Debt of Honor

by Tom Clancy

  By this time, the panic within the entire financial community was quite real, reflected in a tenseness and a low buzz of conversation in every trading room of every one of the large institutions. Now CNN issued a live special report from its own perch over the floor of the former NYSE garage. The stock ticker on their “Headline News” service told the tale to investors who also liked to keep track of more human events. For others, there was now a real human being to say that the Dow Jones Industrial Average had dropped fifty points in the blink of an eye, and was now down twenty more points, and the downward spiral was not reversing itself. There followed questions from the anchorperson in Atlanta, and resulting speculation on the cause of the event, and the reporter who hadn’t had time to check her sources for information, winged it on her own, and said that there was a worldwide run on the dollar that the Fed had failed to stop. She couldn’t have picked a worse thing to say. Now everyone knew what was happening, after a fashion, and the public got involved in the stampede.

  Although investment professionals looked upon the public’s lack of understanding for the investment process with contempt, they failed to recognize the crucial element of similarity they shared with them. The public merely accepted the fact that the Dow going up was good and its going down was bad. It was exactly the same for the traders, who thought they really understood the system. The investment professionals knew far more about the mechanics of the market but had lost track of the foundation of its value. For them, as for the public, reality had become trends, and they often expressed their bets by use of derivatives, which were moving numerical indicators that over the years had become increasingly disconnected from what the individual stock designations truly represented. Stock certificates were not, after all, theoretical expressions, but individual segments of ownership in corporations that had a physical reality. Over time the “rocket scientists” on the floor of this room had forgotten that, and even schooled as they were in mathematical models and trend analysis, the underlying value of that which they traded was foreign to them—the facts had become more theoretical than the theory that was now breaking down before their eyes. Denied a foundation in what they were doing, lacking an anchor on which to hold fast in the storm sweeping across the room and the whole financial system, they simply did not know what to do, and the few supervisory personnel who did lacked the numbers and the time with which to settle their young traders down.

  None of this really made sense at all. The dollar should have been strong and should grow stronger after a few minor rumbles. Citibank had just turned in a good if not spectacular earnings statement, and Chemical Bank was fundamentally healthy as well after some management restructuring, but the stocks on both issues had dropped hard and fast. The computer programs said that the combination of factors meant something very bad, and the expert systems were never wrong, were they? Their foundation was historically precise, and they saw into the future better than people could. The technical traders believed the models despite the fact that they did not see the reasoning that had led the models to make the recommendations displayed on their computer terminals; in exactly the same way, ordinary citizens now saw the news and knew that something bad was happening without understanding why it was bad, and wondered what the hell to do about it.

  The “professionals” were as badly off as the ordinary citizens catching news flashes on TV or radio, or so it seemed. In fact, it was far worse for them. Understanding the mathematical models as well as they did became not an asset, but a liability. To the average citizen what he saw was incomprehensible at first, and as a result, few took any action at all. They watched and waited, or in many cases just shrugged since they had no stocks of their own. In fact they did, but didn’t know it. The banks, insurance companies, and pension funds that managed the citizens’ money had huge positions in all manner of public issues. Those institutions were all managed by “professionals”—whose education and experience told them that they had to panic. And panic they did, beginning a process that the man in the street soon recognized for what it was. That was when the telephone calls from individuals began, and the downslope became steeper for everyone.

  What was already frightening became worse. The first calls came from the elderly, people who watched TV during the day and chatted back and forth on the phone, sharing their fears and their shock at what they saw. Many of them had invested their savings in mutual funds because they gave higher yields than bank accounts—which was why banks had gotten into the business as well, to protect their own profits. The mutual funds were taking huge hits now, and though the hits were limited mainly to the blue chips at the moment, when the calls came in from individual clients to cash in their money and get out, the institutions had to sell off as yet untroubled issues to make up for the losses in others that should have been safe but were not. Essentially, they were throwing away equities that had held their value to this point, for which procedure the timeless aphorism was “to throw good money after bad.” It was almost an exact description for what they had to do.

  The necessary result was a general run, the drop of every stock issue on every exchange. By three that afternoon, the Dow was down a hundred seventy points. The Standard and Poor’s Five Hundred was actually showing worse results, but the NASDAQ Composite Index was the worst of all, as individual investors across America dialed their 1-800 numbers to their mutual funds.

  The heads of all the exchanges staged a conference call with the assembled commissioners of the Securities and Exchange Commission in Washington, and for the first confused ten minutes all the voices demanded answers to the same questions that the others were simultaneously asking. Nothing at all was accomplished. The government officials requested information and updates, essentially asking how close the herd was to the edge of the canyon, and how fast it was approaching the abyss, but not contributing a dot to the effort to turn the cattle to safety. The head of the NYSE resisted his instinct to shut down or somehow slow down the trading. In the time they talked—a bare twenty minutes—the Dow dropped another ninety points, having blown through two hundred points of free-fall and now approaching three. After the SEC commissioners broke off to hold their own in-house conference, the exchange heads violated federal guidelines and talked together about taking remedial action, but for all their collective expertise, there was nothing to be done now.

