonishing,” said Winthrop. “Walter, you have done a truly magnificent job.”

“Sir Robert, the contribution you made during the past few days was invaluable, you know,” replied Hofer. “Your intervention in the London gold pool proved totally successful. If we had not kept the price below $80 an ounce right up to the closing, I’m afraid the South Africans would never have signed. It was very touch and go at the last minute.”

David Mason then spoke. “One thing I cannot understand, even now, is the behaviour of the Russians during the past week. From what we heard in New York, Walter, they started the entire speculation against the dollar and on gold, and then completely reversed field in midweek. Is that true?”

“It would seem so. Of course, their initial actions came within a hair of scuttling this entire project. Until something happened. I’m quite sure we will never know what.”

“Is it possible they somehow got wind of what the Americans planned to do?”

“Hardly. David, I’ve been involved in countless numbers of devaluations here in Europe, and I cannot recall one which really went over perfectly. But not because of leaks. It’s usually just because clever people, noticing this, hearing that, spotting something just slightly out of line with the usual pattern, start to get suspicious. All of a sudden the same conclusion is reached almost simultaneously by financial people in many different places, completely unrelated to each other. The German language has a word for this: Fingerspitzengefühl. The hunch. I suspect that this has played the key role in the events of the past few days. At least it did where I was concerned.”

“Well, Walter,” said Sir Robert, “here’s to your Fingerspitzengefühl. ”

At that moment three waiters entered the room. Lunch had arrived. It lasted well over three hours. Dr. Hofer offered to take his two colleagues to the airport after a final scotch and soda in the bar of the Grand Dolder. Dusk was just closing in as they left.

Hofer took the wheel himself, explaining that he had given his chauffeur the weekend off. He proved to be a terrible driver, so for most of the journey his two passengers, quite sleepy anyway after the monumental meal, kept silent.

But as they approached the airport, Sir Robert said: “Walter, tell me, how much are you people ahead on your short position against the dollar?”

Suddenly Hofer, who could not have been more expansive during the preceding hours, returned to character. “Robert, I’m afraid that is none of your business.”

Winthrop just laughed. “I can tell you this. We made enough in just three days to put us well into the black for the year. And you, David?”

Mason just grunted. “We did all right.”

By the time they exchanged farewells at Kloten airport the spirit of comradeship had totally disappeared. Theirs was, after all, just an ordinary business relationship.

SUNDAY morning, November 9, was one in which most financial people throughout the world slept late. The countless meetings and phone calls of the previous day, the hurried calculations and recalculations which had followed the American announcement of international monetary reform had left their mark everywhere. For some it was a day of triumph; for others, one of worry and despair.

Igor Josef Melekov was in the first category. With a still sleeping mistress at his side, he sat propped up in his vast bed in his apartment on the Moscow Hills, carefully studying a General Motors brochure. Yesterday had been the moment of supreme triumph: his appointment as chairman of the Foreign Trade Bank of the Soviet Union. Perhaps it had been sadistic to help Stepanov clean out his office. But still—the sight of him on that last trip down the stairs of the bank was a memory to be cherished. Today every one of those Georgians would be receiving their prizes: one-way tickets back to Tiflis. And now he would choose his own reward. In fact, the decision was already made. It was to be an Oldsmobile 98. He was positive that it would be the only one in the entire Soviet Union. The problem now was to get delivery. He shook the girl beside him.

“Natscha, wake up!”

“Not now, Igor.”

“Natscha, how would you like to go with me to Helsinki?”

“Don’t be ridiculous.”

“What’s so ridiculous about that?”

“I’ll never get a travel visa.”

“Ha! I will have that within three hours!”

“But why Helsinki?”

“Because I have urgent business there.”

“What kind of business?”

“It concerns the automotive industry.”

“Igor, why don’t we get married instead?”

Melekov slumped back into his pillows. Now why did she have to go and spoil a perfect morning?

At the other side of the world, the president of the United States found himself in exactly the same position. Well, at least to the extent that he was in bed reading. The lady beside him was, of course, his wife. The bed was strewn with newspapers. It was the headline in the Baltimore Sun that summed it up best: “THE BEST-KEPT SECRET SINCE THE MANHATTAN PROJECT.” The president chuckled. Yes, he had really caught the world by surprise.

Midway between Moscow and Washington, or close to it, Dr. George Bernoulli sat alone in the bedroom of his small apartment on the outskirts of Bern. He was not reading; just smoking and gazing at the ceiling. He had been doing that for hours. His stomach had been in a tight knot ever since leaving the Basel airport at noon the previous day. For since that time he had known. And there was nothing he could do about it. Not a single thing. The matter was closed, permanently, from the official standpoint. And thus it was closed, permanently, as far as he was concerned. For the first time in his life, Bernoulli’s faith in the rule of law, in the inevitability of justice, had been shaken.