What else could he say? It was as though everybody's gnawing, primal fear had just been confirmed. There really was a hairy beast lurking in the bedroom closet, waiting to jump out and eat us in our sleep. The market was running to mommy: safe and soothing cash.
Next he made the tactical error of buttonholing a couple of floor traders and specialists for comments. They didn't bother to mince words. Their one, terrified question: Had Japan finally decided to let the U.S. and its towering debt just twist slowly in the wind? If that happened, U.S. capital would simply dry up, sucked in by Treasury's massive money-sponge: interest rates would soar, murdering the U.S. economy. The Great Depression of the nineties.
As I watched, a bulletin started running across the bottom of the screen: bids on the new issue of thirty-year bonds had now dropped an amount equivalent to raising their return almost two full interest points. I zeroed in as the text continued. Worse news. The "coverage ratio," which measures how many more bidders there are than necessary, had plummeted from 2.7 to 1.3. And still dropping. More and more potential buyers were running for cover.
Lou, who was now surrounded by traders in blue jackets and couldn't see his own monitor, was assuring his viewers that experienced market analysts were all saying the slowdown in Treasury action did not accurately reflect worldwide demand, that deutsche marks and pounds sterling undoubtedly were already winging westward to take advantage of the new higher rates.
Sweating there in his melting pancake, the poor guy had no inkling the patient was slipping into a coma just as he'd forecast full recovery.
Well, I thought, there's always prayer. Anything's possible. But . . . as Henderson used to say, if frogs had wings, they wouldn't bump their ass.
I got up to go downstairs and pour another cup of coffee. Coming back, I decided to forget about the stock market for a moment and just focus on Treasury, so I clicked on my Telerate service and scrolled through the financial quotes.
Friends, by that time there was no, repeat no, market out there for Treasury paper. Now that the Japanese dealers appeared to be dumping everything, European banks had hit the sidelines, waiting to see what transpired. Would rates continue to move up? Would Treasury be forced to withdraw the issue? Should everybody be bailing out now before bond prices went through the deck and demolished years of interest earnings? Looming over it all was that standing terror of the bond markets: no liquidity.
Back to Cable News Network. An officer from one of the dealer banks (which bid on big chunks of Treasury paper, then retail it) had rushed over to CNN's midtown studios and was explaining to us all it was clearly nothing more than some minor trans-Pacific communications snarl. The problem, obviously, was simple: Japanese securities firms here just hadn't received authorization from their head offices in Tokyo, where it was after business hours. A clarification would be forthcoming any minute now.
Well, if you've ever been turned down for a mortgage and you fantasized a day when you'd see that high-and-mighty clerk behind the desk have to ask _you _for a loan, I hope you caught that one. This paper-shuffler whose secretary had a secretary had agreed a week earlier to take on three billion dollars of Treasury's new debt issues--paper he now couldn't give away, let alone resell--and he was practically on his knees begging America to save his bank.
What the hell was going on? My mild-mannered friend Matsuo Noda had inadvertently (I assumed) kicked off a major financial panic.
I clicked the dial over to Financial News Network, FNN, which had momentarily interrupted its heavy midday fare of California snake-oil- and-options hucksters. Now a decidedly pale investment banker, this one an unindicted employee of Drexel Burnham, was declaring it was all merely a little "tempest in a teapot." His precise words. The Japanese securities houses wouldn't dare pull out their funds and kill the market, he explained. It was absurd. If they did that, their investors would lose a fortune, since any big sell-off would automatically drive down the value of their own massive portfolio. Ergo, Japan's funds had no choice but to stay invested. No problem.
My friend, I thought, where have America's bankers been? Out repossessing some widow's Chevy? As a matter of fact the Japanese outfits here don't give a flying fig what happens to our debt market. If you'd been doing your job, you'd know that Matsuo Noda had already sold Treasury futures far in excess of Japan's portfolio back when values were still high. Now he can go out and pick up all the notes and bonds he wants, cost approximately nothing, and turn around and deliver them at yesterday's full price. The man must feel like a riverboat cardsharp who's lucked into a saloon full of Huck Finns on payday. Don't you realize he's just cleaned you out, right down to the fillings in your teeth? And now he's got his team on the bus ready to roll.