  Now individual investors were blinking on “hold” buttons across America. Those whose funds were managed through banks learned something especially disquieting. Yes, their funds were in banks. Yes, those banks were federally insured. But, no, the mutual funds the banks managed in order to serve the needs of their depositors were not protected by the FDIC. It wasn’t merely the interest income that was at risk, but the principal as well. The response to that was generally ten or so seconds of silence, and, in not a few cases, people got into their cars and drove to banks to get cash for what other deposits they did have.

  The NYSE ticker was now running fourteen minutes late despite the high-speed computers that recorded the changing values of issues. A handful of stocks actually managed to increase, but those were mainly precious metals. Everything else fell. Now all the major networks were running live feeds from the Street. Now everyone knew. Cummings, Cantor, and Carter, a firm that had been in business for one hundred twenty years, ran out of cash reserves, forcing its chairman to make a frantic call to Merrill Lynch. That placed the chairman of the largest house in a delicate position. The oldest and smartest pro around, he had nearly broken his hand half an hour earlier by pounding on his desk and demanding answers that no one had. Thousands of people bought stock not just through, but also in, his corporation because of its savvy and integrity. The chairman could make a strategic move to protect a fellow bulwark of the entire system against a panic with no foundation to it, or he could refuse, guarding the money of his stockholders. There was no right answer to this one. Failure to help CC&C would—could—take the panic to the next stage and so damage the market that the mon
ey he saved by not helping the rival firm would just as soon be lost anyway. Extending help to CC&C might turn into nothing more than a gesture, without stopping anything, and again losing money that belonged to others.

  “Holy shit,” the chairman breathed, turning to look out the windows. One of the nicknames for the house was “the Thundering Herd.” Well, the herd was sure as hell thundering now ... He measured his responsibility to his stockholders against his responsibility to the whole system upon which they and everyone else depended. The former had to come first. Had to. There was no choice. Thus one of the system’s most important players flung the entire financial network over a cliff and into the waiting abyss.

  Trading on the floor of the exchange stopped at 3:23 P.M., when the Dow achieved its maximum allowable fall of five hundred points. That figure merely reflected the value of thirty stock issues, and the fall in others well exceeded the benchmark loss of the biggest of the blue chips. The ticker took another thirty minutes to catch up, offering the illusion of further activity while the people on the floor looked at one another, mostly in silence, standing on a wood floor so covered with paper slips as to give the appearance of snow. It was a Friday, they all told themselves. Tomorrow was Saturday. Everyone would be at home. Everyone would have a chance to take a few deep breaths and think. That’s all that had to happen, really, just a little thought. None of it made sense. A whole lot of people had been badly hurt, but the market would bounce back, and over time those with the wit and the courage to stand fast would get it all back. If, they told themselves, if everyone used the time intelligently, and if nothing else crazy happened.

  They were almost right.

  At the Depository Trust Company, people sat about with ties loose in their collars, and made frequent trips to the rest-rooms because of all the coffee and soda they’d drunk on this most frantic of afternoons, but there was some blessing to be had. The market had closed early, and so they could start their work early. With the inputs from the major trading centers concluded, the computers switched from one mode of operation to another. The taped recordings of the day’s transactions were run through the machines for collation and transmission. It was close to six in the evening when a bell sounded on one of the workstations.

  “Rick, I’ve got a problem here!”

  Rick Bernard, the senior system controller, came over and looked at the screen to see the reason for the alert bell.

  The last trade they could identify, at exactly noon of that day, was for Atlas Milacron, a machine-tool company flying high with orders from the auto companies, six thousand shares at 48½. Since Atlas was listed on the New York Stock Exchange, its stock was identified by a three-letter acronym, AMN in this case. NASDAQ issues used four-letter groups.

  The next notation, immediately after AMN 6000 48½, was AAA 4000 67⅛, and the one under that AAA 9000 51¼. In fact, by scrolling down, all entries made after 12:00:01 showed the same three-letter, meaningless identifier.

  “Switch over to Beta,” Bernard said. The storage tape on the first backup computer system was opened. “Scroll down.”

  “Shit!”

  In five minutes all six systems had been checked. In every case, every single trade had been recorded as gibberish. There was no readily accessible record for any of the trades made after twelve noon. No trading house, institution, or private investor could know what it had bought or sold, to or from whom, or for how much, and none could therefore know how much money was available for other trades, or for that matter, to purchase groceries over the weekend.

  20

  Strike Three

  The party broke up after midnight. The official entertainment was a sort of ballet-in-the-round. The Bolshoy hadn’t lost its magic, and the configuration of the room allowed the guests to see the dancers at much closer hand than had ever been possible, but finally the last hand had been clapped red and hurt from the encores, and it was time for security personnel to help their charges to the door. Nearly everyone had a roll to his or her walk, and sure enough, Ryan saw, he was the most sober person in the room, including his wife.

  “What do you think, Daga?” Ryan asked Special Agent Helen D’Agustino. His own bodyguard was getting coats.

