An unmarked Lincoln Navigator driven by a stern-looking FBI special agent took Spencer Nast from his Tribeca hotel to the Jacob K. Javits Federal Building on Foley Square in the Civic Center district in Lower Manhattan.
The beefy man in a plain blue blazer with the Bureau’s insignia on the left breast had met the president’s economic adviser in the hotel lobby, and without a word had chauffeured him over and escorted him to an unmarked door on the forty-first floor that was equipped with a retinal scanner.
But the door lock buzzed open before Nast could look into the scanner.
“I’ll just leave you here, sir,” the agent said, and he turned on his heel and was gone.
The suite of offices belonged to the National Security Agency’s New York Operational Center, and its presence here was classified. Only those with the need to know were admitted, and Nast was one of them.
Inside, a pair of security officers were there to check credentials, take a driver’s license or some other form of picture identification, and require a sign-in, none of which was required for someone from the White House.
A young woman in a plain gray skirt and white blouse appeared. “Good morning, Mr. Nast, we’re already set up for you,” she said.
“Who’s waiting for my call?” Nast asked, following her down the hall of what could have been any minor government bureaucratic office: worn carpeting, drab green walls, scuffed desks, people going about their business with little or no noise.
“Mr. Kolberg.”
Samuel Kolberg was the president’s chief of staff, a dour man who had little time for anyone except his boss.
The teleconference center was behind a steel-reinforced door that the young woman opened by entering a seven-digit alphanumeric code on a keypad. Inside she seated Nast at the head of a small conference table that faced a large flat-screen monitor and CCTV camera.
“When you’re ready, just give your name,” she said, and she left.
The agency was best known as the major U.S. intelligence-gathering organization whose headquarters was in a black monolith of a building just outside Washington, from where it monitored as many as a trillion phone and computer messages worldwide every day. But the NSA also gathered satellite and drone intel, as well as provided the means, such as this office, by which federal officials up to and including the president could communicate with absolutely no fear of being surveilled.
Nast identified himself, and the monitor came to life, showing the president’s small desk and book-lined private office. The chair was empty at the moment. But Kolberg, no jacket, his tie loose, his collar button undone, came into view.
“Good morning, Mr. Nast, the president will be with you momentarily,” he said. “Please stand by.” And he left.
Nast was always nervous in the presence of the president, but he was especially jumpy at this moment, considering what he and the others were about to put into place.
Farmer, in a pinstripe suit, showed up and sat down behind his desk. At six-three, the president was an imposing man even when sitting. He had a square, granite-hard jaw, wavy gray hair, and shrewd eyes. During his campaign the media had dubbed him as a man “bucking to join the other four at Rushmore.”
“Okay, Spence, what’s the latest bullshit about China that has you all het up?” Farmer demanded. He sometimes affected a cornpone folksiness that made him sound like a dumb Texas hick. But he had a sharp intelligence, and was a master at sizing up the people around him. In addition, he was a student of history, an expert in both constitutional law, and in the politics of raising money for his campaigns. But he knew very little beyond the basics about economics, and that left an opening for Nast.
“It’s grim and could very well get worse, Mr. President,” Nast said.
“I’m listening.”
“You’ve no doubt read the intel brief about the feud that’s building up over there, and you’ve heard my take on what we’re calling the debt bomb. Our objective at this point should be to prevent the U.S., and the rest of the world, for that matter, from getting screwed by the Chinese mess. If their banking system went down, it would almost certainly trigger a massive recession, maybe even worse than the one that started in ’29.”
“Explain to me why on God’s green earth this could become our problem? If China goes down, then our trade deficit would be solved.”
“The worst-case scenario is that once the PBOC refused to bail out the smaller banks, Chairman Hua would have to start unloading his U.S. Treasury bonds to step in. And that’s a lot of money, more than two trillion dollars. But all sorts of loans are backed by our T-bonds—home loans, business loans, even car loans. Once the collateral shrank, the lenders would need their money back so they wouldn’t go down the tubes.
