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 diminutive herds to those of the large ranchers for the drive to the railheads.
It was 1:50P.M. when Columbus made its first move. Calling his top people together, Raizo Yamata's principal lieutenant briefly discussed the sudden 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 parking 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 to collate everything at the end of the trading day, to note which buyer had purchased which stock from which seller, and to post the money transfers from and to the appropriate accounts, in effect acting as the automated bookkeeper for the entire equities market. Their screens showed an accelerating pace of activity, but the computers were all running Chuck Searls' ElectraClerk 2.4.0 software, and the Stratus mainframes were keeping up. There were three outputs off each machine. One line went to the monitor screens.
Another went to tape backups. A third went to a paper printout, the ultimate but most inconvenient record- keeping modality. The nature of the interfaces demanded that each output come from a different internal board inside the computers, but they were all the same output, and as a result nobody bothered with the permanent records. After all, there were a total of six machines divided between two separate locations. This system was as secure as people could make it.
Things could have been done differently. Each sale/purchase order could have been sent out immediately, but that was untidy-the sheer administrative volume would have taxed the abilities of the entire industry. Instead, the purpose of DTC was to bring order out of chaos. At the end of each day, the transactions were organized by trading house, by stock issue, and by client, in a hierarchical way, so that each house would write a limited number of checks—funds transfers were mostly done electronically, but the principle held. This way the houses would both save on administrative expense and generate numerous means by which every player in the game could track and measure its own activity for the purposes of internal audit and further mathematical modeling of the market as a whole. Though seemingly an operation of incomprehensible complexity, the use of computers made it as routine and far more efficient than written entries in a passbook savings account.
'Wow, somebody's dumping on Citibank,' the sys-con said.
The floor of the New York Stock Exchange was divided into three parts, the largest of which had once been a garage. Construction was under way on a fourth trading room, and local doomsayers were already noting that every time the Exchange had increased its space, something bad had happened. Some of the most rational and hard- nosed business types in all the world, this community of professionals had its own institutional superstitions. The floor was actually a collection of individual firms, each of which had a specialty area and responsibility for a discrete number of issues grouped by type. One firm might have eight to fifteen pharmaceutical issues, for example. Another managed a similar number of bank stocks. The real function of the NYSE was to provide both liquidity and a benchmark. People could buy and sell stocks anywhere from a lawyer's office to a country-club dining room. Most of the trading in major stocks happened in New York because …it happened in New York, and that was that. The New York Stock Exchange was the oldest. There were also the American Stock Exchange, Amex, and the newer National Association of Securities Dealers Automatic Quotation, whose awkward name was compensated for by a snappy acronym, NASDAQ. The NYSE was the most traditional in organization, and some would say that it had been dragged kicking and screaming into the world of automation. Somewhat haughty and stodgy—they regarded the other markets as the minor leagues and themselves as the majors—it was staffed by professionals who stood for most of the day at their kiosks, watching various displays, buying and selling and, like the trading houses, living off the 'middle' or 'spread' positions which they anticipated. If the stock market and its investors were the herd, they were the cowboys, and their job was to keep track of things, to set the benchmark prices to which everyone referred, to keep the herd organized and contained, in return for which the best of them made a very good living that compensated for a physical working environment which at best was chaotic and unpleasant, and at its worst really was remarkably close to standing in the way of a stampede. The first rumblings of that stampede had already started. The sell-off of Treasury notes was duly reported on the floor, and the people there traded nervous looks and headshakes at the unreasonable development. Then they learned that the Fed had responded sharply. The strong statement from the chairman didn't—couldn't—disguise his unease, and would not have mattered in any case. Few people listened to the statement beyond the announcement of a change in the Discount Rate. That was the news. The rest of it was spin control, and investors discounted all of that, preferring to rely on their own analysis.
The sell orders started coming. The floor trader who specialized in bank stocks was stunned by the phone call from Columbus, but that didn't matter.
He announced that he had 'five hundred Citi at three,' meaning five hundred thousand shares of the stock of First National City Bank of New York at eighty-three dollars, two full points under the posted price, clearly a move to get out in a hurry. It was a good, attractive price, but the market hesitated briefly before snapping them up, and then at 'two and a half.'
Computers also kept track of trading because the traders didn't entirely trust themselves to stay on top of everything. A person could be on the phone and miss something, after all, and therefore, to a remarkable degree, major institutions were actually managed by computers, or more properly the software that resided on them, which was in turn written by people who established discrete sets of monitoring criteria. The computers didn't understand the market any more than those who programmed them, of course, but they did have instructions: If 'A' happens, then do 'B.' The new generation of programs, generically called 'expert systems' (a more attractive term than 'artificial intelligence') for their high degree of sophistication, were updated on a daily basis with the status of benchmark issues from which they electronically extrapolated the health of whole segments of the market. Quarterly reports, industry trends, changes in management, were all given numerical values and incorporated in the dynamic databases that the expert systems examined and acted upon, entirely without the judgmental input of human operators.
In this case the large and instant drop in the value of Citibank stock announced to the computers that they should initiate sell orders on other bank stocks. Chemical Bank, which had had a rough time of late, the computers remembered, had also dropped a few points in the last week, and at the three institutions that used the same program, sell orders were issued electronically, dropping that issue an instant point and a half. That move on Chemical Bank stock, linked with the fall of Citibank, attracted the immediate attention of other expert systems with the same operational protocols but different benchmark banks, a fact that guaranteed a rippling effect across the
