Chapter 2

But he'd found out the one line that would keep me
listening. He'd somehow discovered I was a deep admirer of the old-time
military strategists of the East--such as Sun Tzu and Miyamoto Musashi.

Like a hostile takeover bid, the ancient Japanese way of

combat was ritualized, as mounted warriors rode out, announced their
lineage (to the SEC?), then matched up with men of equal renown. The
samurai prized flexibility over brute strength; they had steel swords
that handled like scalpels and body armor that was a woven mesh of
lacquered-iron scales laced together in rows to create a "fabric" of
metal. Those weapons and armor made for agile movement, easy feints,
fast changes in strategy--all trademarks of mine on the corporate
takeover battlefield.

As a result, I fancied myself some kind of samurai too. . . .

The question was, how did _Noda _know this?

For some reason just then I glanced over toward Akira Mori. She
appeared to be studying a scroll with the detachment of a Zen monk in
_zazen_ meditation, but she wasn't missing a syllable.

"Care to run through whatever it is you have in mind?" I indicated one
of the ottomans along the side of the room, now clearing as bidders
rose to go inside. I watched as the dark- suited Japanese businessmen
filed past, none with Noda's sense of style, and noticed that several
seemed acquainted with him, pausing to offer obsequious bows.

"With pleasure." He settled himself. Mori, now looking over some
screens, still didn't elect to join us. "First, may I presume you
already know something of Nippon, Inc.?"

"No more than what I gleaned from that package you forwarded. Almost
nothing, really."

He laughed, a flash of even teeth. "Perhaps I should be pleased. These
days too much visibility in the U.S. can sometimes stir up 'friction'."

"Your prospectus indicated you help banks manage capital, so I assume
you're looking to enter the financial picture here."

That was the funny part, recall? There was no indication of any U.S.
action in his prospectus. Yet I knew that, overall, Japan's U.S.
investment, private and public, was in the tens and hundreds of
billions. Pension funds and industries were building factories,
financing corporations, snapping up Treasury paper. Japan had become a
major source of fresh money for the U.S. and for the world. But Nippon,
Inc. wasn't one of the players.

"Yes, we intend to be concerned, initially, with the position of
Japanese capital in the U.S. We are particularly interested in the
matter of Treasury debentures."

That was what anybody would have figured. Just that week the Journal
had noted that Japanese investors were expected to cover half of our
Treasury overdrafts for the year. They were advancing us the bucks to
keep up that spending spree known as the national deficit. They sold us
Toyotas; we sold them federal IOUs, using the proceeds to buy more
Toyotas. In effect they were financing the good life, supplying us the
"revolving credit" to buy their cars and DVDs and semiconductors.

"Treasuries always make a lot of sense." I picked up the thread. "Full
faith and credit of the U.S. government, all the rest."

"Quite so, Mr. Walton, but since all things are theoretically possible,
over the past few months I've undertaken a small program through
subsidiaries of Nippon, Inc. to begin cushioning Japan's exposure in
your Treasury market somewhat." He paused. "Now that my effort may be
expanding significantly, I was wondering if perhaps you might consent
to serve as our American agent in that endeavor."

For a second I didn't grasp what he was driving at, probably because my
involvement seemed totally unnecessary. Surely he realized Treasuries
were bought and sold here every day on the open market through dealer
banks? No big deal. Why bother hiring a middleman?

"I can make this quick. Why don't you just contact some of the
authorized Japanese brokers here in New York? You must have used them
before. Nomura Securities is well respected. There's also Nikko
Securities. And Daiwa Securities America. They're all primary dealers
in Treasury paper now. Buy or sell whatever you like."

Noda nodded. "Of course. But we both know the financial markets can be
very delicate. Impressions count for much, which is why I have chosen
to keep a low profile. Consequently, I would prefer to continue to
operate for a time outside normal channels. And in that regard, I now
believe it would be desirable to have an experienced American financial
specialist assist us. You, in particular, would be ideal."

I studied him. "Let me make sure I understand this. You're asking me to
step in and begin fronting for you here in the Treasury market?"

