Schneider took the elevator up to the seventh floor, leaving the noisy trading floor in exchange for the peaceful, even reverent hush of where the real business of the market was conducted. Downstairs was theater; up here was the nerve center.
He’d always loved the sense of history about the entire NYSE building, which had opened in 1903. A lot of care had gone into the architecture, from its fine Corinthian columns on the façade, to the expanse of the trading floor and the elegant rooms above. Pockmarks still remained out front from an anarchist’s bomb that went off in 1920, killing thirty-three people and injuring four hundred.
The upper rooms had the studied care of a museum and had memorabilia like Jimmy Page’s guitar, which the Led Zeppelin founder had played on the floor when Warner Music went public in 2005. And a framed letter from Thomas Edison, who had perfected the telegraph system, called the ticker, that delivered stock prices. Also, housed in a cylindrical case of unbreakable glass, the original signed agreement that founded the exchange under a buttonwood tree a few blocks down Wall Street in 1792.
He went down the hall to the 1792 restaurant, the exclusive enclave for NYSE employees and people from exchange-listed companies. One wall featured a large mural of the signing of the Buttonwood Agreement. Another had a framed menu from 1943, on which the most expensive item was a lobster salad for $1.25.
The breakfast rush before the opening bell was long over, leaving only a few of the tables occupied. Betty Ladd was seated alone in a corner, thumbing a message on her cell phone. She was an attractive, well-put-together woman in her early fifties with stylish medium-length auburn hair, her trademark pearl earrings, and a dove-gray expensive suit with a white silk blouse.
She had joined the exchange thirty years ago as an intern right out of college—when there weren’t any ladies’ rooms on the seventh floor.
As Schneider approached, she looked up and smiled. “Have a seat, Schneider,” she said, laying her phone down.
She often referred to people, especially men, by their last names as one small way of asserting herself in what was still a male-dominated profession. And she always drank super-hot coffee, to make another point that she liked her coffee the same way she liked her men. Her boyfriends were uniformly handsome and accomplished. Divorced, she didn’t seem to want to settle down, no matter how nice the men were. She had only been in love once, and it had ended badly. The man had turned out to be a rat.
After an early stint with the exchange, she’d become a trader at Salomon Brothers, where she thrived as an “honorary dick” among the hard-charging male traders, known as “big swinging dicks.”
She had become a tough woman in a tough profession, and no one screwed with her.
“You called, I came, Betty,” Schneider said, sitting across from her. “What’s on your mind?”
“I hear that Reid was on the floor this morning for an IPO. A little unusual, wouldn’t you say?”
“He doesn’t always play by the rules, everyone knows that.”
“The word is he even turned down a CNN interview.”
“He has his shy side,” Schneider said. They were both playing a game, and both of them knew it.
“Bullshit, Seymour. He’s teasing the network guys, so what’s he really up to?”
“He was busy with Rockingham’s daughter. She heads the company’s marketing department, and the word on the Street is that she’s pretty good.”
“So, he’s chasing another skirt, what’s new?” Betty said.
Ten years ago, she’d had a brief affair with Treadwell, joining a legion of women he’d bedded. The affair had broken up her marriage, but not his. Treadwell’s wife was a society doyenne, who’d never bothered herself with her husband’s flings. He was making a lot of money, and that was sex enough for her.
“Is that what you want to talk about? Reid’s sex life?” Schneider asked.
Hidalgo, 1792’s headwaiter, brought a skim cappuccino, the only thing Schneider ever ordered up here.
“Rumor is that BP is cashing out a good share of its proprietary accounts, a lot of the trades on a number of dark pools. He’s even spreading the money around in small bits to banks to get in under the FDIC’s limits.”
“I’m a simple trader on the floor.”
“He’s taking a large piece of BP’s capital and squirreling it away like hiding it in a storm cellar with a tornado on the way. That’s a disaster scenario, Seymour. Drastic, wouldn’t you say?”
Schneider shrugged. “Rumors are a dime a dozen. Why don’t you ask Reid himself?”
“We don’t talk.”
When she’d announced over dinner with Treadwell and a few Street friends at Delmonico’s that her husband had left her when he’d learned about the affair, Treadwell had dumped her then and there in front of everyone. She’d supposedly reacted by tossing her whiskey sour in his face and storming out.
“I can’t discus BP policy,” Schneider said. “You know that.”
She sipped her scalding coffee without flinching. “You and I both know that China is going to rise up and bite us in the ass. And you’ve been the town crier, telling everyone that the worldwide debt load is going to come crashing down on us.”
