Storm Front

CHAPTER 13

AMES, Iowa

The man looked like he had been hiding for at least a decade off the grid in Montana, in a place where he subsisted on squirrel, elk meat, and indigenous berries. His beard covered his entire face and hung to the top of his chest. His straggly hair was at least that long in the back. He had an offensive lineman’s body, both in height and girth, which only made the thick, John Lennon–style glasses on the end of his nose that much more incongruous.

“Derrick, I’d like you to meet Dr. Rodney Click, assistant professor of economics here at Iowa State,” Ling Xi Bang said. “Is it correct for me to call you a quantitative economist? Do I have that right?”

“ ‘Geek’ will also do nicely,” Click said, offering Storm a good-natured smile and a handshake.

“I’ll just call you Doc, if it’s okay,” Storm said, pumping his hand.

“I’m sure I’ve been called worse. Anyhow, come into my office,” Click said, turning and calling over his shoulder: “I just can’t believe the CIA is interested enough in my theory to pay me another visit.”

Storm shot a glance at Xi Bang that seemed to say Another visit, huh? It didn’t take being a quantitative economist to do the math: Xi Bang had been here before, and had told the guy she was with the CIA. Xi Bang just smiled at Storm demurely. Their trip out to Iowa, which had included a brief stop at a hotel room near Kennedy Airport, had given whole new dimension to the word layover.

“You have to understand, most of the time when I do a paper like this, I assume it’s just going to be read by other academics,” Click continued as he led them into a small rabbit den of an office, with walls lined by packed bookshelves. “The Journal of Global Economics isn’t going to be confused with a page-turning thriller. It’s not like I’m Michael Connelly here.”

Click settled himself into his chair, which groaned accordingly. Storm and Xi Bang took chairs on the other side of his desk.

“Trust me when I say I found it riveting,” Xi Bang said. “And I’d like you to explain it to my CIA colleague here the same way you did to me.”

“Then I guess I’ll start in the same place, with a little background,” Click said, aiming his attention at Storm. “I don’t mean to sound like I’m talking down to you, but how much do you understand about the foreign currency exchange markets?”

“Enough to fill a thimble,” Storm admitted.

“Okay, the basics: The foreign exchange market, sometimes called ForEx, or just FX, is the largest and most liquid market in the world. In some ways, it’s the most volatile, too. Roughly four trillion dollars’ worth of currency is traded every single day. Now, a minority of that volume is what you would think it is: Individuals or corporations that do business in one currency suddenly need to pay for something in another currency. So, say you’re vacationing in India. You land in Mumbai and you change dollars for rupees.”

“Except I always save some greenbacks for bribes,” Storm interjected.

“Of course. In any event, that kind of transaction — which you could argue is what FX was created for — is maybe twenty percent of the market. Eighty percent is banks, hedge funds, and other large financial institutions making speculative trades. That’s why there’s so much volatility. There are all kinds of complicated ways they can make money on these trades, some of which rely on factors the average investor wouldn’t think of. So, for example, there’s one kind of trade, a carry trade, that works because of differing interest rates being offered by the central banks of various countries. Other trades are more straightforward: investors betting which way a currency will head based on some intuition or knowledge about that country’s economy.”

“So it’s a lot like the stock market: rich guys gambling with other people’s money,” Storm said.

“Yes, but there’s an important difference,” Click said. “The FX is not a regulated exchange. Every deal is essentially done on a handshake, or a virtual handshake. There’s no government watching over it, no special clearing house, no rules about the size of the trades, no one watching out for insider traders, no safeguards put in place to prevent large swings in the market. The New York Stock Exchange suspends trading if stock prices are dropping too far too fast or if there’s some kind of disruption in the markets that everyone needs to stop and digest. Not so with FX. It is open twenty-four hours during business days. If traders choose to bail on a certain currency, its value can — at least in theory — drop to zero, and no one will stop it. It’s a marketplace that relies solely on market forces for regulation.”

“Sounds like the Wild West,” Storm said.

