6
THE chateau sat in a valley near the base of Mount Pilatus just south of Lucerne and only a short train ride from Zurich. Although the forty-room mansion looked as if it had dominated the landscape for generations, it had been constructed only five years earlier. With traditional steeply pitched slate roofs and countless gables and chimneys, the structure was storybook beautiful. The circular drive curved around an enormous marble fountain decorated with a dozen nymphs who poured water into the clear pool from filigreed urns.
Around the main house were several stone outbuildings to make the estate look like it had once been a working farm. In the surrounding alpine meadows, brown Jersey cows sporting bronze bells kept the fields trimmed and fertilized.
Seven dark limousines were ranked in a parking annex next to the garage, and behind it lay an enclosed field where a pair of Aerospatiale Gazelle helicopters sat, their pilots drinking thermos coffee in the cockpit of one of the executive choppers.
The summit meeting of European finance ministers in Zurich drew little media attention, since nothing much was expected of the gathering. However, it provided an excuse for the men meeting at the chateau to be in the same city at the same time. They met in the mansion’s great hall, a lofty two-story room paneled in oak and decorated with boar and stag heads and large Swiss horns crossed over the walk-in fireplace.
As Switzerland is one of the world’s great banking centers, it was little wonder that with one exception the fifteen men represented some of the largest banking concerns in Europe and America.
At the head of the table sat Bernhard Volkmann. Raised Catholic in a strict household run by his banker father, Volkmann had forsaken his religion early in life for another, that of wealth. Currency had become his god, cash his Eucharist. He was a high priest in the world of finance, respected for his dedication and a little feared for his uncanny instincts. Every action of every day went toward the accumulation of more money, for his bank and for himself. Volkmann had a wife because it was expected of him and three children because he’d allowed himself to sleep with her on a half-dozen occasions. He considered them a necessary distraction from his professional life but could not recall any of their birthdays or the last time he’d even seen his youngest, a twenty-year-old student he believed was at the Sorbonne.
Volkmann arrived at his office on Zurich’s Bahnhofstrasse at six each morning and left at eight each night. This routine varied begrudgingly on Sundays and holidays when he would work out of his home for at least twelve hours a day. Volkmann neither drank nor smoked and would be no more likely to enter a casino than a Muslim would become a swineherd. At sixty, he was paunchy and almost uniformly gray. His skin was the same washed-out shade as his hair, and behind his glasses his eyes were the murky color of dishwater. He even took to wearing gray suits, and though his shirts were white, they invariably took on his gray cast.
Those who worked for him had never seen Volkmann smile, much less laugh, and only a severe financial upheaval would elicit a slight downward tug at the corners of his mouth.
Around him were similarly severe men whose dedication to money was no less intense. They were presidents of banks whose decisions affected billions of dollars and millions of lives. And today they were gathered because the very foundation of the world’s economy was about to crumble.
On the table in front of Bern Volkmann a simple black cloth covered a small rectangular object. When the men were settled around the table, water poured, and attendants withdrawn, Volkmann reached out and pulled away the cloth.
The bankers and their guest were among a handful of people in the world who wouldn’t noticeably react to the object on the table. Yet Volkmann saw that even these seasoned professionals couldn’t mask all emotion. A few drew shallow breaths, one contemplatively stroked his chin. Another’s eyes widened for an instant, then the person glanced around as if he’d given a tell in a poker game. The six billion other people on the planet would have gasped in wonder and rushed to touch the object as their minds filled with possibilities.
The trapezoidal bar weighed twenty-seven pounds and was known as a London Good Delivery. Its facets radiated a warm buttery yellow, and it possessed an almost oily sheen in the subtle lighting of the great hall. Refined to 99.9 percent, the ingot of pure gold was worth approximately one hundred sixty thousand dollars.
“Gentlemen, we have a crisis,” Volkmann began in accentless English. He spoke crisply, enunciating every word so there could be no confusion or misinterpretation. “As you are all aware, the world will run out of gold very shortly. In fact, demand far outstrips supply for a very simple reason. Some of you became greedy.
“Starting more than a decade ago many of you approached your country’s central banks with a proposition that at the time seemed profitable for everyone concerned. You, as bankers, would borrow the gold held on deposit with the promise to repay at one-quarter percent interest. The gold, as it sat in vaults in New York, Paris, London, and elsewhere, had no value so long as it was kept out of circulation. By paying a quarter point you would make the gold work for the central banks as it never had in the past.
“Had it ended there, we would not be facing a crisis. But it did not end. You turned around and either sold the gold on the open market or used the value of your holdings as leverage and collateral for other ventures. In essence you pledged or sold a commodity you had only the right to borrow. The central banks gave tacit approval to this action yet maintained the right to recall the gold at any time. Had this scheme taken place in only one country or on a small scale, there would remain enough surplus gold on the market to cover such a call.
“However, your greed got the best of you all. As it stands today, twelve thousand tons of gold valued at one trillion euros is on the books of central banks but is, in fact, on the fingers and around the necks of women all over the world. In a word, gentlemen, it is beyond redemption.
