Cyber Attack (7 page)

“John, will you be in contact with these four?” asked Lowell.

“Most definitely, Lawrence,” said Morgan. “We have several weeks before we host the conference at The Liberty Hotel. I will have all possible contingencies addressed prior to then. Our resources, under the umbrella of Morgan Global, will become the lender of first and last resort for Europe. It is time to come out of the
shadows
, gentlemen—pardon the pun.”

Morgan toasted his fellow Brahmin, who laughed.
Shadow banking
, as the term was first used, referred to nontraditional, nonbank methods of lending. The term received a derogatory connotation after the 2008 banking crisis. The use of hedge funds and credit derivatives to finance the growth of America’s real estate market was not illegal. There would not have been a problem if people had simply paid their loans as they were contractually obligated to do. Morgan considered the insinuation of malfeasance unfair. He preferred to refer to his methods as the
facilitation of credit
.

“The collapse of the euro will have a profound effect on the markets and our own currency,” said Bradlee. “I have no confidence in this administration’s ability to handle the fallout.”

Morgan had considered this as well. This was also an opportunity to gain favor with the President and reap financial gain.

“I have thought of this, my friends,” said Morgan. “This administration’s appetite for quantitative easing—the printing of money to buy up our own debt—has to cease. At this point, the Fed now owns nearly one hundred percent of all ten-year Treasury Bonds. When this tool was initiated in 2009, the administration’s goal was to divest its bond holdings and normalize its balance sheet once the economy fully recovered. The recovery never happened. Now, inflation is forcing rates higher, which in turn are creating a staggering debt. Gentlemen, our nation is not that far behind the Eurozone. As one of our protégés likes to say—
all empires collapse eventually
.” Morgan allowed reality to settle in for a moment. All of these men were descendants of the Founding Fathers. They were freedom-loving, patriotic Americans who would spend their fortunes to protect America from failure. They knew tough decisions had to be made.

Morgan continued. “Gentlemen, our Founding Fathers worked just as tirelessly building our fledgling nation as they did in their fight for our independence from Great Britain. As fighters for the freedoms we enjoy, their causes for seeking independence followed a common theme—ensuring the freedoms and the rights of its citizens. Why should our fight for the protection of American freedoms be any different today?

“We are a nation in decline, politically, economically and socially. I, along with many of you, believe drastic measures are necessary to put America back on sound footing. I don’t think our country’s best days are behind her. But I do believe a
reset
is in order. Some of you have discussed this concept with me in the past. I do not know what a reset entails, but I do know it will be painful for some. As our forefathers knew, revolutions are nasty business, but necessary at times.”

Chapter 13

May 16, 2016

The
Boston Herald
Editorial Board

Conference Room

Boston, Massachusetts

Julia Hawthorne reluctantly accepted the praise being heaped upon her by Joe Sciacca, the chief editor of the
Boston Herald
. Julia just received another nomination for a prestigious award. Earlier in the year, Julia was awarded the Marconi Radio Award for the paper’s newly launched Boston Herald Radio—a first for an Internet radio station.

Now, the Society of American Business Editors and Writers granted Julia the Distinguished Achievement Award. Established in 1993, the SABEW singled out individuals who made a significant impact on the field of business journalism. It was another honor bestowed upon Julia that was sure to vault her to the top of every journalism headhunter in the county. For now, she was happy in her job, and her relationship with Sarge.

After their dinner together in December, she and Sarge became inseparable. Trips to the West Coast and getaways to Martha’s Vineyard gave them the opportunity to step away from their lives and focus on each other. Julia wanted to marry Sarge and she was certain he felt the same way. The time didn’t seem right yet.

“Julia, would you like to say a few words before we get started?” asked Sciacca.

Julia composed herself. Today was a busy day at the paper. The news of the day could fill a morning and evening edition.

