Trigger Point

by Matthew Glass

  Qin seemed sure that Knowles could get other banks to pay the sum that Hu demanded. Zhang himself was not so certain. Knowles’ words on the phone had not sounded like those of a man who had an alternative. But even if he did not save the bank, Bai said there would be no collapse. A short panic, but not a collapse. That would be enough to explain the tone of seriousness, if not desperation, that had been in Knowles’ voice. He feared a big loss at his election. But there was nothing for China to fear in this, or in a short panic. And why should the American president expect his assistance? It was one thing to deliberately set out to harm someone, another merely to decline to help. He had not set out to harm. The circumstances had arisen fortuitously. And helping, it turned out, would harm Zhang himself. It would give ammunition to Fan. Whereas declining to help would show Xu and those who were undecided that China’s real strength lay in its economic power, not in the missiles that Fan kept building.

  But even Bai could be wrong. That was the one thing that worried him. A panic could turn into a collapse. There was a risk.

  Zhang was not a great gambler. He preferred a certainty to a risk.

  Yet it was also a certainty that he would have to find a way, soon, to deal with General Fan.

  And Bai had seemed very sure.

  Zhang thought about it.

  He looked at his watch.

  He had to make a decision, he knew. Time was passing. The American markets would soon be open.

  26

  THE ANNOUNCEMENT CAME just after eight-thirty. Ed Grey was on the phone to a client in Paris, feet up on his desk, gazing out the window at the office block opposite. Tony Evangelou opened his door and looked in. Ed turned and shooed him away. Tony pointed to one of the screens on Ed’s wall. Ed looked. The sound was muted, but a headline on the screen told him all he needed to know.

  He stared.

  His client was talking, but Ed wasn’t listening. ‘Gilles,’ he said, ‘I’m going to have to call you back. Gilles, I’m sorry, I’ll get back to you.’

  The headline was still there at the bottom of the screen.

  FIDELIAN BANK FILES FOR BANKRUPTCY.

  Evangelou was watching him.

  Grey sat. He was numb. All he could think about was that he had closed out his short positions a week earlier. For a moment, the knowledge of what he had done completely froze his brain.

  He got up and left his office.

  A tense, eerie stillness hung over the funds desk. The managers and analysts were staring at a screen high up on the wall above the room. An interview was going on between an anchor and a reporter on a street somewhere in the financial district. A minute later it cut to a pundit in the studio.

  ‘Anyone said why they’re doing this?’ asked Grey.

  ‘Writedowns on developing markets businesses,’ said Maria Lomax. ‘And a bunch of other stuff. They can’t raise the capital to cover it.’

  ‘Twenty-three billion,’ said Boris Malevsky. He was pale.

  Grey looked at him. ‘Twenty-three?’

  ‘The Chinese should be giving it to them,’ said Malevsky. ‘I don’t understand this.’

  The chairman of the Fed was on the screen. Ron Strickland looked worn out, haggard.

  ‘This is a serious development that will doubtless have short-term consequences for our banking system. But the point is, we have a fundamentally sound system, we have a wind-up facility in place to deal with this bank in an orderly fashion, and we stand ready to put liquidity into the market to ensure that the effects of the failure of this one bank are contained and that we don’t have a credit squeeze as a result. This is one bank. Let me repeat that, this is one bank. This is not a repeat of 2008. We do not have a string of other banks where we’re going to be seeing problems. I’m very confident of that and the safeguards, in any case, are all in place. We’ve learned an awful lot–’

  ‘Shut the fuck up!’ yelled Evangelou. He tore off a shoe and threw it at the screen. ‘Who the fuck’s gonna believe a word you say?’

  Grey’s mind tried to process what he was hearing. How could the Fed not have known what was going to happen? This was the first bankruptcy of a major investment bank since Lehman Brothers in 2008. It had become an article of faith that that would never be allowed to happen again. The fatal error with Lehman was that the government had refused to provide support to ensure that a rescue could be arranged. When Wall Street had refused to rescue Lehman without it, the government had stepped back and let it fail. The unwritten rule was that would never happen again.

