by Tom Clancy
"I don't want to make too much of a fool out of myself," Ryan replied.
"It would be difficult for you to do that, my friend," the Russian observed.
"That's because you're not married to him," Cathy noted with a twinkle in her eye.
"Now wait a minute," a bond specialist said to his computer in New York. His firm managed several large pension funds, which were responsible for the retirement security of over a million union workers. Just back from a normal lunch at his favorite deli, he was offering Treasuries at bargain prices on orders from upstairs, and for the moment they were just sitting out there awaiting a buyer. Why? A cautious order appeared from a French bank, apparently a hedge against inflationary pressure on the franc. That was a mere billion, bid at 1 7/32 off the opening value, the international equivalent of armed robbery. But Columbus, he saw, had bitten the bullet and taken the francs, converting them almost instantly into D-marks in a hedge move of its own. Still digesting his corned-beef sandwich, the man felt his lunch turn into a ball of chilled lead.
"Somebody making a run on the dollar?'' he asked the trader next to him.
"Sure looks that way," she answered. In an hour, future options on the dollar had dropped the maximum-allowed limit for a day after having climbed all morning.
"Who?"
"Whoever it is, Citibank just took one in the back. Chemical's sliding, too."
"Some kind of correction?" he wondered.
"Correction from what? To what?"
"So what do I do? Buy? Sell? Hide?" He had decisions to make. He had the life savings of real people to protect, but the market wasn't acting in a way he understood. Things were going in the shitter, and he didn't know why. In order to do his job properly, he had to know.
"Still heading west to meet us, Shoho," Fleet Operations told Admiral Sato. "We should have them on radar soon."
"Hai. Thank you, Issa," Sato replied, an edge on his good humor now. He wanted it that way, wanted his people to see him like that. The Americans had won the exercise, which was hardly a surprise. Nor was it surprising that the crewmen he saw were somewhat depressed as a result. After all the workups and drills, they'd been administratively annihilated, and the resentment they felt, while not terribly professional, was entirely human. Again, they thought, the Americans have done it to us again. That suited the fleet commander. Their morale was one of the most important considerations in the operation, which, the crewmen didn't know, was not over, but actually about to begin.
The event that had started with T-Bills was now affecting all publicly traded bank issues, enough so that the chairman of Citibank called a press conference to protest against the collapse of his institution's stock, pointing to the most recent earnings statement and demonstrable financial health of one of the country's largest banks. Nobody listened. He would have been better advised to make a few telephone calls to a handful of chosen individuals, but that might not have worked either.
The one banker who could have stopped things that day was giving a speech at a downtown club when his beeper went off. He was Walter Hildebrand, president of the New York branch of the Federal Reserve Bank, and second in importance only to the man who ran the headquarters in Washington. Himself a man of great inherited wealth who had nonetheless started at the bottom of the financial industry (albeit living in a comfortable twelve-room condo as he did so) and earned his way to the top, Hildebrand had also earned his current job, which he viewed as his best opportunity for real public service. A canny financial analyst, he had published a book examining the crash of October 19, 1987, and the role played by his predecessor at the New York Fed, Gerry Lornigan, in saving the market. Having just delivered a speech on the ramifications of the Trade Reform Act, he looked down at his beeper, which unsurprisingly told him to call the office. But the office was only a few blocks away, and he decided to walk back instead of calling, which would have told him to go to the NYSE. It would not have mattered.
Hildebrand walked out of the building by himself. It was a clear, crisp day, a good one to walk off some of his lunch. He hadn't troubled himself to use a bodyguard, as some of his antecedents had, though he did have a pistol-carry permit and sometimes used it.
The streets of lower Manhattan are narrow and busy, populated mostly by delivery trucks and yellow-painted taxicabs that darted from corner to corner like drag racers. The sidewalks were just as narrow and crowded. Just walking around meant taking a crooked path, with many sidesteps. The clearest path was most often that closest to the curb, and that is what Hildebrand took, moving as rapidly as the circumstances permitted, the faster to get to his office. He didn't note the presence of another man, just behind him, only three feet, in fact, a well-dressed man with dark hair and an ordinary face. It was just a matter of waiting for the right moment, and the nature of the traffic here made it inevitable that the moment would come. That was a relief to the dark-haired man, who didn't want to use his pistol for the contract. He didn't like noise. Noise attracted looks. Looks could be remembered, and though he planned to be on a plane to Europe in just over two hours, there was no such thing as being too careful. So, his head swiveled, watching the traffic ahead and behind, he chose the moment with care.