“I’ll own up to that much,” Schneider said. “And when it comes—not if, but when—it won’t be pretty.”
“Reid’s a shrewd man. He’s a bastard, but he knows his business. And he has to know what’s really going on in Beijing; he has ears everywhere, including Spencer Nast, who I was told was also on the floor this morning. He was one of your guys, and right now there’s no doubt he has some damned good intelligence sources.”
Schneider knew exactly where she was coming from, because he was asking himself almost the same questions. “Above my pay grade, Betty.”
“Really,” she said, giving him a small, vicious smile. “You’re the old man of the sea on the floor. You know everyone. You hear things.”
“Do I?”
“Here’s the trouble for BP, and trouble for Reid and for you, personally. Your company is taking its capital off the board—money it uses to trade and make deals for its own accounts.”
“And the trouble is?”
“You guys have a legal responsibility to safeguard your clients’ money. If Reid suspects that hard times are coming and protects the firm’s money, but not its clients’, it could be construed as a violation of securities law and exchange rules.”
Schneider said nothing. There was nothing meaningful he could say. He was in a corner, and Reid Treadwell had put him there.
“If BP goes down, you will too, Seymour. Do I make myself clear?”
“What do you want?”
“For now I want your take on how a Chinese bank collapse is even possible. The Communist Party controls everything. If the People’s Bank of China sees commercial banks folding, it would take them over and print more money to recapitalize them. In the trade wars we’ve had with China, the PBOC was always there to keep the banks in good shape.”
“You’re right up to a point,” he admitted, his voice lowered even though no one was close enough to overhear. “But what I’m about to tell you never came from me. Deal?”
“Deal.”
The waiter came, poured more super-hot coffee, and withdrew. Ladd drank without letting it cool down.
“I won’t confirm that this came from the White House via Spencer, or from anyone else connected in any way with BP.”
Ladd held up a hand. “I got it. Maybe a little bird told you. What are you saying?”
Schneider sat back and gathered his thoughts. “We think of China as the monolith, which used to be true. But Hua Biao is weak, while Liu Feng is smart and one tough son of a bitch.” Hua was the chairman of the Communist Party, and Liu was the new governor of the People’s Bank of China.
“Common knowledge.”
“What’s not so common is that the PBOC used to be a puppet of the regime. But Liu has his own ideas.”
The PBOC was much like the Federal Reserve in the U.S., with the authority over bank supervision, interest rates, and if necessary, the creation of money. After Mao Zedong’s death in ’76, the Party turned to a hybrid system of Marxism and capitalism. Commercial banks, overseen by the regime-controlled PBOC, lent money at a wild pace to private as well as publicly owned corporations to build the economy as rapidly as possible. And they succeeded fabulously. In a very short time China became the second largest economy on earth behind the U.S.
“But the commercial banks made a lot of very bad loans, at the regime’s request,” Schneider said. “Loans that are going into default; companies are not even making interest payments, let alone paying off the loan when it’s due.”
“The PBOC will bail them out same as always,” Ladd said.
“Maybe not this time,” Schneider said. “If they freeze up, which might be starting to happen, their entire economy could collapse, bringing tough times for everyone else.”
“Including us.”
Schneider nodded. “And that’s not all. Liu is demanding that Hua step aside and let him take over the Party as well as the central bank. But Hua, and almost certainly the Politburo, has ordered the PBOC to continue bailing out the banks. Liu is saying no, so that if the economy takes a dive, which it will and very soon, it’ll be on Hua’s head.”
“Power politics,” Ladd said.
“At the highest level. And that’s what Reid is trying to guard against. If China goes down, everyone will get burned. Emerging countries supply them with raw materials. Germans sell them cars. We sell them soybeans and a lot of other foodstuffs. If all of that goes south, a lot of people will get hurt.”
“It’s like Reid knows the other shoe is about to drop,” Ladd said. She shook her head. “Talk to me, Seymour. What’s he thinking?”
“As I said, Betty, it’s above my pay grade,” Schneider told her. But Reid did know something the rest of them didn’t. And it had something to do with an abacus, the Babylonian calculating instrument of beads strung on wires that had been important in early Chinese history.
On the floor earlier this morning, O’Connell had mentioned it to Reid, who got angry, which he never did. Schneider, standing nearby and unnoticed, had overheard. Whatever the “abacus” was, it was important enough to scare the hell out of both executives.