  Grey looked at one of the screens on the desk showing stock prices. One by one, like bubbles popping, the numbers were turning red.

  Suddenly he was conscious of all the eyes in the room looking in his direction.

  They were in the realm of a vanishingly low probability event. Anything could happen. His mind began to race. The Fed was almost certainly going to drop interest rates, probably that morning. Bond prices would rise. The dollar would fall. This was going to affect just about every asset class they owned, in developed and developing markets, in equities, in bonds, in currency, in derivatives of all kinds.

  ‘You,’ he said to a couple of analysts. ‘Work the model. Assume rates go down twenty-five basis points, fifty, a hundred. Take the Dow down ten per cent, twenty, fifty. Get the correlations.’

  He thought a moment longer. Whatever happened longer term – and right now, that meant days – just about every market in the world except bonds was going to fall over the next few hours. Anything you could offload now, you’d be able to buy back cheaper tomorrow.

  Every manager in the room was watching him. The three guys who worked the trading desk, executing trades as the managers instructed them, were waiting, phones in hand.

  ‘Whatever you’ve got,’ said Grey, ‘sell.’

  But he wasn’t the only one who was saying it. Out of thousands of offices just like Red River’s, from thousands of portfolio managers, a tsunami-sized wave of sell orders was roaring towards the market.

  ED GREY SPENT the next couple of hours on the phone, talking to whoever he could talk to, trying to find out what he could discover. So was everyone else. No one knew anything. No one could understand why a bailout hadn’t been arranged. Rumors were flying through the market about the full extent of Fidelian’s losses and other banks that were under threat. A number of banks had been forced to issue statements denying that they faced a liquidity crunch, which did about as much as it always did to reassure the markets. Their stocks were down fifteen, twenty per cent and falling. As he spoke, Grey kept one eye on the prices on the screens in his office. He watched them plunging. Even with only half a mind on the numbers, he figured he would have been a billion to the good if he hadn’t closed out his short positions the previous week. Now he was almost exclusively long in a market that was falling faster than a brick. He thought of the four hundred fifty million in cash he had realized from the closure of the Fidelian trade and could almost visualize it, in his mind, draining away, like sand out of an hourglass, when the banks began calling the margins. Any minute now the calls were going to start coming in. His chief financial officer was in and out of his office a half dozen times as he tracked the positions.

  And then came the second shock of the morning, another headline on a screen.

  FIDELIAN BAILOUT REJECTED CLAIMS ANONYMOUS SOURCE.

  Grey got off the phone and turned up the volume.

  ‘… but it certainly seems that way,’ a female reporter was saying. ‘The claim was apparently made by an anonymous source on Wall Street who claims to have had access to individuals personally involved in the negotiation, Dick.’

  The picture cut back to the studio anchor. ‘And when was this, Andrea?’

  ‘Over the weekend. Apparently a meeting took place here in New York at the Fed headquarters involving Fed officials and Wall Street’s most powerful CEOs and a conclusion was reached in the early hours this morning. Sounds like a classic Wall Street rescue operation, Dick.’ />
  ‘Which didn’t come off?’

  ‘Apparently not. According to this source, considerable pressure was placed on the bankers to come up with an acceptable solution and the offer that eventuated is said to have been quite generous, given the state of Fidelian’s finances. We believe there was involvement on the administration side at the very highest level. And yet despite–’

  ‘Andrea, sorry, I don’t mean to interrupt. When you say the very highest level, are you saying the president was involved in this?’

  ‘It doesn’t get any higher, Dick.’

  ‘But are we saying that happened? Andrea, is that what this source is telling us?’

  ‘We don’t have a confirmation or denial of that from the White House. But it does seem that there was significant political involvement in this and that would hardly be surprising given the timing of this event. The midterms are tomorrow and it’s impossible to imagine there won’t be a huge impact from this, Dick.’

  ‘We’ll look at the political ramifications later, but is there anything more you can tell us right now about the way this evolved?’