They were approaching the corner of Rector and Trinity. The traffic light ahead turned green, allowing a two-hundred-foot volume of automobiles to surge forward another two hundred feet. Then the light behind changed as well, releasing the pent-up energy of a corresponding number of vehicles. Some of them were cabs, which raced especially fast because cabs loved to change lanes. One yellow cab jumped off the light and darted to its right. A perfect situation. The dark-haired man increased his pace until he was right behind Hildebrand, and all he had to do was push. The president of the New York Fed tripped on the curb and fell into the street. The cabdriver saw it, and turned the wheel even before he had a chance to swear, but not far enough. For all that, the man in the camel-hair overcoat was lucky. The cab stopped as fast as its newly refurbished brakes allowed, and the impact speed was under twenty miles per hour, enough to catapult Walter Hildebrand about thirty feet into a steel lightpole and break his back. A police officer on the other side of the street responded at once, calling for an ambulance on his portable radio.
The dark-haired man blended back into the crowd and headed for the nearest subway station. He didn't know if the man was dead or not. It wasn't really necessary to kill him, he'd been told, which had seemed odd at the time. Hildebrand was the first banker he'd been told not to kill.
The cop hovering over the fallen businessman noted the beeper's repeated chirping. He'd call the displayed number as soon as the ambulance arrived. His main concern right now was in listening to the cabdriver protest that it wasn't his fault.
The expert systems "knew" that when bank stocks dropped rapidly, confidence in the banks themselves was invariably badly shaken, and that people would think about moving their money out of the banks that appeared to be threatened. That would force the banks in turn to pressure their lenders to pay back loans, or, more importantly to the expert systems and their ability to read the market a few minutes faster than everyone else, because banks were turning into investment institutions themselves, to liquidate their own financial holdings to meet the demands of depositors who wanted their deposits back. Banks were typically cautious investors on the equity market, sticking mainly to blue chips and other bank stocks, and so the next dip, the computers thought, would be in the major issues, especially the thirty benchmark stocks that made up the Dow Jones Industrial Average. As always, the imperative was to see the trend first and to move first, thus safeguarding the funds that the big institutions had to protect. Of course, since all the institutions used essentially the same expert systems, they all moved at virtually the same time. With the sight of a single thunderbolt just a little too close to the herd, all of the herd members started moving away from it, in the same direction, slowly at first, but moving.
The men on the floor of the exchange knew it w
as coming. Mostly people who received programmed-trade orders, they had learned from experience to predict what the computers would do. Here it comes was the murmur heard in all three trading rooms, and the very predictability of it should have been an indicator of what was really happening, but it was hard for the cowboys just to stay outside the herd try to find a way to direct it, turn it, pacify it and not be engulfed by it. If that happened, they stood to lose because a serious downward turn could obliterate the thin margins on which their firms depended.
The head of the NYSE was now on the balcony, looking down, wondering where the hell Walt Hildebrand was. That's all they needed, really. Everybody listened to Walt. He lifted his cellular phone and called his office again, only to hear from Walt's secretary that he hadn't returned to the office from his speech yet. Yes, she had beeped him. She really had.
He could see it start. People moved more rapidly on the floor. Everyone was there now, and the sheer volume of noise emanating from the floor was reaching deafening levels. Always a bad sign when people started shouting. The electronic ticker told its own tale. The blue chips, all three-letter acronyms as well known to him as the names of his children, were accounting for more than a third of the notations, and the numbers were trending sharply down. It took a mere twenty minutes for the Dow to drop fifty points, and as awful and precipitous as that was, it came as a relief. Automatically, the computers at the New York Stock Exchange stopped accepting computer-generated sell orders from their electronic brethren. The fifty-point mark was called a "speed bump." Set in place after the 1987 crash, its purpose was to slow things down to a human pace. The simple fact that everyone overlooked was that people could take the instructions—they didn't even bother calling them recommendations anymore—from their computers and forward the sell orders themselves by phone or telex or electronic mail, and all the speed bump accomplished was to add another thirty seconds to the transaction process. Thus, after a hiatus of no more than a minute, the trading pace picked up yet again and the direction was down.
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 sei it—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 th
e 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 money 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.
