Debt Of Honor by Clancy, Tom

have the chance to sleep late.

“You, too, Cathy?” Jack asked. His wife was not normally a heavy

drinker, but tonight she was knocking it back.

“This champagne is wonderful.” It was her first state dinner overseas.

She’d had a good day of her own with local ophthalmic surgeons, and had

invited two of the best, full professors both, to come to the Wilmer Institute

and acquaint themselves with her specialty area. Cathy was in the running

for a Lasker Award for her work with laser surgery, the product of eleven

years of clinical research, and the reason she had not accepted a department

chairmanship twice offered by University of Virginia. Her big paper an-

nouncing the breakthrough would soon be published in NI:.IM, and lor her as

well, this night and this trip were the culmination of many things.

“You’re going to pay for it tomorrow,” her husband warned. Jack was

going easier on all the drinks, though he had already exceeded his normal

nightly limit, which was one. It was the toasts that would do everyone in, he

knew, having been through Russian banquets before. It was just a cultural

thing. The Russians could drink most Irishmen under any table, something

he’d once learned the hard way, but most of the American party either hadn’t

learned that lesson or simply didn’t care this night. The National Security

Advisor shook his head. They’d sure as hell learn it tomorrow morning. The

main course arrived just then, and deep red wine filled the glasses.

“Oh, God, my dress is going to split wide open!”

“That should add to the official entertainment,” her husband observed,

earning a glare from across the table.

“You are far too skinny,” Golovko observed, sitting next to her and giv-

ing voice to another Russian prejudice.

“So how old are your children?” Yelena Golovko asked. Also thin by

Russian standards, she was a professor of pediatrics, and a very pleasant din-

ner companion.

“An American custom,” Jack replied, pulling out his wallet and showing

the pictures. “Olivia-I call her Sally. This is little Jack, and this is our new-

est.”

“Your son favors you, but the girls are the image of their mother.”

Jack grinned. “A good thing, too.”

The great trading firms are just that, but it’s a mystery to the average stock-

holder just how they trade. Wall Street was a vast collection of misnomers,

beginning with the street itself, which is the approximate width of a back

alley in most American residential areas, and even the sidewalks seem

overly narrow for the degree of traffic they serve. When purchase orders

came in to a major house, like the largest of them, Merrill Lynch, the traders

did not go looking, physically or electronically, for someone willing to sell

that particular issue. Rather, every day the company itself bought measured

holdings of issues deemed likely to trade, and then awaited consumer inter-

est in them. Buying in fairly large blocks made for some degree of volume

discounting, and the sales, generally, were at a somewhat higher price. In

this way the trading houses made money on what bookies called a “middle”

position, typically about one eighth of a point. A point was a dollar, and thus

an eighth of a point was twelve and a half cents. Seemingly a tiny margin of

profit for a stock whose share value could be anything up to hundreds of

dollars in the case of some blue chips, it was a margin repeated on many

issues on a daily basis, compounded over time to a huge potential profit if

things went well. But they didn’t always go well, and it was also possible for

the houses to lose vast sums in a market that fell more rapidly than their

estimates. There were many aphorisms warning of this. On the Hong Kong

market, a large and active one, it was said that the market “went up like an

escalator and down like an elevator,” but the most basic saying was ham-

mered into the mind of every new “rocket scientist” on the huge computer-

trading floor of Merrill Lynch headquarters on the Lower West Side:

“Never assume that there is a buyer for what you want to sell.” But every-

one did assume that, of course, because there always was, at least as far back

as the collective memory of the firm went, and that was pretty far.

Most of the trading was not to individual investors, however. Since the

19605, mutual funds had gradually assumed control of the market. Called

“institutions” and grouped under that title with banks, insurance compa-

nies, and pension-fund managers, there were actually far more such “institu-

tions” than there were stock issues on the New York Stock Exchange, rather

like having hunters outnumbering the game, and the institutions controlled

pools of money so vast as to defy comprehension. They were so powerful

that to a large extent their policies could actually have a large effect on indi-

vidual issues and even, briefly, the entire market, and in many cases the “in-

stitutions” were controlled by a small number of people-in many cases,

just one.

The third and largest wave of Treasury-note sales came as a surprise to

everyone, but most of all to the Federal Reserve Bank headquarters in Wash-

ington, whose staff had noted the Hong Kong and Tokyo transactions, the

first with interest, the second with a small degree of alarm. The Eurodollar

market had made things right, but that market was now mainly closed. These

were more Asian banks, institutions that set their benchmarks not in Amer-

ica, but in Japan, and whose technicians had also noted the dumping and

done some phoning around the region. Those calls had ended up in a single

room atop an office tower, where very senior banking officials said that

they’d been called in from a night’s sleep to see a situation that looked quite

serious to them, occasioning the second wave of sales, and that they recom-

mended a careful, orderly, but rapid movement of position away from the

dollar.

U. S. Treasury notes were the debt instruments of the United States gov-

ernment and also the principal retaining wall for the value of American cur-

rency. Regarded for fifty years as the safest investment on the planet, T-Bills

gave both American citizens and everyone else the ability to put their capital

in a commodity that represented the world’s most powerful economy, pro-

tected in turn by the world’s most powerful military establishment and regu-

lated by a political system that enshrined rights and opportunities through a

Constitution that all admired even though they didn’t always quite under-

stand it. Whatever the faults and failings of America-none of them myster-

ies to sophisticated international investors-since 1945 the United States

had been the one place in all the world where money was relatively safe.

There was an inherent vitality to America from which all strong things grew.

Imperfect as they were, Americans were also the world’s most optimistic

people, still a young country by the standards of the rest of the world, with

all the attributes of vigorous youth. And so, when people had wealth to pro-

tect, mixed with uncertainty on how to protect it, most often they bought

U.S. Treasury notes. The return wasn’t always inviting, but the security was.

But not today. Bankers worldwide saw that Hong Kong and Tokyo had

bailed out hard and fast, and the excuse over the trading wires that they were

moving their positions from the dollar to the yen just didn’t explain it all,

especially after a few phone calls were made to inquire why the move had

been made. Then the word arrived that more Japanese banks were moving

out their bond holdings in a careful, orderly, and rapid movement. With that,

bankers throughout Asia started doing the same. The third wave of selling

was close to six hundred billion dollars, almost all short-term notes with

which the current U.S. administration had chosen to finance its spending

deficit.

The dollar was already falling, and with the start of the third wave of sell-

ing, all in a period of less than ninety minutes, the drop grew steeper still. In

Europe, traders on their way home heard their cellular phones start beeping

to call them back. Something unexpected was afoot. Analysts wondered if it

had anything to do with the developing sex scandal within the American

government. Europeans always wondered at the American fixation with the

sexual dalliances of politicians. It was foolish, puritanical, and irrational, but

it was also real to the American political scene, and that made it a relevant

factor in how they handled American securities. The value of three-month

U.S. Treasury notes was already down 19/32 of a point-bond values were

expressed in such fractions-and as a result of that the dollar had fallen four

cents against the British pound, even more against the Deutschmark, and

more still again against the yen.

“What the hell is going on?” one of the Fed’s board members asked. The