  ‘The package was apparently rejected by Fidelian Bank shortly before it filed for bankruptcy this morning.’

  Ed Grey watched with a kind of horrified fascination. He had known there must have been a rescue effort. It was impossible to imagine the Fed hadn’t had any inkling of what was about to happen and that the administration wouldn’t have tried to rescue the situation. And yet the rescue deal had been rejected.

  ‘Have we had any word from Fidelian Bank about this, Andrea?’

  ‘No, Dick, we haven’t. CEO William Custler has been keeping a low profile today.’

  ‘More of an invisible profile as I understand it, Andrea.’

  ‘I don’t believe anyone’s had the opportunity to speak with him. We had the bankruptcy announcement from the Fidelian head of communications earlier today and that’s about all as far as I’m aware. There’s been no response from Fidelian to this latest allegation, although we certainly hope to be able to get that as soon as we can, Dick.’

  ‘And is the Fed telling us anything, Andrea?’

  ‘Not as yet, Dick.’

  Grey surfed the channels. It was the same on all of them. He put the screen on mute and thought about what he had heard, watching a reporter silently mouthing his remarks. If this was to be believed, the CEO of Fidelian Bank had turned down a rescue offer in favor of filing for bankruptcy. Yet he and his board had a fiduciary duty to get the best deal for his shareholders. Grey frowned. How low was the offer if they were better off taking bankruptcy? That didn’t make sense. Surely the administration wouldn’t have allowed an offer that low to go forward. Not if they wanted to see a rescue done. Not on the day before the midterms. Every Republican candidate in the country would pay for it.

  Anyway, this was a bank. An investment bank. A significant one. It couldn’t be allowed to go bust. A deal had to be done.

  Something didn’t add up. Assuming the offer wasn’t insultingly low, who would have rejected it?

  Suddenly Ed Grey remembered Susan Opitz’s words on the phone when they had spoken. ‘Who’s lending the stock?’ she had asked. ‘Who’s lending it, Ed?’

  Grey felt a tingle down his spine. He knew who the major shareholder in Fidelian Bank was.

  He called in Tony Evangelou.

  ‘What’s happening?’ he asked.

  Evangelou shook his head. ‘If you can find me a buyer out there I’d like to know about it.’

  ‘Listen, I want you to get a couple of analysts on something. Take our US stocks and get them to give me a list of every one that has significant shareholdings by sovereign investment funds.’

  ‘That’ll probably be just about all of them.’

  ‘Let’s find out if it is. And how much they own. And Tony, make sure we find out which ones are owned by the Chinese.’

  27

  TOM KNOWLES HAD never known an election day like it. A vote held within hours of a major crisis breaking, without enough time for anyone to sit back and ask what it really meant, how serious it really was, how bad it was going to get. An election in the grip of panic. The headlines that morning had been unbelievable. Markets were falling. The press was hysterical.

  Knowles spent the day in meetings with his economic advisors and senior Republican politicians and on the phone to foreign leaders. Markets were taking a hit around the globe and the confidence laboriously reconstructed in the wake of the Chinese disturbances of 2014 was evaporating as if it had never returned. He gave the same message to all the foreign leaders he spoke to. Fidelian was an isolated instance. The system was sound. Once the markets saw that, the decline would be arrested. He needed them to give that message to their own countries. The more united they could be in rejecting the idea that this was another 2008, the sooner this crisis would start to resolve.

  But that would do nothing to halt the bloodbath that was being perpetrated in voting booths across the nation that day. The polls from the last week were meaningless now. Only night would tell how bad it was.

  In New York, Marion Ellman was scheduled to give her first report to the Security Council on the progress of Jungle Peace. She read the words that had emerged from the tortuous joint drafting process by the Pentagon and the State Department. Progress was steady, interdiction was solid. A number of combatants had emerged from the jungle and surrendered, and were being held in Ugandan detention camps while their cases were assessed. Depredations against the civilian population in the surrounding areas had declined markedly. She gave figures to prove it. The Security Council ambassadors listened quietly. There were few questions. It was as if everyone in the room was aware that the great events of the day were taking place outside the building, in the trading rooms on Wall Street, in voting booths in school halls and municipal buildings and community centers across the country.