"That is correct, Mr. Walton." He rose and strolled over to the row of
_tachi _swords, where Miss Mori was still standing. They were lying on
a spread of dark velvet, and she was scrutinizing them with a
connoisseur's eye.

Now, I'd like to think I was a quick study of a situation, but this one
was definitely out of whack somehow. If all Noda wanted was to roll
over a little government paper, why the hush-hush? More to the point,
why a whole building in midtown? He could easily do it from Tokyo. The
scenario didn't compute.

"Before this conversation goes any further, I'd like a better idea of
the kind of activity you're talking about. Selling Treasuries? Moving
the funds into corporate bonds or munis? Commercial paper, equities."

"Sell?" He abruptly paused to watch as the staff began carefully
assembling the weapons to take inside for the sale, and his mind seemed
to wander. "You know, Mr. Walton, the sword always has held the
greatest fascination for me. To make one of these, layers of steel of
different hardnesses were hammered together like a sandwich, then
reheated, hammered out, folded, again and again, until there were
perhaps a million paper-thin layers." He pointed to one of the long
blades now glistening in the light. "You cannot see it, of course, but
they used a laminate of soft steel for the core, harder grades for the
cutting edge. And whereas the edge was tempered quickly to preserve its
sharpness, the core was made to cool very slowly, leaving it pliant."
He suddenly smiled with what seemed embarrassment and turned back. "I
take great inspiration from the sword, Mr. Walton. The man holding one
must learn to meld with the spirit in the steel. He must become like
it. What better than to meet the world with your hardest surface, yet
maintain an inner flexibility, able to bend to circumstance as the need
may arise?"

He stood a moment as though lost in some reverie then chuckled.
"Sometimes I do tend to go on and on. I believe it was selling you
asked about. The fact is you would not be actually selling Treasury
obligations."

"Then what . . . ?"

"Are you familiar with interest-rate futures?"

"Of course." The question was so unexpected I answered almost before I
thought. Futures contracts were part of the big new game on Wall
Street, although most of the action was still out in Chicago, places
like the Merc and the Board of Trade, left over from the old days when
farmers sold their crops in advance at an agreed-upon price. The farmer
"sold" his grain harvest to a speculator while it was still nothing but
green sprouts. He was worried the price might drop before he got it to
market; the speculator was praying it would head up. The farmer,
interestingly, was selling something he didn't yet have. But even if
the price of wheat suddenly tanked, he was covered.

These days futures contracts were traded for all kinds of things whose
value might change with time. High on that list were financial
instruments such as Treasury notes and bonds, whose resale worth could
drop if interest rates unexpectedly rose. If you owned a bond and were
worried it might go down in value, you could hedge your exposure with a
futures contract, in effect "selling" it in advance at the current
price and letting somebody else assume the risk of future market
uncertainty.

Modern finance being the marvel it is, you could even sell bonds you
didn't own, just like the farmer's nonexistent grain. The Wall Street
crowd called this a "naked" contract, since you were obligated to go
out and acquire that bond in the open market on the day you'd agreed to
deliver it, even if the price had skyrocketed in the meantime. Or you
had to try and buy back the contract. Of course, you were betting that
price would go down, letting you pocket the difference.

Pious spirits on the futures exchanges called these deals high finance
and risk hedging. They operated, however, remarkably like legalized
gambling. Dabbling in interest-rate futures was not for those with a
dicey heart.

"Our objective," Noda went on, "is to cushion Japan's exposure
somewhat."

"With futures contracts?"

"Precisely. U.S. Treasury obligations are held by a variety of
investors in Japan, but up until now we have made very little use of
the protection possible in your futures markets. Nippon, Inc. will
concern itself with that."

I listened thoughtfully. "So you're saying you want to create an
insurance program for Japanese investors in case the price of
Treasuries weakens?"

It made sense. If interest rates went up here, reducing the value of
their government paper, then the price of his futures contracts would
rise to offset the loss.

I glanced over at Japan's monetary guru, Akira Mori, who

was carefully examining her bronze fingernails. Was she the one behind
all this sudden nervousness about America's financial health? What
could these two know that we didn't, I wondered. It was all a bit
mysterious.

One thing was no mystery, though. Whatever was going on with Matsuo
Noda and Akira Mori gave me a very unsettled feeling.