“Trouble is, our entire society is in debt up to its gills. People wouldn’t be able to repay their loans, and this thing could cascade into an even worse recession than the one that the ’08 subprime mortgage crisis created, and as I said, even worse than ’29.”
“Herbert Hoover had the bad luck to be president when the Great Depression started,” Farmer said. “They named shantytowns after him: Hoovervilles. A Hoover blanket was a newspaper. A Hoover flag was empty pockets turned inside out. And I can tell you that I don’t want to hear about Farmervilles. No thanks.”
Nast wasn’t the least bit surprised that Farmer was thinking more about his reputation than the health of the country. A typical fucking politician.
“I agree, Mr. President,” he said. “Which is why we need an action plan to get ready for the worst. And as it turns out, I’ve got one ready, which I can send to you immediately.” He had to stop from grinning, because once Abacus hit, any federal backstop would fall apart like a house of cards. But whatever happened he would turn out to be the hero. Or at least a hero.
Farmer sat back, nodding. “Okay, I like a man who warns me about a problem but then tells me that he has a solution. I wish I had more like you on my staff.”
Nast brought up his proposal on his cell phone and transferred it to the connection with the president. “It’s coming your way now, sir. We essentially use the template from the ’08 financial crisis and its aftermath. Bailouts for important financial institutions from the federal government to prevent their failure. Then the Federal Reserve would buy back as many bonds as possible to stop them from going bust. Plus, there’s a unique funding arrangement to turn to if no one is buying our bonds anymore and we need money to fund our program. And so forth.”
“And so forth? What about the innocent people who get laid off, who get their loans called, who lose their houses, who can’t afford to put food on the table for their families? Who end up living in a Farmerville?”
“If the banks are saved, Mr. President, they can renegotiate the busted loans with their customers.”
“Vultures aren’t kind by nature,” Farmer said, and he spread his hands. “After ’08, banks came out smelling like a rose, while real people went broke. But it was the banks that caused the problem in the first place. Quite a racket they had going. Instead of drinking in front of bars they should have been behind bars.”
“Perhaps, sir,” Nast said. “But look at it this way. Banks are like the engine of a car. Remove the engine, and the car doesn’t go anywhere. Banks circulate money through the economy. Anyone you pay, or anyone who pays you, does it through the banking system.”
“What I don’t understand is how we got into this mess in the first place. Sure, big debt has always been a problem, like an ugly wart. But now it’s like a cancer, eating us alive.”
Nast hesitated. “Well, sir, in all candor, one very big reason is that politicians promised more than the government’s revenues could deliver.”
“I’ll cop to that,” Farmer said. “I’ve done it myself. Gotta slop the hogs or they get ornery. Right now our debt is as much as our gross domestic product, I get that too. But in World War Two, wasn’t the national debt even more than it is today?”
“Yes, sir,” Nast said.
“We seem to have skipped past that without a problem. The debt shrank like a five-day-old tomato in the fifties. And by the nineties we were running a surplus, as I recall, and the national debt went down again. How come?”
Nast always liked it when the president wanted a tutorial, because he could show off his intellect and deepen the man’s reliance on him. “It’s true, we did run up a large debt in the war. But the postwar circumstances favored us. Europe and Asia were in ruins, so our companies swooped in to rebuild and provide them with our goods. We had no competition.
“In the fifties we enjoyed a surge in affluence. Our factories were humming at capacity. Everyone was buying new cars. And new technologies, like television, were creating new industries. A torrent of fresh tax revenue from all this business activity and consumer spending meant we didn’t have to borrow as much, and the debt naturally went down, like that tomato.”
“And in the nineties?” Farmer asked.
“Another explosion of new technologies. Suddenly the internet and advanced computers delivered a new leap in economic productivity. But then it ended.”
“Why?” the President asked.
“It reached a saturation point, which happens after a technology expansion. The railroads and the telegraph in the 1880s were powerful economic boosts. Then things plateaued. Today we have further technological innovations, sure, but they don’t deliver the big bang we saw in the nineties.”