  Sixteen Manhattan blocks away, Ed Grey spent the day trying to staunch the hemorrhage in his funds. His traders struggled to push money out of stocks into bonds, the prices of which were rocketing as investors fled equities. He worked the phones to his major clients, one after the other, dissuading them from redeeming their investments, reminding them that Red River always took a six to twelve month view of the market, telling them they would merely realize losses they could avoid if they redeemed now instead of holding on for the market to recover. He tried to keep the desperation out of his voice. He spoke to the banks throughout the day, beseeching them to hold off on margin calls that would force him to sell even more assets into a falling market. There were amazing buying opportunities as the markets marked down good stocks along with bad in their general panic but Grey was in no position to take advantage of them. He watched them floating by in front of his eyes, as if on a river of blood, unable to touch them.

  THAT NIGHT, TOM KNOWLES was due as guest of honor at a dinner for Republican Party grandees. When the event had first been arranged, in the days when the Republicans had looked to be cruising to their first sixty-plus majority in the Senate since 2004, it had been conceived as an election-night celebration. Instead, it was going to be a wake. Many of the attendees had voted in their home states that morning and were flying in to be at the dinner with the prospect of a loss that appeared likely to put the number of Republican senators down towards fifty. There was even an outside chance the party would lose its majority.

  At six o’clock that evening, Tom Knowles sat down in the Oval Office with Josh Bentner, his chief speechwriter, and Ed Abrahams to look over the speech he would be giving.

  Bentner had spent just about the whole day on it. The speech was meant to be only about fifteen minutes long but even for a speechwriter as talented as him it was a challenge. He had shown Abrahams five drafts during the day and each time it wasn’t right. Knowles had considered canceling his attendance, but Ed Abrahams was dead set against that. He thought it would be seen as an act of cowardice that would seriously damage him within the party. But how m
uch responsibility should he take? How much blame should he volunteer to shoulder? The truth was, Knowles felt that his responsibility for the implosion of Fidelian and the collapse it had inflicted on the markets over the last couple of days was minimal, if there was any responsibility there at all. There was no failure of regulation, no executive dereliction. He didn’t feel there was much more he could have done. No one could control the markets, not even the president. But the people who would be sitting in the room that night wouldn’t be just any audience. Their opinions, their attitudes, the willingness to put their personal prestige, political networks, time and money behind alternative candidates would play a big part in determining the kind of challenge he would face for the nomination in two years’ time. If this night had delivered sixty Senate seats, he would likely have got the nomination unopposed, a slam dunk, as Ed Abrahams liked to say. It wasn’t going to be a slam dunk now.

  They needed to see humility. It takes a lot to turn a party against an incumbent president, but perceived arrogance in the face of defeat is one of the things that will do it. They also needed to see that he envisaged a way out. If a movement wasn’t going to start right now at the highest level of the party to put forward an alternative candidate for the nomination, they needed to feel strongly that in six months’ time the turmoil on the markets was going to look like a transient blip, not the turning point that ended eleven successive quarters of economic growth. Acknowledge some level of responsibility without tainting yourself as an electoral liability. Give a strong, positive view of the future without trivializing what had had happened that very day.

  He picked up the latest draft of the speech and began to work on it with Abrahams and Bentner.

  At six o’clock, Marion Ellman was at the traditional Election Day cocktail party given by the American UN representative for foreign ambassadors. She mingled dutifully, feeling like she needed the task of hosting the event about as much as she needed a trip to the dentist. François Dubigny engaged her in one of his flirtatious disquisitions. She excused herself to go talk to the new Saudi Arabian ambassador. Out of the corner of her eye she saw a huddle of Latin American ambassadors. She thought a couple of them were smirking at her. The party was a trial, to say the least.