The Frankenstein Candidate (20 page)

Quentin Kirby was desperate. He was thinking ahead and knew far better than to announce or confirm his vice presidential candidate this early in the race. He already knew what Kevin Heller and Spencer Blumenthal had repeated—that he could not win the final race with either Logan or Reed or any of the usual senatorial or congressmen candidates. He needed an X factor. “The public fancy of Olivia will wane,” Heller said. “Spain has played his ace card much too early in the race. We have time to investigate her deficiencies, get something to stick, magnify it, and let the media run its usual course,” he said confidently. “The faster they push someone up, the quicker you can make them fall.”

Kevin Heller was adamant that Jackie Harding be kept in reserve until victory was not just in sight but past them, which meant waiting until the national party convention in May. Jackie Harding had experience in administration and the respect of heads of state around the world. She was not good-looking, but Kirby’s media people were confident that she could be made to look more statesman-like than Olivia. Nevertheless, Kirby had already secretly started Jackie on intensive mock media sessions, image discussions, and delivery discipline. Three nights a week, Kirby and Harding sat together for hours, studying copious notes prepared by staffers about presidential campaigns going all the way back to Bush senior versus Clinton in 1992, analyzing where little gaffes became major scandals. They studied the rhetorical speeches whereby the nuances of the English language could be exploited to say but not to define, to inspire but not to get bogged down in facts, to point fingers but leave an exit strategy in place.

That was what the staffers always emphasized, the “exit strategy.” Going to war meant going to war, but “constructive engagement” and “multilateral pressure” meant a lot of different things to different people. Certain things were always sacrosanct: “the ingenuity of the American worker,” “family values,” God, the environment, “our soldiers,” faith, American values and “working moms and dads.”

Spencer had given Kirby the list of things that could always be demonized: big oil, Wall Street, the “greedy,” bankers, big business, extremists, the big spenders, earmarks, China, Russia, the euro zone, Al Qaeda, Islamic fundamentalists, terrorists, North Korea, and Iran.

Then there were the issues that played either way, Spencer told him, depending on which way the wind was blowing: gay marriage, immigration, Mexicans, bipartisan committees, the United Nations, size of government, free trade zones, and industrial growth.

In all cases, you had to have an exit strategy. Heller was right, Kirby thought, the Democrats had played their ace irreversibly and too early in the race.

The Monday of February 23, 2020 had come and gone without incident. Perhaps the Chinese were bluffing.

On Wednesday, February 25, President Young addressed Congress on the issue. The efforts of his administration had been thwarted by the refusal of the Chinese to negotiate, he said. Congress remained adamant that the foreign ownership restrictions not be lifted.

The “all or nothing” deal was turned down.

Thursday, February 26, came and went, and the word on Wall Street was that the Chinese had backed out. It was a bluff, they said.

Then the morning of Friday, February 27, arrived with an unexpected late-season snowfall and a major thunderstorm in New York City. It was as though a seasonal thunderstorm was the forerunner of a financial thunderstorm. Metro and bus services were disrupted. Traders coming late to work turned on their screens, a few with a sense of foreboding instilled by the sudden thunderstorm. For the moment, life was still normal as the U.S. dollar was buying five Yuan and sixty yen.

The sell orders began around eleven a.m., gradually at first. By noon, the U.S. dollar was buying four Yuan and fifty yen.

The St. Louis and New York branches of the Federal Reserve panicked and threw precious foreign exchange reserves away, trying to halt the slide of the U.S. dollar, but by then America’s own private funds and the central banks of Russia, Saudi Arabia, Brazil, and Japan had all joined the fray.

The U.S. Federal Reserve then tried to halt all currency trading, but soon realized how futile it was given the number of large financial institutions that operated outside the Fed’s jurisdiction.

By three p.m., the Fed chairman was on the phone exhorting all the banks under his jurisdiction to buy U.S. dollars. Several banks bought U.S. dollars with euros, Yuan, or Korean wons they simply did not own—in market parlance, they were shorting the other currencies to halt the U.S. dollar’s slide.

When the carnage ended late into the night, the U.S. dollar was buying two Yuan and forty yen, and three of the largest five banks in the United States were nearly bankrupt unless the U.S. dollar regained at least half its losses.

Late that night, the chiefs of the largest banks on Wall Street were in the boardroom of the New York branch of the Federal Reserve, assessing the financial blitzkrieg.

The chairman of the Fed, Dr. Bob Zimmerman, a fifty-one-year-old, bombastic, intelligent, Keynesian ideologue, had succeeded Ben Bernanke in 2014. President Obama had hand-picked him straight out of his teaching post at Harvard.