"I'm flattered." I looked him over. "But afraid I'll have to pass. This
fall I plan to take off for a while and . . . catch up on some personal
matters that--"

"Mr. Walton," he cut in. "I would urge you not to lightly dismiss my
proposal." He was staring back at me intensely. "I can only say for now
that issues are involved . . . well, they encompass matters of grave
international consequence." Another pause, followed by a noticeable
hardening of tone. "Your other obligations cannot possibly be as
important. It would be in your best interest to hear me out."

Want the truth? At that moment all my negative vibes about Matsuo Noda
crystallized. He wasn't threatening me exactly. Or maybe he was. The
large viewing room was all but empty now. Maybe he'd deliberately
waited before getting down to his real agenda.

"My other 'obligations' happen to be very important to me just now."

"Then please consider rearranging them."

"Besides, my fees can be substantial." They weren't all that
substantial, but I was looking to slow him down.

"Your fees do not present a problem." He continued, "This afternoon a
retainer of one hundred thousand dollars was deposited in your personal
account at Chase."

"What in hell . . .!"

"Money is of no consequence in this matter, Mr. Walton. Time is."

"You seem awfully sure I'll agree."

"We expect your involvement to begin immediately. I cannot stress too
strongly the urgency of what you will undertake." He smiled thinly. "I
also feel confident a man who enjoys a challenge as much as you do will
find our undertaking . . . intellectually rewarding."

Seems I was hired and I hadn't even said yes.

This guy had another think coming. Besides, he could get anybody to do
what he wanted. He didn't need me. As I stood

there, I started trying to guess the dimensions of Matsuo Noda's
financial hedge. Taken all together, Japan probably had roughly a
hundred billion and change tied up in U.S. government paper. No way
could he be thinking of covering more than a fraction of that. I knew
plenty of law clerks who could do it, for godsake. A few phone calls to
a couple of floor traders in Chicago . . .

"Look, the most I can do for you is recommend some very competent
brokers I know to help you out. There shouldn't be too much to it.
You'll just have to go easy. You can't hit the market makers in Chicago
with too much action all at once. Prices get out of kilter. Then, too,
there are exchange limits. . . ."

"That is why we will be trading worldwide." Noda withdrew a folded
sheet of paper from his breast pocket. "Perhaps you'd like to glance
over our program. These are cumulative totals, which include our
activity to date, but we will begin moving much more rapidly as soon as
I've completed all the financial arrangements with our institutional
managers at home. Perhaps you will see why we need a monetary
professional."

I was still chewing on the "financial arrangements" part as I took the
paper, opened it, and scanned the schedule of contracts. While I stood
there, the room around us sort of blurred out. I had to sit down again.
All his talk about samurai and nerves of steel was for real.

Matsuo Noda had a program underway to sell futures on a pile of U.S.
Treasury bills, notes, and bonds he didn't own, "naked," in an amount I
had trouble grasping. I knew one thing, though: if interest rates
headed down, raising the value of those presold obligations, he'd be
forced to cover awesome losses. He'd be in a financial pickle that
would make Brazil look flush. On the other hand, if some disaster
occurred and U.S. interest rates suddenly shot sky high . . .

Numbers? The CBOT's long-interest contracts, notes and bonds, are in
denominations of a hundred thousand each; the Merc's short paper, bills
and CDs, are in units of a million per. Finally I did some quick
arithmetic and toted up the zeros. Something had to be wrong here.
Nobody had balls that big. I decided to run through the figures again,
just to be sure.

It was along about then that I realized all Noda's pious talk about
sheltering Japanese widows and orphans had been purest bullshit.
Resting there in my hand was the biggest wager slip in world history.
Assuming enough players could be found worldwide to take his action, he
was planning to advance-sell U.S. Treasury IOUs in the amount of five
hundred billion dollars. A full quarter of our national debt.

His bet: something or somebody was about to push America over the
brink.

CHAPTER TWO

"Yo, counselor. Get thy butt over here and buy me a drink."

I was standing in the smoky entry of Martell's, on the way back
downtown from Sotheby's, when I heard the voice, a Georgia drawl known
from Wall Street to Washington. And sure enough, leaning against the
long mahogany bar, the usual Glenfiddich on the rocks in hand, was none
other than Bill Henderson.

