Vice President Wallace sat at the head of the conference table in the situation room thinking that the two men whose judgment had guided him throughout his political career might as well be dead: President McCormack was in a coma and former president Harris would likely be implicated in a crime.
Looking across at Abrams and Casher, Wallace realized that the president trusting them more than the secretaries of treasury and state, maybe said more about him than about them, but it was irrelevant. The treasury secretary was already in Davos for the World Economic Forum and the secretary of state was in the midst of global warming treaty negotiations in Japan.
Wallace didn’t want Graham Gage in the room at all, didn’t understand his motives, except maybe the pressure he felt to get his wife out of China. And it made Wallace suspicious, that the route Gage had traveled to discover the scheme had taken him through one twisted mind after another: Hennessy, Ibrahim, Minsky.
In the end, he had to agree with Casher: Everyone who knew what the country was facing must stay together until a decision had been made. It was the only way to ensure that there wouldn’t be a leak that would trigger the collapse. Even the Secret Service agents assigned to Wallace had been sent to the perimeters so nothing could be overheard.
Except that Gage’s gaze from where he stood leaning against the paneled wall gave Wallace a chill, like a frozen wind against his bare skin, like being exposed to the elements. Gage had been deferential toward the office of the vice president only in manner, not in substance, as though he could see through the constitutional form and into the heart of Wallace’s personal weaknesses and uncertainties, and as though Gage already knew how this would all end.
Wallace felt his body move toward the table, an unthinking, almost gravitational force sliding his chair closer and rolling his shoulders forward. The movement gave him a sense of having closed a circle with Casher and Abrams, but then he felt a moment of vertigo, for he knew that soon he’d have to push back again and sit up and make a decision.
“Try to make it simple,” Wallace said, looking back and forth between Abrams and Casher. “And in English.” He pointed across the room toward the blank wall-sized monitor, and then looked at Gage, arms folded over his chest. “We need to make sure that there will be no misunderstandings when your wife translates what we say into Mandarin for the general.”
Abrams rose from his chair and walked to a whiteboard.
“I’ll smooth the edges of this thing by using round numbers,” Abrams said. “And go step by step.”
Heads nodded.
“First, the Chinese Central Committee decided that debt levels in the U.S. had passed the point at which the principal amount of the treasury bonds they held could be paid back. In fact, they estimated that in five years the U.S. would even default on the interest payments—I’m not saying they were right or wrong. It’s irrelevant at this point.”
Wallace caught Abrams’s eye and said, “That’s where the Group of Twelve came in.”
Abrams nodded. “The idea was for the Group of Twelve to use the bonds as collateral for loans they needed to buy hard assets: land, buildings, mines, forests, oil leases. The Central Committee fronted the bonds to the Group of Twelve, which used them to secure loans from Relative Growth. In effect, a trillion dollars of bonds was turned into a trillion-dollar loan, turning what they considered dead paper into live assets.”
Abrams paused and looked around the room.
“Remember, it appeared in the Treasury Department records that we were still paying interest on these bonds to the Chinese government.”
Abrams waited until he was certain Wallace understood, then said, “The Group paid interest on the loans as the years went along, with a balloon payment at the end, like an interest-only mortgage. When that date arrived they could either pay back the principal in cash or simply transfer the bonds over.”
Wallace raised a finger to get Abrams to pause.
“Which means that if the bonds had gone up in value,” Wallace said, “the Group would keep them and repay the loans to Relative Growth in cash. But if the bonds had gone down, they’d repay Relative Growth with the bonds.”
“That’s what Minsky thought and that’s why he was willing to make the bet. But the Group had no intention of paying a trillion dollars back in cash. Their plan from the start was to surrender the bonds to Relative Growth, but only after they forced what we estimate will be an eighty percent collapse in their value.”
“I don’t get it,” Wallace said. “What difference does it make to the Group what the bonds were worth? They’re giving them up anyway.”
“You’ve just hit on the genius of the plan,” Abrams said. “The Central Committee was so focused on ridding themselves of the bonds that they agreed to be paid back in cash based on the bonds’ value on the repayment date.”
“And that’s on Monday at 9 a.m., Hong Kong time,” Casher said, “based on the evidence we’ve collected from Ibrahim’s computer.”
Wallace looked back and forth between Casher and Gage. He wished Casher had used the word “facts” instead of “evidence,” for evidence only suggests, while facts tell. But that thought was swept away as Wallace’s mind caught up with the implications of what Abrams was saying.
“If I understand you,” Wallace said, “an eighty percent collapse means that the Group plans to pay the Chinese government only two hundred billion dollars for what was once a trillion dollars’ worth of bonds?”
“Exactly.”
Wallace slammed the table. “You mean these crooks are going to rip off the Chinese people for eight hundred million dollars and Relative Growth for another eight hundred million?”
Abrams nodded.
“It’s worse than that. We estimate that the total losses to Relative Growth, its investors, the Chinese government, the banks, and the other hedge funds that lent money to Relative Growth will be closer to five trillion. And when it becomes clear that Relative Growth doesn’t have even a fraction of what they need to pay everyone back, the entire international banking system will collapse.”
“In a matter of a week,” Casher said, “grocery store shelves will be empty, service stations will run out of gas, pharmacies and hospitals will run out of medicines, people will be arming themselves to protect what they have.”
“What kind of monster created this thing?” Wallace asked, and then saw Gage push off from the wall. Wallace knew it was coming, for Gage had stood there like the number twelve on a clock, waiting for the second hand to arrive.
“Ibrahim,” Gage said. “And we created him. Just like we created Minsky and the Group of Twelve and your pal Harris who gave them cover while they—”
Wallace threw his hands up. “Don’t bring Harris into—”
“You don’t think he suspected what they were up to? He didn’t believe that audit for a second. He was just too much of a coward to ask the right questions and demand the truth. He just wanted to find a way to get out, leaving his reputation intact.”
Wallace lowered his hands and exhaled. Gage was right. That had been Harris’s message, and the real reason he wanted to extricate himself from the board of Relative Growth. And Wallace knew that he wouldn’t be able to save him.
Wallace looked over at the videoconferencing monitor.
“Why don’t we admit our part in this,” Wallace said, “and then ask the Chinese government to arrest the Group of Twelve and seize their assets. That way no one loses anything.”
“Seize their assets where?” Gage asked. “The money they stole is invested outside of China, in thousands of places. It could take a decade. And they have no control over Relative Growth or over Minsky’s currency attack. Ibrahim decentralized it so that only Minsky would have a single switch to turn it off.”
“If we had another twenty-four or forty-eight hours,” Casher said, “time to break into Relative Growth’s Cayman Island headquarters, then we could stop it.” He then shrugged and shook his head. “But we don’t.”