“More than you know,” Click said. “Because another key principle is this: All major currencies in the world today are what we call fiat currencies. They’re not backed by any gold or silver or other commodities. They have value because the government that issues the currency says it has value, and the marketplace chooses to agree with it because the economy supporting the currency is fundamentally sound.”

Storm shook his head. “So it’s all based on shared faith.”

“Exactly. Especially with the U.S. dollar. A certain percentage of the value of our money comes from the fact that we’re considered the one unassailable currency — the too-big-to-fail currency. If you’re an international investor and you have a pile of money sitting somewhere, chances are you’re going to have it there in U.S. dollars. But economists have always speculated about what would happen if that stopped being the case.

“Now, bear that in mind when I tell you about October 2, 2008,” Click said. “If you think back to what was happening then, the financial world had pretty much gone haywire. Lehman Brothers had failed. Fannie and Freddie were teetering. AIG was about to collapse. Banks were petrified to lend each other money. There were runs on mutual funds. People were selling their entire portfolios and burying the cash in the backyard. It was a wild time, and pretty much every other day brought some news that no one ever thought they’d see. I think that’s why what happened on October 2 didn’t get much attention. Well, that, and it was over so quickly. The mainstream media didn’t even have time to understand it.”

“Understand what?” Storm asked. He realized he had scooted to the edge of his chair. Click, likewise, had leaned forward, so that his large body was smothering the edge of his desk.

“For about twelve minutes on October 2, 2008, the U.S. dollar lost roughly fifty percent of its value,” Click said, with all due drama.

“But… but wouldn’t that be impossible?”

“You would think so. You would have thought it was impossible for GM to go bankrupt, but that happened, too. Like I said, it was a wild time.”

“So what happened?” Storm asked.

“Well, that’s the question I have spent the last four years researching,” Click said. “The short version is that one of the most active and largest currency traders in South Korea decided he was done with the U.S. dollar. It wasn’t a particularly rational decision on his part. But, mind you, the Koreans were watching everything going on with the U.S. economy with disgust. They saw it as our lack of financial discipline over many years finally coming back to haunt us. So this guy essentially just cashed out and moved all his money into other currencies.”

“But… I mean, how many dollars are in circulation in the world?” Storm asked. “One person couldn’t possibly make that big a difference.”

“To answer your question, it depends how you define what ‘in circulation’ means. For sake of conversation, let’s just call it ten trillion. So, no, you wouldn’t think one investor, no matter how rich, would matter that much. But it turns out he did what’s called a double-back trade. I’m not sure I could explain the mechanism in a way that would make sense to you — no offense. Suffice it to say, it’s a trade whose impact on the value of the currency involved is not just double. It’s more like quadruple. And it was a huge trade to start with. It ended up triggering a classic negative feedback loop — a trend that started feeding on itself. Most of the trades were being done by computers that had been programmed to make certain moves when a preset value threshold was breached. The major stock markets around the world have checks against that sort of thing getting too far out of control. But, again, FX is an unregulated market. So there was nothing to stop these computers from doing their thing, and for twelve minutes, the value of the U.S. dollar collapsed in a way no one could have ever imagined.”

“But you said it only lasted for twelve minutes. Why?” Storm asked.

“Someone at the Fed saw what was happening, and the Fed swooped in and saved it. One of the ways the Fed controls monetary supply is through a big stockpile of government bonds it owns. It quickly sold a whole bunch of them for bargain prices to banks that recognized what a good deal they were getting. The Fed lost a pile of money, but in doing so it took a whole bunch of money out of circulation. From there, simple supply and demand took over. Supply had been constricted. Fewer greenbacks available made them more valuable, the negative feedback loops reversed themselves, and the dollar bounced back to what it had been twelve minutes before. To the media, it looked like one more bail-out from Uncle Sam, and one that they couldn’t argue with. So it was sort of a nonstory.”

“Okay, so…” Storm said, then turned to Xi Bang. “I’m sorry, what does this have to do with four dead bankers?”

“Well, I can show you if you like,” Click said, hefting himself out from behind his desk. “Come with me.”

Storm and Xi Bang followed click down a hallway, into a stairwell, then down some steps into the basement. Click turned into a room with several towers of servers, most of them at least as tall as he was. He sauntered up to one of them that had a keyboard and monitor built into the middle.