Long time, no see. I'd actually stopped by for a little ninety proof
nerve medicine myself, not to pass the time with America's foremost
cowboy market-player. But the idea of bringing in a Wall Street pro was
most welcome. If anybody could dissect Noda's game, Bill was the man.

What was I going to do? I'd stalled on giving Matsuo Noda a final
answer, telling him I needed time to think. Then just to make sure the
whole thing hadn't been some sort of macabre hoax, I'd checked at a
Chase bank machine on Lex. He hadn't been kidding. A retainer had been
deposited all right, presumably by certified check, since it had
already cleared. I was on the payroll, ready or not.

Noda was right about one thing. What he planned to do had grave
international consequences. The problem was, his game had just one
payoff. The way I figured it, he won if, and only if, the U.S. suddenly
went broke. As international consequences go, that seemed reasonably
grave.

Henderson was the perfect guru to take apart the scenario. Assuming he
was sober. Tell the truth, at first glance I wasn't entirely sure. The
guy looked a mess. I assumed he was holding some sort of private
celebration, or maybe it was a wake. What was the occasion?

"William H., welcome back to town. Thought you'd decamped permanently
down to D.C."

"Packed it in. Back to start making a living again. Could be I've just
set some kind of new world record for the briefest tenure ever seen on
the Council." He eased over to make room, while the jukebox began some
Bobby Short standard about incomparable NY. "So where's your TV star
tonight? Sure love that gal." He toasted Donna's memory. "If tits were
brains, she'd be a genius."

Sexist? Tasteless? That was merely Henderson warming up.

I hadn't actually set eyes on Bill since an ill-fated birthday dinner
Donna had thrown for him in midsummer, a favor to a producer friend of
hers at the station who'd wanted to try vamping a real live
millionaire. That evening he'd arrived with a serious head start on the
whiskey, his meditation on the concept of birthdays, and then proceeded
to regale those assembled with his encyclopedic repertoire of farmer's-
daughter and traveling-salesman vignettes. In the aftermath, Donna
swore she'd kill him if he ever set foot in her place again. When I
made the mistake of speaking in his defense, she critiqued a few of my
character defects as well, then added me to the list.

"Friend, no small thanks to you and that sordid evening, I haven't seen
Donna since."

"That was a dark moment in my history. After listening half the night
to that air-head producer she put next to me, I was in mourning for the
hearts and minds of America." He revolved back to the bar. "What're you
drinking?"

"Something serious." I pointed toward the single malt. Laphroaig neat.

Just then Bill paused to watch as two women in bulky raincoats brushed
past. They receded toward the other end of the bar, settled their coats
across an empty stool, and ordered drinks. One was a youngish blonde, a
bit nervous, having some tall, colored potion that looked as if it
could use a cut of pineapple and a plastic monkey on the glass. But the
other one, brunette, was a different story. Pained eyes, with a psychic
armor that could only be called battle-weary New York. Joanna, all over
again. Tanqueray martini. Straight up.

"Hot damn, sure is good to be back in this town." He was trying,
without conspicuous success, to catch the younger woman's eye.

"Henderson, you're standing next to a man with some news that could
well alarm you considerably."

"Like maybe this dump might run low on booze?"

"Not likely." I reached for my new drink. "I've got to make a decision,
fast. So try to keep a clear head and see if you can help me out."

In my estimation Henderson was a phenomenon--sober or loaded. He'd
emerged from the red clay hills somewhere in north Georgia, former
football All-State ("I only did it for the pussy"), and ended up at
Yale Law--where we shared an apartment for three whole years. By the
time we'd finished our degrees, I figured I was ready to tackle real
life, but Bill had hung in and gone for a Ph.D. in economics. Although
his athlete's physique hadn't survived Yale--an early casualty of the
single malt and the Dunhills--Henderson still had the delusion he was
twenty-five. Easter before last he'd arrived at my place down in the
islands with some leggy print model half his age and a case of Jack
Daniel's Black. Did the redneck routine bamboozle the cautious hearts
of his admiring ladies? Probably. Right under the radar.