  “I think, just once, I’d like to be able to party with the principals.” Then she shook her head like a parent disappointed with her children.

  “Oh, Jack, tomorrow I’m going to feel awful,” Cathy reported. The vodka here was just too smooth.

  “I told you, honey. Besides,” her husband added nastily, “it’s already tomorrow.”

  “Excuse me, I have to help with JUMPER.” Which was the Secret Service code name for the President, a tribute to his paratrooper days.

  Ryan was surprised to see an American in ordinary business attire—the formal dinner had been black-tie, another recent change in the Russian social scene—waiting outside the doors. He led his wife over that way.

  “What is it?”

  “Dr. Ryan, I need to see the President right away.”

  “Cathy, could you stay here for a second.” To the embassy official: “Follow me.”

  “Oh, Jack ...” his wife griped.

  “You have it on paper?” Ryan asked, holding his hand out.

  “Here, sir.” Ryan took the fax sheets and read them while walking across the room.

  “Holy shit. Come on.” President Durling was still chatting with President Grushavoy when Ryan appeared with the junior man in his wake.

  “Some party, Jack,” Roger Durling observed pleasantly. Then his face changed. “Trouble?”

  Ryan nodded, adopting his Advisor’s face. “We need Brett and Buzz, Mr. President, right now.”

  “There they are.” The SPY-1D radar on Mutsu painted the forward edge of the American formation on the raster screen. Rear Admiral—Shoho—Sato looked at his operations officer with an impassive expression that meant nothing to the rest of the bridge crew but quite a bit to the Captain—Issa—who knew what Exercise DATELINE PARTNERS was really all about. Now it was time to discuss the matter with the destroyer’s commanding officer. The two formations were 140 nautical miles apart and would rendezvous in the late afternoon, the two officers thought, wondering how Mutsu’s CO would react to the news. Not that he had much choice in the matter.

  Ten minutes later, a Socho, or chief petty officer, went out on deck to check out the Mark 68 torpedo launcher on the port side. First opening the inspection hatch on the base of the mount, he ran an electronic diagnostic test on all three “fish” in the three-tube launcher. Satisfied, he secured the hatch, and one by one opened the aft hatches on each individual tube, removing the propeller locks from each Mark 50 torpedo. The Socho was a twenty-year veteran of the sea, and completed the task in under ten minutes. Then he lifted his tools and walked over to the starboard side to repeat it for the identical launcher on the other side of his destroyer. He had no idea why he had been ordered to perform the tasks, and hadn’t asked.

  Another ten minutes and Mutsu went to flight quarters. Modified from her original plans, the destroyer now sported a telescoping hangar that allowed her to embark a single SH- 60J antisubmarine helicopter that was also useful for surveillance work. The crew had to be roused from sleep and their aircraft preflighted, which required almost forty minutes, but then it lifted off, first sweeping around the formation, then moving forward, its surface-scanning radar examining the American formation that was still heading west at eighteen knots. The radar picture was downlinked to flagship Mutsu.

  “These will be the two carriers, three thousand meters apart,” the CO said, tapping the display screen.

  “You have your orders, Captain,” Sato said.

  “Hai, ” Mutsu’s commander replied, keeping his feelings to himself.

  “What the hell happened?” Durling asked. They had assembled in a corner, with Russian and American security personnel to keep others away.

  “It looks like there was a major conniption on the Street,” Ryan replied, having had the
most time to consider the event. It wasn’t exactly a penetrating analysis.

  “Cause?” Fiedler asked.

  “No reason for it that I know about,” Jack said, looking around for the coffee he’d ordered. He needed some, and the other three men needed it even more.

  “Jack, you have the most recent trading experience,” Secretary of the Treasury Fiedler observed.

  “Start-ups, IPOs, not really working the Street, Buzz.” The National Security Advisor paused, gesturing to the fax sheets. “It’s not as though we have a lot to go on. Somebody got nervous on T-Bills, most likely guess right now is that somebody was cashing in on relative changes between the dollar and the yen, and things got a little out of hand.”

  “A little?” Brett Hanson interjected, just to let people know he was here.

  “Look, the Dow took a big fall, down to a hard floor, and there are two days for people to regroup. It’s happened before. We’re flying back tomorrow night, right?”

  “We need to do something now,” Fiedler said. “Some sort of statement.”

  “Something neutral and reassuring,” Ryan suggested. “The market’s like an airplane. It’ll pretty much fly itself if you leave it alone. This has happened before, remember?”

  Secretary Bosley Fiedler—“Buzz” went back to Little League baseball—was an academic. He’d written books on the American financial system without ever having actually played in it. The good news was that he knew how to take a broad, historical view on economics. His professional reputation was that of an expert on monetary policy. The bad news, Ryan saw now, was that Fiedler had never been a trader, or even thought that much about it, and consequently lacked the confidence that a real player would have had with this situation, which explained why he had immediately asked Ryan for an opinion. Well, that was a good sign, wasn’t it? He knew what he didn’t know. No wonder everybody said he was smart.