“Several central banks are aware of the situation and continue to accept their quarter percent on the gold’s value, but some are asking for the gold’s return. Two years ago the French national bank announced they were going to sell some of their reserves. We got together to finance the purchase of enough gold to replenish their treasury so the sale could go through. As you recall, the price of gold rose fifty euros in just a few weeks when traders realized such buying was taking place. The French then sold their gold, and the price stabilized once again. Our scramble to cover the call cost us nearly a billion euros. We told our stockholders it was a one-time charge-off, but in truth it is a charge-off we will face any time a central bank calls in their assets.”
“Bern, we don’t need a history lesson,” a New York banker said testily. “If you look around you’ll see there’s a few familiar faces missing because they were canned by their boards of directors.”
“Being ‘canned by their boards’ as you put it, Mr. Hershel, is now the least of our worries.” Volkmann gave the American a stare that silenced any follow-up rejoinder.
“Banking is a business of trust,” he continued. “A worker cashes his paycheck, spends what money he needs to survive, and trusts a bank to hold the rest. What happens to it afterward is frankly beyond his understanding or threshold of interest. He has done his job of converting labor to capital and trusts us to do our job of maximizing that capital. We lend it to entrepreneurs who build new businesses to employ more workers to transform more labor into more capital in a system that has worked well for centuries.
“But what happens when that trust is abused? Surely there have been banking scandals in the past; however, what we now face is a crisis of confidence of unprecedented proportions. The store of capital that governments use to assure their people of the country’s strength, their gold reserves, has been sold off for what is in essence an IOU that can no longer be paid. We cannot honor our promise to the central banks. Even if we had the money to buy the gold to return to the central banks, there isn’t enough of it in the world to cover what we owe.”
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br /> “Production can be increased to buy us the time to fill a call order.” This from an Englishman in a Savile Row suit.
“It can’t.” The answer was short and blunt, like the person who gave it. He, too, had an accent, somewhat British in nature but with a Colonial twang.
“Mr. Bryce, would you care to explain.”
Bryce stood. Unlike the others, he had tanned, weathered skin, and his blue eyes were hidden behind a permanent squint. His hands were large, with swollen knuckles. He was someone who’d worked to obtain his wealth, toiled in ways the bankers could never understand.
“I’ve been chosen to represent South Africa’s mining concerns here,” Bryce said. “Mr. Volkmann told me what we were to discuss, so I talked with my people beforehand to give you accurate information. Last year South Africa produced about thirty-four hundred tons of gold at a cost of around two hundred and eighty dollars an ounce. This year we project the same tonnage but at a price of three hundred and eighteen dollars an ounce. Labor costs have risen since the end of apartheid because of the power of the trade unions, and we’re under heavy pressure to sign a new contract that’s even more generous.”
“Don’t give in to them,” the president of Holland’s biggest bank interjected.
Bryce shot him a look. “Hard rock mining isn’t assembly line work. It takes years of training to become proficient. A strike now would cripple us all, and the unions know it. They see gold trading near five hundred an ounce and know the mines aren’t losing money.”
“Can you increase production?” Another at the table asked.
“Our mines are two miles deep now. Every level we sink farther is a geometric increase in cost. It’s like building a skyscraper. To make it taller you can’t simply add a floor to the top. You must first reinforce the foundation and the structure. You must make sure the elevators can reach and that your water and sewer lines can take the additional capacity. Adding a floor to the top, architects say, costs as much and is as difficult as slipping a new floor under an existing building. Every new level we dig in our deepest mines costs two to three times as much to excavate as the one above it. We could get the gold, sure, but the expense far outweighs the profit.”
“Then we need to find alternative sources of bullion. Russia perhaps? Canada? The United States?”
“Not enough capacity to make a dent in the shortfall,” Volkmann answered. “Also, environmental protections in North America add a thirty to forty dollar premium per ounce.”
“What about exploration? We develop new mines, maybe bring order to the chaotic gold mines of Brazil so they can increase production.”
“Even with the latest equipment and management, the veins in Brazil aren’t big enough to fill an armored car in a year,” Bryce replied. “And as for exploration, there are gold reefs out there. We even know where some of them are. It would take years just to cut through the bureaucracy to stake claims, and then you’d need to invest billions of dollars to bring any of them up to the production levels you gentlemen require.”
“Then the solution is simple,” a Frenchman said into the short silence following Bryce’s gloomy assessment. “We must convince the central banks to never call in their reserves. Perhaps we could promise them a greater interest rate to ensure their cooperation.”
“That’s just a temporary fix,” said another New Yorker. “We can’t run from our obligation forever.”
“But if we have time to refill the central banks’ coffers, we can maintain price stability and avoid what happened when my country announced their sale.”
“And when the Wall Street Journal breaks this story,” the New Yorker countered, “what then? People are going to demand to see the gold their government promised them existed. Joe Six-Pack thinks there’s a vault at Fort Knox brimming with the stuff. He’s not going to be too happy when he learns it’s empty except for a bunch of worthless promissory notes. He’s going to panic because his government lied about the one thing it never had in the past, the surety of the greenback.”