“Sorry to make you walk,” Click said. “I could access this from my desktop, but it takes forever to load, and I already have the model running down here.”

“I think I can handle the exercise,” Storm assured him.

“What you’re about to see in operation is the ISSMDM, the Iowa State Sudden Monetary Depreciation Model.”

“Everyone in the discipline now calls it ‘the Click Theory,’ ” Xi Bang interjected.

“Yes, well…,” Click said, as if all the attention from the enormous world of quantitative economics embarrassed him. He fiddled with the keyboard, then brought up a screen filled with numbers. “Now, bear in mind, this is a computer model of the FX. It’s a re-creation of reality, but it’s one I’ve spent four years perfecting. It allows me to predict the impact of a trade within a ninety-nine percent confidence interval.”

“Okay, so what am I looking at here?” Storm asked.

Click jabbed a finger at the screen, to a column of numbers expressed to the fifth decimal place. “There’s the value of the U.S. dollar relative to a variety of currencies in current market conditions. There’s the euro, the Swissie, the Aussie, the loonie, etcetera. I’ve just put ten up there right now, but obviously I can show you any currency you’d like to see. Here’s what happens to the value of the U.S. dollar when you sell a yard of greenbacks for, say, British pounds.”

“A yard?”

“Sorry. That’s FX slang for a billion.”

“The trades are really that large?”

“Some of them, yes,” Click said. “You have to recall, a lot of these trades are only making money way out on the margins, and only in very small percentages. So you need to make very large trades in order for it to be worth your time. So, anyhow, here’s what happens when I sell a yard of dollars.”

Click touched a button. Storm kept his eyes on the numbers.

“But nothing changed,” he said.

“Exactly. Nor would we expect it to. With ten trillion in circulation, shifting a billion one direction or another is like trying to move a hurricane with a ceiling fan. Now, here’s two yards.”

Storm watched as the last number on the screen, the one five spaces over from the decimal point, changed from 7 to 6. “Okay, I see it,” Storm said.

“Right. Now here’s five yards.”

This time, both the last digit and the second-to-last digit moved.

“Got that? Good. Now, here’s five yards, executed as a double-back trade,” Click said. The third-to-last digit changed, as did the two next to it. “I just affected the value of the U.S. dollar by a tenth of a cent. Still not that big a deal, right? I mean, the value of the dollar can fluctuate more than that on a daily basis and life as we know it goes on just fine.”

“Yeah, this doesn’t exactly look like financial Armageddon,” Storm confirmed.

“Trust me, we’re getting closer to Armageddon. Okay. Watch this. Here’s ten yards double-backed.”

The dollar in Click’s model was suddenly worth two cents less. “Still not much, right? But that’s because the negative feedback loops haven’t swung into action. It takes a little to make that happen. But, in the case of the Korean in 2008, we were talking about a one-hundred-fifty-yard trade — a historically large trade, all in one direction. Nothing like that had ever happened before. And, voilà.”

Click pressed a button. The dollar immediately lost seven cents against the British pound. “Now, wait for it…” Click said. And, sure enough, Storm and Xi Bang watched a simulated economic disaster unfold: The drop surged to ten cents. Then fourteen cents. Twenty-two cents. Thirty-eight cents.

Click pressed another button and the free fall halted.

“I just hit pause. Bear in mind, because this server is so powerful, I’m able to speed up the action so it’s happening faster than it would in real life. You just watched about fifteen minutes of simulated action. Now watch what happens when I have my simulated Fed step in to regulate the monetary supply by selling its bonds like it did in 2008.”

Click tapped a button, typed a few commands, then stepped back. Sure enough, the dollar quickly regained its lost ground and was soon trading at what appeared to be the same level as before.

“So, basically, no harm, no foul, right?” Click said. “As long as we’ve got Papa Fed watching our backs, we’ll be fine. But watch this. I’m going to execute six trades similar to the Korean trade of 2008, and — this is vital — they’re going to happen simultaneously, in six different currencies, all double-backed.”