“Thanks, Joe,” replied Julia. “It would be cliché to say this was a team effort, but I’ll say it anyway. Everyone in this room contributes to the publication of our paper. For one hundred and seventy years, journalists have taken great pride in producing the news and excellent editorial content for our fellow Bostonians. Our work on Herald Radio got us noticed again and I believe the SABEW award is just the beginning for this group. I say we step it up and show those guys at
The Globe
they better watch their backs.”

The other members of the editorial board provided Julia a brief moment of applause, but the serious looks on their faces indicated the accolades were short lived.

“Thank you, Julia, and despite your humble nature, the praise is well deserved,” said Sciacca. “Now, where the hell do we start?” Sciacca paused and then he answered his own query.

“I’ve been in the newspaper business my entire adult life. This is my thirty-third year at the
Herald
, covering everything from the crime beat, to Massachusetts politics and now as editor-in-chief. I will be honest with you. I’ve never been more concerned about the stability of the world from an economic or societal standpoint than right now. As journalists, it is our duty to convey the news to our readers without bias or hyperbole. The reader shouldn’t have to discern between reporting and editorializing. I am proud of this group for your ability to keep the two separate. Most news organizations fail at this task—often intentionally. We are now presented with a number of news stories across the globe, all of which could be front-page headlines. This is now the norm, rather than the exception. Our challenge is to bring the news to our readership, and listenership, in a way that doesn’t diminish the importance of the story.”

Julia became a little emotional listening to this iconic journalist pour his heart out. These were troubling times and her associates in the room were responsible for informing the public of every crisis. The media’s reputation had been tarnished and she hoped to do her part to restore integrity to the journalistic process.

“Okay, enough already. Let’s start with the European situation,” said Sciacca. “Sandra, what’s the latest?”

Sandra Gottlieb was the highly respected business editor of the
Herald
and was providing excellent reporting on the continuous increase in interest rates by the Federal Reserve. She had warned the other editors of the
Herald
about a potential exit by Greece from the Eurozone.

I bet she didn’t expect this
.

“In a word—chaos,” said Gottlieb. “We’ve discussed the potential default by Greece for some time, but as I pointed out in December, the attack by Ukrainian Special Forces on the Russian convoy at Mariupol seemed to accelerate the demise of the Eurozone. The relationship between European governments and Moscow was tenuous at best. After the attack, which smacked of CIA involvement, by the way, the delicate balance has fractured. The countries with the least to lose by the Eurozone collapse are Spain, Portugal, Italy and Greece. They have planned for the default and orchestrated the pullout over the weekend.”

“How have these four countries prepared?” asked Sciacca.

“First, they have all adopted their pre-Eurozone currencies,” replied Gottlieb. “Second, as a condition of their banks reopening, the governments have uniformly instituted capital controls. The anticipated reaction of depositors is to make a run on the banks. Closing them for several days was a good decision. This will allow the heads of state to issue appeals for calm.”

“Julia, from a political perspective, how do you anticipate the various governments responding?” asked Sciacca.

Julia wasn’t prepared to jump into the Eurozone collapse situation, but she and Sarge had discussed this subject over dinner the night before.

“Governments and their politicians have a common goal—remain in power,” said Julia. “I’d expect them to strike a nationalistic tone and separate their particular country from the others in the Eurozone. I foresee large political demonstrations orchestrated by the predominantly left-leaning governments of these four southern European nations. They will portray the wealthier nations of France and Germany as the bad guys. If they are successful, the people will rally around the decision and the new currencies.”

“Julia is spot on,” added Gottlieb. “I have seen the proposed currency notes issued by the central banks of the four nations. They are very patriotic, featuring symbols and leaders of their historic past.”

“What will be the effect on the United States economy?” asked Sciacca.

“Obligations to
official
creditors like the IMF, the European Central Bank and the other European governments account for the vast majority of the three trillion dollars of indebtedness,” replied Gottlieb. “These global financiers will bear the brunt of the foreign losses resulting from the default. The foreign bank exposure, including those of the United States, totals around eighty billion dollars, which is widely dispersed around the world. The direct effects on these banks should be manageable. However, this action will plunge the former Eurozone into recession. Europe is America’s largest trading partner and its demise will probably have an immediate impact on our floundering economy.”

