whole board, technically known as the Open Market Committee, was
grouped around a single computer screen, watching the trend in a collective
mood of disbelief. There was no reason for this chaos that any of them could
identify. Okay, sure, there was the flap over Vice President Kealty, but he
was the Vice President. The stock market had been wavering up and down
for some time due to the lingering confusion over the effects of the Trade
Reform Act. But what kind of evil synergy was this? The problem, they
knew without discussing, was that they might never really know what was
happening. Sometimes there was no real explanation. Sometimes things just
happened, like a herd of cattle deciding to stampede for no reason that the
drovers ever understood. When the dollar was down a full hundred basis
points-meaning one percent of value-they all walked into the sanctity of
their boardroom and sat down. The discussion was rapid and decisive. There
was a run on the dollar. They had to stop it. Instead of the half-point rise in
the Discount Rate they had planned to announce at the end of the working
day, they would go to a full point. A strong minority actually proposed more
than that, but agreed to the compromise. The announcement would be made
immediately. The head of the Fed’s public-relations department drafted a
statement for the Chairman to read for whatever news cameras would an-
swer the summons, and the statement would go out simultaneously on every
wire service.
When brokers returned to their desks from lunch, what had been a fairly
calm Friday was something else entirely. Every office had a news board that
gave shorthand announcements of national and international events, because
such things had effects on the market. The notification that the Fed had
jacked up its benchmark rate by a full point shocked most trading rooms to a
full fifteen or thirty seconds of silence, punctuated by not a few Holy shits.
Technical traders modeling on their computer terminals saw that the market
was already reacting. A rise in the discount rate was a sure harbinger of a
brief dip in the Dow, like dark clouds were of rain. This storm would not be
a pleasant one.
The big houses, Merrill Lynch, Lehman Brothers, Prudential-Bache, and
all the rest, were highly automated, and all were organized along similar
lines. In almost every case there was a single large room with banks of com-
puter terminals. The size of the room was invariably dictated by the configu-
ration of the building, and the highly paid technicians were crowded in
almost as densely as a Japanese corporate office, except that in the American
business centers people weren’t allowed to smoke. Few of the men wore
their suit jackets, and most of the women wore sneakers.
They were all very bright, though their educational backgrounds might
have surprised the casual visitor. Once peopled with products of the Harvard
or Wharton business schools, the new crop of “rocket scientists” were just
that-largely holders of science degrees, especially mathematics and phys-
ics. MIT was the current school of choice, along with a handful of others.
The reason was that the trading houses all used computers, and the comput-
ers used highly complex mathematical models both to analyze and predict
what the market was doing. The models were based on painstaking historical
research that covered the NYSE all the way back to when it was a place
under the shade of a buttonwood tree. Teams of historians and mathemati-
cians had plotted every move in the market. These records had been
analyzed, compared with all identifiable outside factors, and given their own
mathematically drawn measure of reality, and the result was a series of very
precise and inhumanly intricate models for how the market had worked, did
work, and would work. All of this data, however, was dedicated to the idea
that dice did have a memory, a concept beloved of casino owners, but false.
You needed to be a mathematical genius, everyone said (especially the
mathematical geniuses), to understand how this thing operated. The older
hands kept out of the way for the most part. People who had learned business
in business schools, or even people who had started as clerks and made their
way up the ladder through sheer effort and savvy, had made way lor the new
generation-not really regretting it. The half-life of a computer jockey was
eight years or so. The pace on the floor was killing, and you had to be young
and stupid, in addition to being young and brilliant, to survive out there. The
older hands who had worked their way up the hard way let the youngsters do
the computer-driving, since they themselves had only a passing familiari/a-
tion with the equipment, and took on the role of supervising, marking trends,
setting corporate policy, and generally being the kindly uncle to the young-
sters, who regarded the supervisory personnel as old farts to whom you ran
in time of trouble.
The result was that nobody was really in charge of anything-except, per-
haps, the computer models, and everyone used the same model. They came
in slightly different flavors, since the consultants who had generated them
had been directed by each trading house to come up with something special,
and the result was prosperity for the consultants, who did essentially the
same work for each customer but billed each for what they claimed was a
unique product.
The result, in military terms, was an operational doctrine both identical
and inflexible across the industry. Moreover, it was an operational philoso-
phy that everyone knew and understood only in part.
The Columbus Group, one of the largest mutual-fund fleets, had its own
computer models. Controlling billions of dollars, its three main funds, Nina,
Pinta, and Santa Maria, were able to purchase large blocks of equities at
rock-bottom prices, and by those very transactions to affect the price of indi-
vidual issues. That vast market power was in turn commanded by no more
than three individuals, and that trio reported to a fourth man who made all of
the really important decisions. The rest of the firm’s rocket scientists were
paid, graded, and promoted on their ability to make recommendations to the
seniors. They had no real power per se. The word of the boss was law, and
everybody accepted that as a matter of course. The boss was invariably a
man with his own fortune in the group. Each of his dollars had the same
value as the dollar of the smallest investor, of whom there were thousands. It
ran the same risks, reaped the same benefits, and occasionally took the same
losses as everyone else’s dollar. That, really, was the only security built into
the entire trading system. The ultimate sin in the brokerage business was to
place your own interests before those of your investors. Merely by putting
your interests alongside theirs, there came the guarantee that everyone was
in it together, and the little guys who had not the barest understanding of
how the market worked rested secure in the idea that the big boys who did
know were looking after things. It was not unlike the American West in the
late nineteenth century, where small cattle ranchers entrusted their diminu-
tive herds to those of the large ranchers for the drive to the railheads.
It was i:50P.M. when Columbus made its first move. Calling his top peo-
ple together, Raizo Yamata’s principal lieutenant briefly discussed the sud-
den run on the dollar. Heads nodded. It was serious. Pinta, the medium-risk
fund of the fleet, had a goodly supply of Treasury notes, always a good park-
ing place in which to put cash in anticipation of a better opportunity for later
on. The value of these notes was falling. He announced that he was ordering
their immediate transfer for Deutschmarks, again the most stable currency in
Europe. The Pinta manager nodded, lifted his phone, and gave the order, and
another huge transaction was made, the first by an American trader.
“I don’t like the way this afternoon is going,” the vice-chairman said
next. “I want everybody close.” Heads nodded again. The storm clouds
were coming closer, and the herd was getting restless with the first shafts of
lightning. “What bank stocks are vulnerable to a weak dollar?” he asked.
He already knew the answer, but it was good form to ask.
“Citibank,” the Nina manager replied. He was responsible for the blue-
chip fund’s management. “We have a ton of their stock.”
“Start bailing out,” the vice-chairman ordered, using the American
idiom. “I don’t like the way the banks are exposed.”
“All of it?” The manager was surprised. Citibank had just turned in a
pretty good quarterly statement.
A serious nod. “All of it.”
“But-”
“All of it,” the vice-chairman said quietly. “Immediately.”
At the Depository Trust Company the accelerated trading activity was noted
by the staffers whose job it was to note every transaction. Their purpose was