“You’re tiptoeing past the part the politicians played, like yours truly.”
“I appreciate your honesty, Mr. President,” Nast said. He loathed buttering up people. Most of them weren’t as smart as he was, and they didn’t deserve civility, let alone flattery. Still, he made exceptions for his superiors in rank, such as Farmer and Treadwell.
“In the Reagan era, and again with the second Bush and Trump, taxes were cut, mainly for the wealthy and for corporations, on the theory that the extra money in their pockets would juice the economy.”
“But it didn’t happen, did it?”
“They expected more factories, more research and development, more productivity, and it did happen to some degree. Mostly, though, the rich and corporate America pocketed the tax savings. Companies preferred to spend money on buying back investors’ stock, and pleasing the well-off crowd, rather than plugging it into research and development and the like, which would take a while to pay off.”
“Everybody’s hooked on debt,” Farmer said. “More addictive than heroin.”
“Private equity firms borrow tons of money to take over companies, fire a lot of the workers, then sell off the remnants for a big profit. Nothing is created, just paper profits for the takeover guys and misery for everyone else.”
“And it’s firms like your old employer, Burnham Pike, that lend the pirates the money they use for their takeovers.”
Nast always got uncomfortable whenever the president brought up BP. But he ignored the remark, hoping Farmer would drop it. “Corporate power has grown; unions have become a joke, so workers have no bargaining power. Plus U.S. companies automate factories or ship American jobs overseas to countries where labor costs are dirt cheap. So in inflation-adjusted terms, people are making less money than they did ten or twenty years ago. That’s why consumer debt has gotten out of control. Average people borrow to bridge the gap between what little they can earn and what they need.”
“Government’s been spending the long green on other stuff too.”
“Yes, sir. For starts we’ve beefed up the military. The Iraq war alone cost us $2.4 trillion, which was a waste if you ask me. We’ve made all kinds of promises to the public with Social Security and Medicare, which cost more and more as our population ages, with fewer young people to feed the system. To combat the Great Recession, we had to lay out additional trillions.”
“Some of it to bail out Wall Street,” Farmer said. “Now, I love you like a brother, and that’s a natural fact. But let me ask you this. You were the top-dog economist at Burnham Pike before we made an honest man of you and hired you to serve your country. BP’s a bank too, so your old buddies like Treadwell will benefit from any bailout we might offer. Right?”
“Yes, Mr. President, Burnham is an investment bank. Its main focus is on financing corporations and managing people’s investments.”
“Big companies and wealthy people.”
Farmer, who gladly took donations from Treadwell and his one-percenter buddies, also had a populist streak. Nast understood this. In public he was a friend of the little guy, while he held his other hand out to take money from the big players.
“That’s true, sir,” Nast said. “The big commercial banks like Chase and BOA have large retail branches that offer the public checking accounts. BP doesn’t do that. But in the eyes of the law, it’s still a bank.”
“And it would take a sweet bailout from the Fed if they got themselves into trouble.”
The debt bomb, with Abacus to light the fuse, would leave just about every bank in tatters, with the exception of Burnham Pike, which would come out the hero.
“This time the bailouts would have to be bigger—if it came to that,” Nast said. “I’m just saying, Mr. President, that we should be prepared in case things do start to go south.”
“Tell me, Nast, does your proposal recommend who would be in charge of the rescue operation? You, perhaps?”
“No, sir. But someone would have to put it to the key people on the Hill. Probably Bob Nichols and Joe Miller.”
“No shit. You’d be about as welcome in Congress as a whore in church. No offense.”
“None taken, sir.”
Farmer was silent for several beats. “I want you back here as fast as possible. I’m going to call a meeting in the Oval Office as soon as you get back. The more heads we can put together on this thing, the better off we’ll be.”
It was called spreading the blame, in Nast’s estimation. Diluting the situation so that the president would come out the savior of the nation if it worked, or if it didn’t, at least he would go down fighting as the champion of the underdog.