All that notwithstanding, it was a commonly accepted fact that Bill was
the sharpest private currency-trader on the East Coast. If tomorrow the
dollar was about to dive, the guy who'd already sold it short tonight
from Hong Kong to Zurich was invariably Henderson. That part of his
life had been all over the papers the previous spring, after he got
tapped for the President's Council of Economic Advisers. I guess some
genius on the White House staff--urged on by that wily senator from New
York, our mutual friend Jack O'Donnell--concluded the Council needed a
pet "contrarian" on board for appearances, and Henderson looked to be a
sufficiently pro-business prospect. Wrong. After a couple of interviews
he was forbidden to make any more public statements. He'd failed to
grasp that the national interest required fantasy forecasts just before
elections. Bill may have been a master of subtlety when he was trading,
but otherwise he tended to call a spade a spade, or worse.

"What's up?" He was about to punt with the blonde after one last try.

"Maybe you'd better go first." I took a sip, savoring the peaty aroma.
Let Henderson decompress in his own good time, then sound him out on
Noda's chilling proposition. "What are you doing here?"

"Call it modesty and discretion." He turned back.

These were not, as you might infer, the first descriptors that leapt to
mind whenever I thought of Bill.

"Care to expand?"

He slid his hand across the bar, extracted another Dunhill from its red
pack, and launched a disjointed monologue starting with the goddam
traffic in D.C., then proceeding to ditto coming in from LaGuardia.

All this time his cigarette had been poised in readiness. Finally he
flicked a sterling silver lighter, the old-fashioned kind, and watched
the orange flame glisten off the mirror at our right. "So, old buddy,
that's it. All the news that's fit to print. History will record this
as the moment yours truly bailed out. I figure it like this. If I can't
read the signals myself these days, what in hell am I doing giving
advice? Time to hit the silk. Get back to making a living. Don't know
how long this circus is going to last, but I figure we'd all better be
saddled up and ready to ride, just in case."

As it happens, self-proclaimed ignorance was a crucial ingredient in
Henderson's deliberate "country boy" camouflage, designed to disarm the
city slickers. I estimated the professional dirt farmer next to me,
Armani double-breasted and gold Piaget timepiece, was now worth about
forty million, including a chunk of an offshore bank. Yet for it all,
he still liked to come across as though he'd just moseyed in and wished
somebody would help him through all this fine print.

"Don't bullshit me, Bill." I toyed with my drink. "What you're really
saying is you couldn't get anybody else to agree with you."

"Have to admit there were a few trifling differences of opinion about
the direction things are headed." He positioned his Dunhill in the
ashtray and washed his throat with more Scotch. "You can't cover up the
fundamentals with cosmetics. Things like a megabillion trade shortfall,
a debt nobody can even count, and a dollar that don't know whether to
fish or cut bait. Worst of all, we're still selling the suckers of the
world more funny-colored paper than czarist Russia did. There ain't no
quick fix for this one." He took another sip, then turned back. "But
fuck it. Remember that old saying I used to have about being a lover,
not a fighter. I always know when it's time to call in the huntin' dogs
and piss on the fire. I'm back in town to stay. I got hold of my boys
and they're coming in tomorrow to start getting everything out of
mothballs. We're going back on-line."

As anybody who knew Bill was aware, he'd installed a massive computer
bank in the converted "maid's quarters" of his Fifth Avenue apartment,
hooked to the major futures exchanges and financial markets around the
world. Running his operation on a moment-to-moment basis were a couple
of young fireballs, his "Georgia Mafia," who did nothing but watch
green numbers blink on a CRT screen and buy and sell all day. He and
his boys talked a language that had very little to do with English--
jargon about comparing the "implied volatility" of options on this
currency against the "theoretical volatility" for that one, etc. On any
given day they were placing "straddles" on yen options, "butterfly
spreads" on pound sterling futures, "reverse option hedges" on deutsche
marks, and on and on. Half the time, Einstein couldn't have tracked
what they were doing. Add to that, they leveraged the whole thing with
breathtaking margins. To stay alive in Henderson's game, you had to be
part oracle, part Jimmy the Greek. You also had to have ice water in
your veins. It wasn't money to him, it was a video game where the
points just happened to have dollar signs in front. The day I dropped
in to watch, he was down two million by lunch, after which we casually
strolled over to some shit-kicker place on Third Avenue for barbecued
ribs and a beer, came back at three, and by happy-hour time he was
ahead half a million. In the trade Henderson was part of the breed
known as a shooter. Up a million here, down a million there--just your
typical day in the salt mines. A week of that and I'd have had an ulcer
the size of the San Andreas fault.