“Which is precisely why I said earlier this is a crisis of unprecedented proportions,” Volkmann said. “We have removed the foundation of the capitalist system, and as soon as the public learns of this, it is going to crash down like a card house.”
The Swiss banker paused, scanning the room. He saw that he had their attention, and he could tell by the dour expressions that some of them already anticipated what he was about to say, even if they didn’t know the specifics. He sipped from a glass of water before continuing. “For the past six years Germany has embarked on a series of failed economic policies. The result has transformed the country from Europe’s industrial engine into something akin to a welfare state. Productivity is down, unemployment is at the ceiling allowed by the EU, and shortly the government will face the likelihood that it will default on their overly generous pensions. In a word, Germany is about to go bankrupt. I learned two weeks ago that they are going to sell all of their gold stock.”
The collective gasp was the sound of men realizing they were facing the abyss.
“That is six thousand tons, gentlemen — or roughly two years’ worth of South Africa’s production. As it stands there are only two thousand tons on reserve in Berlin and Bonn. We have to make up a four-thousand-ton shortfall.”
“How soon?” the Frenchman asked, having lost his earlier bluster.
“I’m not certain,” Volkmann replied. “In order to keep prices stable I suspect it will be over some time.”
“But not enough,” the New Yorker muttered.
“And keep in mind,” Volkmann went on doggedly, piling disaster on top of disaster, “if commodity traders realize the bind our banks are in, they will gouge us, and prices might double or even triple.”
“We are ruined,” the banker from Holland cried. “All of us. Even if the Germans accepted currency, we could not repay. The money we made selling the gold has already been lent to others. We would have to recall loans, all of our loans. It would ruin the Dutch economy.”
“Not just yours,” the banker named Hershel said. “We bought and sold twenty billion dollars’ worth of German bullion, and a good chunk of that evaporated during the dot-com implosion. We would have to deplete our savings-holders’ accounts to pay it back. There would be runs on banks all over the United States. It would be the Great Depression all over again.”
A despondent silence enveloped the room as they considered those words. These men were too young to recall the Depression that enveloped the world in the 1920s and ’30s, but they’d heard firsthand accounts from grandparents and other relatives. But this time would be much worse, because the global economy was so interconnected. A few even thought beyond their own losses and those of their home countries. With nations struggling to provide for their own people, international aid would end. How many people in developing nations would die because the men at this table had sold borrowed gold in order to fatten their profit ledgers?
Suddenly the sleek corporate high rollers were as gray as Bernhard Volkmann.
“Is there any way to dissuade the Germans?” one asked after a few moments.
“We can try,” another answered, “but they have to look after their own interests. They need their gold back, or they’ll face insolvency and possible rioting, maybe insurrection.”
Volkmann allowed the conversation to continue for a few minutes on its own as the bankers bandied ideas of how to save themselves, their banks, and the world. In the end they had no answers. It was as the talk died down to silence once again that he asked the South African mine representative, Bryce, to leave the room.
When the door closed behind him, the bankers gave their undivided attention to Volkmann. He remained silent until someone finally asked the question they all prayed he could answer.
“Did you call us here because you have a solution?” asked the English CEO of the world’s sixth-largest bank.
“Yes,” Volkmann replied simply and almost felt their relieved sighs on
his skin. He tapped a text message on his PDA and a moment later the great hall’s doors swung open again. The man who entered strode in with a sense of confidence that the bankers would never admit they only possessed as a front, camouflage to hide their insecurities. He moved loose-limbed and with his head high. He was their age, early fifties, perhaps a little younger. It was hard to tell. His face was unlined, but his eyes seemed old and his bristle-cut hair was more silver than brown. Unlike the bankers, he didn’t have the self-satisfied smugness of entitlement, the sense of superiority that came with the illusion of wealth and power. He was simply a presence, an undeniable force that had entered their meeting and seemed the center without having to utter a word.
“Gentlemen,” Volkmann said as the stranger took a seat next to the Swiss. “This is Anton Savich, formerly of the Soviet Bureau of Natural Resources. He is now a private consultant.”
No one said a word or made a move. None could fathom the presence of a former Russian functionary.
“I’ve known something like this was coming for some time and secretly made plans,” Volkmann continued. “There can be no argument about what I propose, nor any dissent. This is our only option, and when I am finished, each of you will agree to it without reservation. Mr. Savich will outline the particulars.”
Without getting to his feet, speaking casually with an arm draped over the back of his chair, Anton Savich told them how he was going to save their banks. It took ten uninterrupted minutes and left the faces of the other men with a mixture of shock, anger, and outright revulsion. The Dutch banker looked like he was going to be physically ill. Even the tough New Yorkers, one of whom Volkmann knew had fought in Vietnam, had gone ashen.
“There is no other way, gentlemen,” Bern Volkmann said. No one could actually agree orally. Volkmann passed his gaze from man to man, meeting their eyes, and knew he had their assent when they either looked away or gave an almost imperceptible nod. The last was the Dutchman. He gave a weak moan at the thought of what he was agreeing to and dipped his eyes.
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