Nichols and Miller rode in the backseat of a limousine on the way over from the Federal Reserve to the White House. Traffic was heavy as usual, but not as heavy as the mood of both men.
“I hope he buys what we’re suggesting,” Nichols said.
“I hope he understands it,” Miller replied.
“Spencer will be able to explain it to him,” Nichols said. He leaned forward. “Is anyone following us?” he asked.
The driver, in a black suit and white shirt, glanced at the secretary of the Treasury’s image in the rearview mirror. “Not to this point, Mr. Secretary,” he said.
Nichols sat back, only slightly appeased. It wasn’t every day that the two most powerful men in the nation’s financial apparatus visited the White House at the same time. If the media got wind of it, questions that neither man wanted to answer publicly would be asked.
They were admitted through the west gate, past the Eisenhower Building, well out of sight of the press room. An aide met them at the door and escorted them to the Roosevelt Room, directly across the hall from the Oval Office, where they took their places at the conference table.
“FDR rescued us from chaos,” Miller said. “As bad as the Great Depression was, his New Deal literally saved the day.”
“He didn’t have the same trouble selling T-bonds as we’re having right now,” Nichols shot back. “And this is just the first of our problems.”
“Unless we raise the rates, as you suggested.”
“How high is the question,” Nichols said. He was genuinely worried, more now than any time in the past. “I don’t want us to come across as some third-rate Third World country. And our debt load is already so high, adding to it would put our interest repayments higher than our military budget.”
Kolberg hesitated at the open door for just a moment or two before coming in. “For your information, gentlemen, this room is named after both FDR and Teddy,” he said with his usual sour attitude.
“We stand corrected,” Nichols said. “We have a lot to cover this afternoon. Will the president be joining us shortly?”
“He’s on the phone now, but he wants you two to be point men for any crises that might develop. Spencer will call the behind-the-scenes shots.”
“Nast is nothing but a Wall Street shill,” Nichols said, not wanting to believe what he was hearing. He and Miller exchanged a glance.
“Not my decision,” Kolberg said. “He has the president’s complete trust.”
“Everyone on the Hill actively hates him,” Nichols said.
“And his pals at Burnham Pike are going to use him to take advantage of the Chinese problem,” Miller added. “Mark my words.”
Kolberg shook his head. “It may come as a surprise to you that I agree. I heard about the bullshit he pulled at Penn State to get a tenured professorship.”
“And now he advises the president of the United States on economic policy.”
“As I said, it’s not my decision. Nast was suggested by Reid Treadwell, who was, and still is, one of the president’s strongest supporters.”
“Treadwell’s out for only one thing—Treadwell,” Miller said. “You know how he shorted the market in the mortgage meltdown crises in ’08, and BP came out smelling like a rose. It was a wonder he wasn’t indicted for that move.”
“Could be he’s doing the same thing again,” Nichols said. “Or don’t you read between the lines?”
“We’ve heard the rumors that BP has been liquidating its stocks, bonds, anything else they can get rid of, and going to cash,” Kolberg admitted. “Then spreading it around in small amounts so that their deposits are protected by the FDIC. But they’ve broken no laws, right?”
“You’re right,” Miller said. “But as a lawyer you ought to be able to see how close it comes to being outright fraud.”
“Enlighten me, Mr. Chairman,” Kolberg said dryly.
“The FDIC guarantees up to a quarter of a million dollars per account. But it’s not tax money, the funds come from what the banks pay in fees. So if all hell breaks loose the deposits will be safe.”
“I know that,” Kolberg said.
Miller sat forward to emphasize his point. “You have to ask why Treadwell is taking his bank to cash right now. Does he know something the rest of us don’t? Or could it be something else?”
“What are you suggesting?” Kolberg asked, obviously taking care with his words.
“All I’m saying is that Treadwell is a smart man, maybe too smart, and Spencer Nast is his, always has been,” Miller said.
An aide came into the room, said something in Kolberg’s ear, and stepped back.
“Mr. Chairman, the governor of the People’s Bank of China tried to reach you at your office; his call was patched through to here,” Kolberg said. “Would you like to take it in private?”
“No,” Miller said. “Do it here and now with the three of us and the two Roosevelts.”
Kolberg hit the flashing light on the telephone console, and Liu Feng came on the speakerphone.
“My greetings to you, Mr. Chairman,” he said, his English almost without accent. He had studied at Princeton and received his economics Ph.D. from Stanford. “You are at the White House, and I suspect that you are not the only government official present. Am I correct?”
“You are, Governor Liu,” Miller said. “I’m with Secretary of the Treasury Bob Nichols and White House Chief of Staff Sam Kolberg. We have been discussing what is currently happening in Beijing.”
“I would be more concerned about what is happening in your own country. Namely, the failure of your Treasury bond auction. Maybe we talk freely?”
Miller glanced at Nichols and Kolberg. Chinese intel had to be damn good. News of the auction debacle hadn’t broken yet in the U.S. media. “We’ll figure that out. What worries me most is that the PBOC won’t bail out its commercial banks that are teetering on the edge of failure, which puts your economy in grave jeopardy.”
“The banks having trouble are themselves to blame, along with our own—at present—incompetent government planners. We are the People’s Bank of China, serving our population, not the imbeciles who run the commercial banks. Let Mr. Hua’s government repair the problem it has created.”
“Governor Liu, this is Secretary Nichols.”
“Good afternoon, sir.”
“Won’t the PBOC’s noninvolvement not only cause a large number of Chinese commercial banks to fail, but possibly create a panic that would spread worldwide? Perhaps even worse than what happened because of our own poor banking practices in 2008?”
“Mr. Secretary, I believe that your immediate concern is that Hua’s government will unload the two trillion dollars’ worth of your T-bonds we hold. It would give the government immediate cash, but it would severely devalue your bonds even further than is happening at this very moment. The effects of that move would be worse, as you say, than the panic of 2008.”
“We are working the issue, Mr. Chairman,” Nichols said.
“Then we must agree that we have a common problem,” Liu said. “Too much debt. Perhaps, then, it might be a good thing to go through the purgative of a global depression.”
“I’d prefer that we not,” Miller broke in. “Such catastrophes not only lead to much suffering but as a result of the 1929 crash and the depression of the thirties, we were led into World War Two.”
“We may find out, despite our best efforts, Mr. Liu,” Nichols added.
The silence hung heavy until Kolberg spoke up.
“Secretary of State Marcus Conwell has been trying to reach out to you and Mr. Hua without success.”
“Mr. Conwell is a politician. He and Chairman Hua understand each other. But I prefer to speak with economists, who understand that the worldwide debt is out of hand. If we need to go through fire to be rid of it, then so be it.”
Miller had no idea what to say in reply. It sounded to him that the man was talking about war. Nuclear war!
“It is the middle of the night here,” Liu said. “I must get my rest.”
The connection was broken.
“Jesus Christ, did I hear what I thought I just heard?” Miller said.
Kolberg got to his feet. “I’ll brief the president.” He’d brought a file folder with him, and he laid it on the table. “This is Spencer’s plan, and it’s impressive.”
“You can’t be serious,” Nichols said. “The Treasury secretary and the Fed chairman are the ones to make those kinds of plans, the same as they did in ’08. Not some Wall Street puppet like Nast.”
Kolberg left the room without another word.
“We need to go to the Hill,” Miller said. “Get the Speaker’s attention.”
“Speculative disasters have never moved Congress, and you know it,” Nichols said.
“Well, something’s going to give, and when it does, everything will fall into a bucket of shit, and you know that too,” Miller said. “We can kid ourselves that we have the resources to prop up the system like we did in ’08, but we don’t. We simply don’t.”