The execution was quick and secret. There were no public statements, no confrontation in the boardroom. The war was won and lost in hissing transatlantic telephones, in whispered words that touched the hearts of millions with a few carefully coded phrases.
In Ezra Prentice's skin, Jason was in his element. He was sitting in the library of the Kykuit, his office/trading desk, and he was conversing with the shark, Mr. Pierce, in New York, and a modest contact in a merchant bank in the City of London—set up through Senior with a nod that was his indication of tacit approval of the bluff.
"No, not a simple forward contract," his voice was precise, unhurried, the voice of a master instructor explaining a tricky technique to his apprentices. "I want to hedge the positions. We will use the vast majority of the capital to establish a underlying short against the pound, three-months deliverable. But I want a second position, a suite of levered options... puts, with staggered strike prices five and seven percent below current spot price. The leverage will be tremendous if the breakdown is violent."
On the opposite side of the wire, he could virtually hear the minds of the bankers racing. Options and leveraged derivatives existed in 1931, but they were uncommon, exotic instruments that were disapproved of by the old-school banking fraternity. To utilize them to this scale, against a major world currency, was virtually unheard of.
"And one more thing, a third layer," Ezra added in a deeper voice. "A minor, but significant portion of the profits to be devoted to going long in gold. Not certificates; physical bullion. Negotiate through our contact in London to purchase and store in a non-bank facility in Zurich. Now."
This was a genius, 21st-century play. He was not merely making a bet that the pound would fall; he was making a bet that there would be systemic rush to safety, a panic in which the sole actual refuge would be physical gold. He was building a three-legged attack that would profit from the fall, the volatility of the fall, and the fear that the fall would create. It was a strategy of sublime cold-blooded efficiency.
The following weeks were a tense, nerve-wracking experience for everyone at Kykuit except Ezra. Vienna was the focus of every eye in this world. The newspapers were a blur of muddled headlines, a day-by-day play of negotiation and bluff. "FRENCH AND BRITISH BANKERS MEET TO DISCUSS AUSTRIAN AID." "CREDITANSTALT RESTRUCTURING PLAN PROPOSED." "BAILOUT TALKS FREEZE OVER POLITICAL DEMANDS."
To Junior, it all seemed to be the rough but ultimately effective work of international diplomacy. He saw governments working slowly, but to avert a catastrophe in the end. Ezra's end-of-days prophecy hardly seemed to materialize. During dinner, he made furtive, patronizing remarks, speaking of the dangers of "phantom menaces" and the goodness of "steadfast, patient hands."
Ezra simply smiled, read his paperwork, and waited. He knew that what he was witnessing wasn't exactly a rescue mission; it was a televised demonstration of an autopsy.
And then, in late May, on one Tuesday, the first domino fell. It wasn't a deafening collapse, but a discreet, official pronouncement that sent a shudder through the financial community. Creditanstalt, the venerable old Vienna bank, had officially declared itself insolvent. All talk of bailouts was pointless.
The effect wasn't immediate, but irreversible. Panic, like a plague, spread from Vienna relentlessly. Within two weeks' time, it spread throughout the frontier into Germany. Men and women, with the thought of worthless paper currency haunting their thoughts, began to silently stand in line in their banks. Crowds developed out of queues. Riots developed out of crowds.
The second domino fell with a deafening thunder that was heard around the world. The Darmstädter und Nationalbank—the grand Danatbank, one of the largest German banking institutions—closed its doors. It failed to make payments on its debts. The German government, in one final act of self-protection, decreed a bank holiday and stopped all foreign exchange payments. Germany was technically bankrupt.
Then, the eyes of the world turned, with increasing terror, to London.
The final act proceeded with dazzling speed. The City of London, the proud global financial capital, was hemorrhaging gold. With German assets confiscated and worthless, foreign creditors pulled their money out of British banks and requested to be paid in gold—their right under the Gold Standard. Billions were flowing out of the Bank of England's vaults, a golden torrent running across the Atlantic to New York and Paris.
The scenes in London, described through panicked telegrams and newspapers, were ones of scarcely restrained alarm. Emergency cabinet meetings. Grave-faced bankers scurrying in and out of 10 Downing Street. Prime Minister Ramsay MacDonald addressed the nation, his voice burdened with the death of a dying empire.
He made the impossible official. Great Britain was abandoning the Gold Standard. No longer would the pound sterling be exchangeable to gold at a fixed price. It would be allowed to float—or, to sink.
The entire global financial base had turned into quicksand.
A week later, the final accounting took place. This time too, the place was Senior's study. There was electricity in the air. Mr. Pierce came all the way from the city himself, his usual rough look transformed to one of raw, undiluted awe. He held a black leather-bound ledger like the Holy Grail. Junior, too, was present, summoned by his father. He stood stiff near the window, deathly pale, his manner defeated.
Pierce opened the ledger flat on the enormous oak desk. He cleared his throat.
"The initial positions were formed with a basic capital of four million, two hundred thousand dollars," he began, his voice shaking. "The sale of our shorts in pound sterling, following its devaluation, brought in six million, one hundred thousand dollars in profits."
He paused and drank some water. "The decisions—the puts—which we purchased for cents on the dollar, proved exceedingly valuable in the panic. They produced an additional three million, eight hundred thousand dollars."
Junior's head swung around. Those numbers were mind-boggling enough already.
"And finally," said Pierce in virtual whisper, "the physical gold, which we purchased at the going rate, increased in value by nearly forty percent vis-à-vis the devalued pound and dollar. That one position produced a profit of over five million dollars."
He looked up from the book, staring in awe. "With all expenses and commission, the net profit after the first investment totals fifteen million, three hundred and twenty thousand dollars."
A 364% return. In less than three months.
Junior stared at the book, his mind incapable of calculating the figures. It was so much more money than his charities would donate in a decade, earned in a flash from a crime he'd called pure, nihilistic evil. Junior felt a wave of lightheadedness. All his values about morality were turned around and upside down.
Ezra sat motionless, his face serene. He'd known all along how this would end.
Senior did not look at the ledger. He did not look at Pierce or his beaten-down son. But he only looked at Ezra. The old man's face was expressionless, but his eyes... his eyes had a newfound great gravity to them. This wasn't a game of laughs anymore. This was tough power. Ezra wasn't just a tracker anymore; he was a general with the capacity to see the entire war and not only the next battle.
With careful deliberation, Senior lifted up the currently inactive Creditanstalt file and pushed it to one side. He lifted up a second, considerably bulkier file from the table to his left. It was titled in heavy, black block letters: GERMAN RE-ARMAMENT & IG FARBEN.
He slid the fresh file along the highly polished desk to Ezra.
"It seems to me," growled the old man, his voice a low whisper that filled the room which instantly fell silent, "that you see the board more clearly than all the others in this home. Perhaps more clearly than all others within this country."
He tapped a long bony finger against the new file. "Now, talk to me about the next war."
Ezra reached out, his hand closing around the thick file. He'd been promoted. No more was he just a speculator; he was now the family's master strategist for the bloody, dark decade he knew was to be his future.