He liked to characterize his little trading operation as "a sideline to
cover the rent." I happened to know what it really paid was the
incidental costs of a lot of expensive ladies. Could be Bill's
entertainment fund was in need of a transfusion.

"Back to business?" I asked. "Like the good old days?"

"Bright and early Monday morning. Got a strong hunch the

Ruskies'll be in the market buying dollars to cover their September
shorts on Australian wheat futures. Might as well bid up the greenback
and make the comrades work for their daily bread. Then round about
eleven, I figure to unwind that and go long sterling, just before
London central figures out what's happening, shits a brick, and has to
hit the market for a few hundred million pounds to steady the boat."

Well, I thought, Henderson the Fearless hasn't lost his touch.

"Bill, I want to run a small scenario by you." I sipped at my drink.
"Say somebody'd just told you he was taking a massive position in
interest-rate futures? What would that suggest?"

"Tells me the man's getting nervous. If he was holding a lot of
Treasury paper, for instance, he'd probably figured rates were about to
head up and he didn't want to get creamed. See, if you're holding a
bond that pays, say, eight percent, and all of a sudden interest rates
scoot up to ten, the resale value of that instrument is gonna go down
the sewer. But if you've already 'sold' it using a futures contract,
whoever bought that contract is the one who's got to eat the loss.
You're covered."

"I'm not talking about standard hedging." I was wondering how to
approach the specifics. "Say somebody started selling a load of bond
futures naked. Nothing underlying."

"Well, thing about that is, the man'd be taking one hell of a risk." He
swirled the cubes in his glass. "Anybody does that's bettin' big on
something we don't even want to think about. Some kind of panic that'd
cause folks to start dumping American debt paper."

I just stood there in silence, examining my glass. That was precisely
my reading of Matsuo Noda's move. "But I can't think of any reason why
anything like that's in the cards, can you?"

"You tell me. It's hard to imagine. The economy's like a supertanker.
Takes it a long time to turn around. But if you want a special
Henderson shit-hits-the-fan scenario, then I can give it a shot. Say,
for instance, some Monday morning a bunch of those hardworking folks
around the world who've been emptying their piggy banks to finance our
deficit suddenly up and decided they'd like their money shipped back
home. That'd create what's known as a liquidity crisis, which is a
fancy way of saying you don't have enough loose quarters in the cookie
jar that morning to pay the milkman and the paperboy both. The Federal
Reserve would have to jack up interest rates fast to attract some cash.
Else roll the printing presses. Or of course"--he grinned--"we could just
default, declare bankruptcy, and tell the world to go fuck itself."

"Nobody would possibly let it go that far, right?" I toyed with my
Scotch. "Particularly Japan. We owe them more money than anybody."

"Wouldn't look for it to happen. Remember though, right now the U.S.
Treasury's out there with a tin cup begging the money to cover its
interest payments. If the national debt was on MasterCharge, they'd
take back our card. So let some of those Japanese pension funds who're
shoveling in money start getting edgy, or the dollar all of a sudden
look weak, and you could have a run on the greenback that'd make the
bank lines in '29 look like Christmas Club week."

"That's thinking the unthinkable."

"Damned well better be. But don't ever forget, paper money is an act of
faith, and we're in uncharted territory here. Never before has the
world's reserve currency, the one everybody uses to buy oil and grain
and what have you, belonged to its biggest debtor nation. We're bankers
for the world and we're ass over elbow in hock. Everybody starts
gettin' nervous the same day, and the bankers on this planet could be
back to swapping shells and colored beads."

"Offhand I'd say that's pretty implausible."

"And I agree. The system got a pretty good shakeout in the October
Massacre of '87 and things held together, if just barely.