Zimmerman often allowed extensive discourse to take place before he thundered his decision like a Supreme Court justice. Now Zimmerman saw an opportunity to exert even more control over Wall Street. Although the Street chiefs had long ceased to be cowboys in the decade that saw the most financial regulation ever enacted, the Street still had an aura of its own, and resentment at the Street was at such fever pitch that no one was going to object if the Fed exerted even more control.

The problem, of course, was not just that the Street funded political campaigns. The Fed had engineered some awfully large mergers in the last decade among the largest member institutions, like Citigroup, AIG, Bank of America, and JP Morgan. The newly engineered institutions, like the Sixth National Bank, colloquially called the Sixth, and the International Financial Group, better known as IFG, were truly too large to fail.

For once, the meeting concluded without Bob Zimmerman thumping his fists. Zimmerman retreated into his private chamber with just the chiefs of IFG and Sixth and heard what he did not want to hear.

IFG’s and Sixth’s traders had diligently pursued the Fed directive to buy U.S. dollars. In one evening, the banks had collectively wiped out hundreds of billions of dollars of capital, and as publicly listed organizations, they had no option but to disclose what they had done to the market the following day.

This was bound to have an effect on IFG and Sixth’s shares, half of which were owned by the U.S. government, bought at price levels set during Sixth’s government-engineered merger three years before. Treasury had actively traded down some of its shares at minimal losses, but they knew there would be no such further opportunity.

Secondly, when word came out, the banks’ position was going to get appreciably worse unless they locked out their losses overnight in the Asian markets, which now seemed the only prudent thing to do.

Thirdly, the issue had hit without warning, and several commentators had already warned that FDIC funds were woefully insufficient for dealing with multiple bank failures. The FDIC could, in theory, borrow from Treasury, which would then have to issue even more bonds. Ultimately, the Fed itself had to go out and reassure depositors that their savings were safe as nervous depositors started to withdraw funds based on rumors.

Fourthly, there was no knowing how all these measures were going to be dealt with in the market for Treasury bonds, none of which had been sold to any real investor outside the Federal Reserve and its member banks for several years.

The time had come for Bob Zimmerman to call the president with his recommendations. He excused himself.

Unbeknownst to Zimmerman, Treasury had long been concerned about the bond sale scenario, even without the Chinese crisis. The Treasury secretary had been waiting for weeks to get the president to sign off on an announcement to the public about belt-tightening measures that increased the official retirement age at which pensions could be granted and reduced eligibility for Medicare and Medicaid.

At seven p.m. that night, the Treasury-prepared, President Young–approved announcement went public. It merely stated, among other things, that the government was looking to raise the normal pension age from sixty-seven, scheduled to go into effect in the year 2027, to sixty-nine and the early retirement age from sixty-two to sixty-four.

That night, in an eerie replay of the French and Greek riots for precisely the same reason in 2011 and then again in 2014, riots broke out all over the United States, from Birmingham, Alabama, to Burlington in Vermont and all the way west to Portland, Oregon. Cars were overturned, fires were lit, and riot police fought off rioters that ranged from ex-convicts to high school students, from middle-aged blue-collar workers to feminists.

By the time Saturday morning dawned, the news was littered with economic pundits predicting major gloom, rumors of bank failures, bailouts, and rescues. Pretty soon, the rioters had found a new energy reminiscent of the early French revolution. A march of red flag holders denouncing capitalism and blaming class wars became a reality on Sunday.

Olivia continued her research privately. She knew that China still had trillions of American debt to sell and trillions of American assets to buy.

Sitting in the comfy lounge room of Larry Fox’s Long Island residence, Larry Fox, Colin Spain, Katrina Marshella, and Olivia Allen tried to make sense of it all.

Olivia badly wanted to spend more time with her family before hitting the road again. But the twenty-four states of Super Tuesday had a good spread of the red and the blue, the Midwest and the west, the south and the northeast, as did the Super Wednesday twenty-four. That meant considerable traveling and very little time at home for Olivia.

“At least IFG, if not both IFG and Sixth National, will be needing loans,” Larry said. Larry had been connecting with Bob Zimmerman’s department, albeit no one, not even Colin Spain, knew his source. But Larry’s sources were always reliable—Colin knew they could be trusted.

“Bailouts?” Colin said.

“No…not bailouts…loans.” Larry let it rest. Everyone in the room knew exactly what had been said—it was essential to play them as loans that would be repaid, unless one was going to let the big banks fail.

“What about letting them fail?” Katrina finally asked.