Instinctively, Julia looked at her watch as the opening of the stock market approached. “Markets don’t like volatility,” said Julia. “How bad can it get?”

“The markets in France are our best indicator,” replied Gottlieb. “Like most cash and derivative markets, mitigation strategies are in place to prevent mass hysteria from collapsing an entire stock market. History has shown that crashes are driven by panic as much as by underlying economic factors. They are truly social phenomena where certain external economic events combine with crowd behavior, creating panic selling.”

It was human nature to follow crowd behavior. Julia had observed this at sporting events. During a football game, a fan might suddenly turn around and look at the sky. Suddenly, fifty thousand individuals began to act as a single unit, almost a single brain, focused intently on what was happening off the field. Sociologists claimed crowd behavior was partly responsible for the market crash of 1929.

“What happened in France?” asked Sciacca.

“The French equivalent of our Dow Jones Industrial Average of thirty benchmark stocks is known as the CAC40,” replied Gottlieb. “Their mitigation strategy is fairly complex, but transactions are suspended for one hour when certain levels are met and the markets close completely when twenty-five percent of the value of the CAC40 has been reached.”

“What happened after the markets in France opened?” asked Sciacca.

“After a series of suspensions of trading and corresponding resumptions, the markets closed. The CAC40 bottomed out at twenty-five percent of value within three hours,” replied Gottlieb.

The room became deathly silent as the magnitude of the crash in French equities soaked in. More than one person in the room checked their watches.

“Do our markets have similar mitigation strategies?” asked Sciacca.

“We do,” replied Gottlieb. “There are three thresholds, each of which represents different levels of decline in terms of points in the Dow. These are computed at the beginning of each calendar quarter to establish a point value based upon the market’s present value. They are known as circuit breakers.”

“I remember this,” said Sciacca. “During the market crash of ’08, trading was halted after drops in ten percent increments.”

“That’s correct, Joe,” said Gottlieb. “The SEC and the New York Stock Exchange have since amended Rule 80, which deals with the benchmark index to seven percent, thirteen percent and twenty percent. At twenty percent, trading will be halted.”

“What are we talking about here?” asked Sciacca.

“If trading is halted, indicating a twenty percent loss, the market capitalization of the United States will have decreased by nearly seven trillion dollars,” replied Gottlieb. “That’s half of the entire Gross Domestic Product of the Eurozone. Our investors have the most to lose by this.”

Julia checked her watch again. It was 9:30. This was going to be a newsworthy day.

Chapter 14

May 17, 2016

73 Tremont

Boston, Massachusetts

“You know, I just realized something,” said Donald as he rode up the elevator with Steven and Sarge, while ignoring the two bulky security personnel standing to their rear.

“What’s that, DQ?” asked Steven.

“In all the years we’ve known each other, we have never been here together,” replied Donald.

Steven nodded and Sarge thought for a moment.

“You’re right, Donald, and other than recent events, I have no clue as to why we’re here today,” added Sarge.

Yesterday’s news of the Eurozone collapse was dominating the major networks, not just cable news. When it was announced the European banks would be closed indefinitely, panic turned to anger throughout Europe. Rioters opened the doors of banks on their own, and cell phone videos began to show the destruction. By day’s end, nearly one hundred bank locations across Europe were destroyed by outraged citizens. As financial markets opened on day two, stocks crashed as investors sought the safe-haven investments of precious metals.

The elevator doors opened and Sarge led his companions to the reception desk. Despite attempting to exchange pleasantries with the ladies manning their posts, Sarge noticed a constant darting of the eyes in Steven’s direction. Animal magnetism, mesmerism and hypnosis were all at work when Steven encountered beautiful women.