Click’s fingers danced across the keyboard for about thirty seconds. Then he said, “Ling, would you like to do the honors? Press this button right here.”

Xi Bang slid to the computer keyboard, brushing Storm as she did. He was so engrossed in the demonstration that he nearly — nearly — forgot just how interested he was in seeing to it that their own foreign exchange program continued.

“This one?” she said.

“Yep. Go ahead.”

Xi Bang depressed the button and the numbers on the screen jumped at once. The numbers in the column on the left side, representing the U.S. dollar, ticked steadily downward. The column on the right, representing the other currencies, climbed accordingly.

“Now, I’m going to have the Fed intervene, in the same way it did before,” Click said.

The numbers on the left side continued their slide. It had no effect. By the time the numbers on the screen finally begin to stabilize, the dollar was a quarter of what it had been.

“What you’ve just seen would take place in about two hours of real time,” Click said. “So we’d be talking about the U.S. dollar losing three quarters of its value in two hours. The instability created in U.S. markets would be almost impossible to fathom. And that’s not even counting the ripple effects it would have across the globe. It more than likely would throw the world into a kind of financial Dark Ages that would last… well, who knows? Luckily we’ve never had the chance to find out. Suffice it to say, it would be bad.”

“And six traders, spread out across the globe, making large enough trades, could make this happen?” Storm asked.

“Yes,” Xi Bang said. “That’s a very basic summation of the Click Theory.”

“What would happen if it was just four traders?” Storm said.

“It would be enough to trigger the slide, but the Fed could still save it.”

“So six is the magic number.”

“That’s right.”

“Is there any way to stop it?” Storm asked.

“Yes, in theory,” Click said. “If the Fed sold everything it has — I’m talking everything, including the kitchen sink — it might have an effect. It would be an extraordinary measure on the Fed’s part. You literally have to max out the size of the Fed’s intervention, and even the model says we’d be looking at a forty-seven percent chance of a correction. Basically, it would be a coin flip as to whether it would work.”

“And without the Fed?”

“Armageddon guaranteed,” Click said. “Mind you, it’s a theoretical model. But the math, once you understand it, is really quite simple.”

“Like three plus three equals six?”

“More like any number times zero equals zero.” Storm nodded, then pulled out his phone.

“What are you doing?” Xi Bang asked.

“Following my intuition,” Storm said.

Storm stepped out of the server room, climbed back up the steps, then walked outside into the mid-afternoon Iowa sunshine, the kind that made crops grow and Storm squint.

No one would go to all the trouble to engineer a catastrophe unless they had neutralized the Fed’s ability to avert it. If Storm was able to find someone who had been tinkering with the Fed — either its personnel or its policy — he would be a lot closer to finding whoever hired Volkov.

And, much as Storm dreaded doing it, he knew he was one phone call away from a man who could probably find out what was happening, a man with his fingers stuck in pies all over Washington. Storm pulled out his satellite phone and pressed each button firmly, deliberately. He had learned this was not the kind of phone call you made lightly.

“What is it, Storm?” Jedediah Jones said, his voice sounding extra gritty, like he had just gulped an additional helping of sand.

Storm inhaled, to give himself one more second to think things through. This was a game he had played with Jones many times, the one where each man decided how much he could afford to show the other — and, more to the point, how much he could get away with holding back. For a man like Jones, information was like an Allen wrench — the more he got, the harder he would turn the screws later. And yet, in this case, there was no avoiding it: Storm would have to give some to get some. Given what he had just heard, there was too much at stake not to engage Jones and his considerable resources.

“I need some of your moles on Capitol Hill to do a little fishing,” Storm said.

“Yeah? What kind of fish are they trying to catch?”

“I’m curious if anyone is tinkering with the ability of the Federal Reserve to sell government bonds.”

“Really?” Jones said, almost sounding amused, because he knew, too — knew the game had already begun. “And why do you want to know that, Agent Storm? You wondering if now is the right time to invest?”

“Like I said, just curiosity.”

“Where are you right now?”

Jones had ways of finding out if he really wanted to know, so Storm didn’t bother lying: “Ames, Iowa.”

“Ames, Iowa? What’s in Ames, Iowa?”