Over to CBS, a Special Report underway. It featured a stream of well- meaning and incoherent Treasury officials, none of whom had the slightest inkling what to say. Then Jack O'Donnell came on from the Senate pressroom, breathing fire. The administration's "light at the end of the deficit tunnel" had turned out to be a freight train heading our way, just as he'd predicted. America's debt chickens were coming home to roost. He was demanding that the Speaker call a joint session of Congress this very day and by God do something.
Right, Jack. What? Looks like our pal Matsuo Noda is about to have the U.S. of A. exactly where he wants us. By the balls.
I guess I must have been operating solely on instinct by then, because a phone number popped into my head that I hadn't recalled in years. Sam Kline, my old broker at Merrill Lynch. I hadn't talked to Sam in ages, but his number used to come to my fingers whenever the market started acting up. Maybe he was sort of a father figure. Truth is, I'd first learned what little I know about the market watching that giant ticker ML had up at one end of the office just above Sam's desk--and long gone in this age of computers. I remembered how heavy trades--over ten thousand shares--were marked with stars, always fun to watch.
Forget the "financial experts." They were reduced to spouting pure gibberish. Time to check in at the real front line. Sam Kline.
Maybe I just wanted to have Sam to soothe me like in the old days, pour some of that dreadful coffee he had in his Thermos, tug down the cuffs of his trousers, and say not to worry, there's always tomorrow, the disaster in my portfolio merely reflected a long-overdue and healthy "correction" in the market. (Only years later did I finally realize that "correction" was a special Wall Street expression meaning all the stocks you own just tanked.)
When Sam finally got around to my call, he was barely coherent but still trying.
"Matt, what's new?" There was turmoil and yelling behind him, as though the office was about to go under a wrecking ball.
"You tell me."
"Well, at the moment it's something of a downside morning, but--"
"Sam," I snapped, "this is me, Matt, save the Pollyanna."
A short pause, and then he crumbled. "Matthew, want the truth? The Monday Massacre of '87 was a rally compared to this. That crash was just stocks. This time it's U.S. bonds, the dollar, everything. The market's falling apart. Right this minute the trust departments at First Boston and Morgan are dumping entire sectors like they were some nervous greenhorn in Oshkosh. Pension fund managers I've known for years are liquidating whole blocks 'at the market,' for whatever they can get. One specialist downtown just told me he had to eat a hundred thousand shares of, Christ, General Dynamics. You can't give away Northrop. And Lockheed, forget it. . . ." Another pause. "God Almighty, Matt, we need a market up here. How about--"
"Not now, Sam." It was like hanging up on my own father. A knife in my heart. "Look, I'll get back to you. Best to Naomi."
Good God. I wanted to hire an airplane and skywrite a big sign over downtown: WAIT. Trouble was, I wasn't sure myself what it was all about.
However, there was one thing I could do. I punched in the contact number for Dai Nippon, uptown, and told the polite little lady who answered the phone to get Tanaka on the line this goddam minute. About ten seconds later he was there.
"Are you guys nuts?" I yelled. "Doesn't anybody up there know what's happening?"
"We are well aware of the situation, Mr. Walton."
"Well, then, do something, for chrissake!"
"Our securities dealers here are in contact with the appropriate officials. Nothing is to be done without explicit instructions from Noda-san. He has not yet been in communication."
"Well, get him in communication."
"There is no cause for alarm, Mr. Walton." He continued calmly. "Noda- san has made sure that our dealers' exposure in Treasuries is covered by the futures contracts DNI has acquired. Japanese investors are sheltered from price fluctuations. Noda-san is most grateful for your--"