Here’s how the math worked. To speculate on currency, you bought contracts that stipulated what that currency might be worth thirty, sixty, or ninety days in the future. One contract controlled $1,000 worth of the currency. Astor had purchased 200,000 contracts, giving him control of $20 billion worth of the currency, or around 126 billion yuan. But Astor didn’t have to put down the entire $20 billion. According to the margin requirements as set forth by the Chicago Board Options Exchange (CBOE), the organization that looked after currency trading, he needed to deposit only 10 percent of the contracts’ value, in this case $2 billion. Astor put in a billion himself. He borrowed the other billion from banks that specialized in this kind of thing, thus leveraging his position twofold.
If he took $300 million from Reventlow, he would have to go to all his lenders and renegotiate his agreements.
“No,” said Astor. “We can’t.”
“Excuse me?”
Astor stood and made a point of looking at his watch. “We can’t find an arrangement. Fund closed. Is there anything else?”
Reventlow’s brow tightened, and red arrows fired in his cheeks. “We are both talking about three hundred million dollars?”
“Three hundred million or three billion, it’s all the same.”
“But-”
“I’m sure you’ll be pleased with our returns this quarter, however. We’re expecting a major event ourselves in our primary position. Now, if there’s anything else…”
“You can’t turn me down. I have to-we have to-invest this money.”
Astor moved toward the door. “Goodbye, Septimus.”
Septimus Reventlow rose from his chair, his pale face paler, his calm demeanor ruffled, a man in the first stages of shock. Clearly, no one had ever told him to take $300 million and shove it up his ass.
Astor allowed Reventlow to walk himself out of the office. Returning to his desk, he opened his drawer and popped a Zantac. It was barely ten o’clock and his stomach was already acting up. He wasn’t sure what was going on inside his gut, only that it felt like Vesuvius getting ready to blow.
Reventlow.
Hot money always did that to him.
Astor passed Shank on the way out.
“What’s up?” said Shank. “You can’t just skip out.”
“I have something I need to do.”
“Like?”
“I’ll tell you later.”
“What about the position?”
Astor stopped at the door. “What about it? Everything’s fine. Just a blip.”
“Exactly,” said Shank. “But blips never happen with the yuan.”
Astor didn’t answer. He was already moving across the trading floor. Shank was right. Blips never did happen with the yuan. Unlike other currencies, the yuan was not freely floating. The Chinese government maintained a strong hand on its daily ebb and flow. It was only recently that the government had allowed the currency to be traded by foreigners at all. The sudden move made him anxious. Maybe that’s what was causing his stomach to go haywire. Either way, he’d worry about the position later. Right now he had another priority.
9
Halfway across the globe, someone else was worried about the blip.
“Good afternoon, gentlemen,” said Magnus Lee, chairman of the China Investment Corporation, or CIC. “And lady. We have a full agenda. I suggest we begin.”
Lee stood at the head of a conference table on the twentieth floor of the New Poly Plaza building in Beijing. It was the last Monday of the month, and as such, time for a meeting of the investment committee.
Created in 2007, the China Investment Corporation’s sole purpose was to invest the country’s vast foreign exchange reserves. For decades China had exported far more goods and services than it had imported. The result was a cumulative surplus of $3.5 trillion, an amount equal to the annual gross domestic product of the Federal Republic of Germany and less only than those of Japan, China itself, and the United States of America. Three-quarters of that money was placed in the safest, most conservative financial instrument on the planet: United States Treasury bonds. But one quarter was allowed to seek out more attractive returns. The money allocated for investments in equities, corporate bonds, real estate, and what financiers enjoyed calling “special situations” was placed into what was called a “sovereign wealth fund.” It was this money that the committee had met to discuss.
Lee had established the fund with a stake of $200 billion. Since then he had run the money up to $900 billion. He liked to think of himself as the richest man in the world. Still, $900 billion was only a small portion of his country’s total reserves. Like most rich men, he was congenitally greedy. He wanted more.
From his place at the head of the table, Lee silently greeted each committee member with a smile and a look from his glacier-blue eyes. The meeting followed a strict agenda. Each director stood and offered a succinct report of his or her department’s recent activities. Lee began with the director in charge of North American equities. “Please, Mr. Ping, go ahead.”
“I’m pleased to announce that we have increased our stake in Morgan Stanley to twelve percent. This is our first significant share purchase in the company since our original investment in 2007. Clearly the moment was not ideal.”
“But Mr. Ping,” said Magnus Lee, “even the loveliest rose cannot bloom in poor soil.”
Ping beamed, publicly absolved of his poor timing. “During the last month,” he went on, “we purchased an eight percent stake in Noble Energy Group for $900 million, a seven percent stake in Boeing for $5 billion, and a four percent stake in Intel for $5 billion. To date, we hold stakes in eighty-nine U.S. corporations valued at $400 billion. Sixty-seven of them are Fortune 500 corporations. Twenty-five are Fortune 100 corporations. Marked to market, our investments show an increase of two hundred percent.”
It was CIC policy to take only minority stakes in foreign corporations and never to influence company policy. It was also CIC policy to invest in a spectrum of industries: energy, consumer products, finance, airlines, automobiles, and of course technology.
Finally, the director of North American equities stated that he had just completed negotiations to purchase a sizable stake in one of the financial service industry’s most prestigious companies, American Express.
Lee clapped, and the entire table quickly followed suit. “Impressive,” he said. “Perhaps we will all receive platinum cards.”
“Ah, but Mr. Lee, surely a vice premier deserves the Black Card.”
The table again clapped to show their support. In a country that worshipped status, the Black Card, issued only to those who spent over $100,000 a year, was the ultimate symbol of wealth.
Lee shook his head in false modesty while waving an admonishing finger. “No, no, Mr. Ping. Such a position is surely beyond my capabilities. There are many candidates far more qualified than I.”
Lee was lying, and everyone in the room knew it. Face demanded that he not appear too convinced of his election. In four days the members of the Chinese Communist Party would gather for a once-in-a-decade congress to choose the country’s next leaders. Besides the president, the party would select the ten-member Standing Committee to head up the more important ministries. It had been Lee’s fervent dream to be appointed vice premier of finance one day. Every action he had taken in the past ten years had been directed to this end. Some, like the creation of the China Investment Corporation, were known to all and formed the basis of his public record. Others were more impressive but known to only a few. The few, however, sat at the pinnacle of the government and ruled over the army, the Ministry of State Security, and of course the Ministry of Finance. It was these actions, not his stellar investment returns, that would guarantee he achieved his long-desired goal.