“Mostly corn. But also a major American university.”

“Does this have something to do with dead bankers?”

“It might, it might not,” said Storm, even if he knew Jones could see through his noncommittal answers. “But probably it does. That’s what you’ve hired me to investigate, after all.”

“Yes, I’m aware. Can you give me a little more to go on?”

“Not really. I don’t know much myself right now. But maybe you could look into the person at the Fed who does this sort of thing and see if anything has changed about him or her? Maybe it’s a different person now? Maybe there’s been some kind of procedural change in that department lately? Maybe this person has been compromised in some way?”

“Who might be doing the compromising?” Jones asked.

“Wish I knew,” Storm said as he watched some college kids flipping a Frisbee, blissfully unaware of how precarious everything about their way of life had suddenly become.

“So I’m supposed to just nose around the Fed’s bond sales department until someone admits they’ve been taking bribes?” Jones asked. “Any guidance about how I should go about that?”

“Say ‘please’ a lot,” Storm said.

“People really like good manners.”

“I’ll keep that in mind.”

“Just trying to be helpful,” Storm said, then ended the call.

When Storm returned to Click’s office, the economist handed him a bound copy of the article that had been the basis for the Click Theory. Storm read it fast, skipping over the equations. Still, he felt like he was starting to understand it. Having seen the model in action helped.

“So there’s one thing I still don’t understand,” Storm said, as much to Xi Bang as to Click. “Say you’re the person killing these bankers. Why? What are you getting out of that? Dr. Click’s model would say you need these bankers alive, acting in concert, not in a morgue somewhere.”

“Well, we’ve already had some time to think about that and we have a theory,” Xi Bang said. “You have to recall, they were not just killed. They were tortured first.”

“Yeah? So?”

“We believe they were tortured for their MonEx passwords,” Xi Bang said.

“Translate, please.”

“The MonEx Four Thousand is the brand of terminal used by most major international currency traders,” Click said. “Part of what makes it popular is the speed with which it completes trades, and that it allows you to access all your accounts through one interface.”

“So if you were looking to pull the so-called Korean trade, that’s what you’d use,” Storm said.

“Exactly,” Xi Bang said. “So, basically, Volkov is collecting these passwords for someone else, someone who would know how to use them to pull off this doomsday scenario.”

“Well, then isn’t this an easy problem to solve?” Storm said. “We just call the people who make the MonEx, tell them those accounts have been compromised, and ask for them to be shut down.”

Click had started shaking his head midway through Storm’s so-called solution.

“MonEx makes the terminals and licenses the operating system that runs them,” Click said. “But for liability reasons, it disavows any control over the accounts created on them or what happens with the accounts. Essentially, MonEx is insulating itself legally from this very sort of thing. It’s saying, ‘Hey, we just make the tool. What people do with the tool is up to them.’ The only person who can terminate an account is the pass code holder. And traders treat their pass codes like something more than gold. They are instructed to share them with absolutely no one. Not their spouses. Not their employers. Not anyone. The idea is that if they should happen to die, the accounts die with them.”

“Instead, even though these traders are dead, their accounts live on.”

“As far as the MonEx is concerned, they’re still alive, yes,” Click said.

“But, okay, let’s just say Volkov is able to get two more pass codes and is able to feed them to someone who can make the Click Theory a reality? Why would that person want to do that? Who would actually benefit from the dollar plunging in that matter?”

“Anyone could,” Click said. “Anyone who has advance knowledge that a market is about to make a dramatic move in one direction can use that knowledge to make an extraordinary profit.”

Storm leaned back in his chair, the copy of Click’s article resting on his chest as he stared up at the ceiling for a moment.

“And how many people read the Journal of Global Economics?” he asked.

“There are maybe a few thousand subscribers spread out across the world,” Click said. “Most of those are going to be large university libraries, so there’s no telling how many people are actually reading it. There are probably some large, institutional investors that subscribe, maybe a few of the shops on Wall Street. But when you get right down to it, it might be no more than fifteen hundred people, worldwide. Why do you ask?”

“Because,” Storm said, “at this point, that’s our suspect pool.”