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.”
CHAPTER 67
Mr. President-“
Cooper Wallace shook his head, cutting off Reverend Manton Roberts. He leaned back on the couch in the president’s study and looked over at Roberts balanced on the cushion edge.
“Please don’t call me that. As long as Tom McCormack has a chance to recover, he’s still the president of the United States.”
Roberts raised his stubby, fat-creased hands. Wallace wasn’t sure whether it was in defense or in surrender. Roberts stretched them higher, palms up, and then looked heavenward. “And I pray every moment for his recovery.”
“What I need, and the reason I asked you here, is that I need you to pray with me and to give me guidance.”
Roberts lowered his arms. “I’m honored.”
Wallace felt the presence of Billy Graham in the room. A dozen presidents had sat where he sat now, bowing their heads as the evangelist spoke, but none of them faced the decision that he would have to make.
“But to do that will require that I disclose some matters that demand not just discretion on your part, but absolute confidentiality.”
“Of course I-“
“Not so fast. At some point it may mean going to jail.”
Roberts’s brows furrowed. “You haven’t committed a crime, have you?”
Wallace shook his head. “Not yet. It’s more in the realm of state secrets, but eventually there may be-there will be-hearings about my conduct. What I knew. When I knew it. Who stood to gain. Who stood to lose.”
“Maybe you should go to Congress now. Isn’t there some procedure-“
“There’d be too much danger of triggering precisely what I’m trying to avoid.”
Roberts shifted his body more toward Wallace, who felt the couch sag and rebound under his weight. “You’re being a little too cryptic.”
Wallace nodded. “According to Milton Abrams…” He watched Roberts struggle to repress a display of disgust. “We are on the verge of an attack on our economy.”
“Why should you believe Abrams? “
The distain in Roberts’s words made it sound to Wallace as if Roberts had asked, Why should you believe the
