The Billion-Dollar Killing: Paul Erdman
Another great financial thriller from the former Swiss Banker turned writer. Bretton Woods protocol of 1934 linked the US dollar to Gold and refixed the official price to $35/ounce from $23, made the $ convertible to gold. All other European currencies were accordingly pegged to the dollar, which became the benchmark currency of the world. By 70s, Europeans suspecting the overvalued dollar, decided to opt for gold, and decided to partly convert their dollar holdings into gold. Result was that Us ended up having $65 billion IOUs whereas they had only $10billion worth gold in Fort Knox! In 1973, Nixon decided to renege, backed out of gold convertibilty, and devalued dollar. Others too had to re-adjust their currencies.
The story based in 73 October scenario starts from here. This action of US has lead Europe and Japan to form an alliance, which secretly decided to tie their currencies to gold, and make them convertible. Which meant that Us dollar would take a beating, lose its market leadership and take a backseat. They planned to do this by Jan-74. Americans get to know this and decide to take a pre-emptive action of making dollar once more convertible at a new gold price and revalue the dollar.
The plan is worked out and timing decided. Bank of International Settlements (BIS) has to be taken into confidence. US Treas-sec meets BIS chairman Bollinger secretly in London, discusses the plan and hands over a red-folder. Swiss Bank Chairman Hofer chances to witness the secret meeting and starts speculating about it. Malekov of Russian Foreign Trade Bank on flight to Zurich, meets Bollinger on way home, and manages to briefly peep into the red folder for a second. Just one sentence that he manages to read is enough to get Malekov wise to the fact that something is cooking.
Russia is planning to sell huge quantity of gold to buy American wheat, gold has already arrived in Zurich, Melekov decides to put the sale on hold, and rushes back to Moscow. Bollinger’s Basel home is broken into, safe is cracked, and the red-folder is stolen. Swiss police, to avoid an international scandal, start a quiet investigation to get back the folder. Stanley Rosen, a smart, reputed, investment banker is retained by Arabs to manage their $200 million portfolio. Rosen the smart analyst always smelling of opportunities much before anyone else, suspects US action, and decides to buy gold (which is going to go up ) and shortsell dollars in 3 month forward (which is going to be cheap), thus make a billion dollar killing within a month for himself and his clients. Independently, Melekov, as well as Hofer too reach similar conclusions and decide on similar course of action. The coincidence is that all three start together! Gold starts moving up and dollar starts sliding down.
The panic spreads, US Government is shocked, and to prevent dollar sliding ends up spending $7billion in a day to prop it up! Erdman, the expert economist and financial expert, always tries to use his books to teach the readers hi finance. Here he uses the visit of Hofer’s niece to Swiss Bank Trading room on an orientation course, to explain to the readers, the basic rudiments of Foreign Exchange trading and Bullion market operations. These 2 pages are most interesting and educative. In the meanwhile US takes a series of clever measures, and suddenly for three different reasons, the market process starts reversing. Everything comes back to normal within 2 days, run on the dollar and US meltdown is averted. The whole crisis and restoration is described beautifully in a step by step account. Who stole the red folder? What for? How did it get back to Bollinger?
That’s an another interesting suspense story. Erdman’s remarkable story telling skills, coupled with his phenomenal knowledge of economics and finance, make his books excellent financial thrillers which are not only informative, but highly entertaining and interesting as well. This is another great book worth reading many times over. I have read it