Friday, June 1, 2018

Installment 6.3: Meanwhile, the world watches


Sasha Auerbach was heading back to her cubical with a cup of coffee when the TV that was running in the break room caught her eye.

Stirring her coffee, she noted that the interviewer was Brigid Barkley, one of the BBC’s star reporters.  Brigid was interviewing a scare-crow of a man.  The man was sun-baked, covered with tats and was not carrying an ounce of extra flesh.  The man was carrying some kind  of rifle.

The caption said it was an interview, live, from the front between Cali and the SD-LA rebels.

“What do you think are your chances of winning?” Brigid asked in her distinctive voice…warm as honey frosted with a bit of Scottish burr and Central European cadencing.

“Hell,” the man exclaimed, “we already won.  This” he said casually gesturing at the muddy tents that filled the background “is just sorting out the details.”

The caption identified the interviewee as Kenny Lane, rebel soldier.  Kenny’s voice was almost painful to listen to.  It was evidence of too many decades of cigarettes, shouting and bone-dry air.

“That is an interesting conclusion.  I have not heard it before.  What led you to arrive at that observation?” Brigid’s voice honeyed across the screen.

“Well, I ain’t no lawyer.  I am just a simple truck driver.” Kenny started.  “But the foundation of the Cali constitution is Universal Basic Income and ‘food security for all’.  Two months ago, Sacramento cut off both to every resident south of Modesto, except for Silicon Valley, of course.  Some of these folks ain’t been paid or fed for two months.”

“That either means that Sacramento threw those counties out of Cali and we are free to form a new government.  Or it means that the Cali constitution is null-and-void and Cali no longer exists as a nation, in which case we are free to form a new government.” Kenny said.

“What you see here” again gesturing at the tents “is a body in its death throes.” Kenny said.

Sasha remembered an audio clip that her husband had snuck home for the government security agency where he worked.  He said it was evidence of top officials in Cali ordering a ‘hit’ on one of their own officials.  In the clip, the hitman claimed that Cali was designed to fail.  Sasha had not paid much attention to it at the time.  It seemed too far fetched, even though her husband believed it was authentic.

Sasha did not wait to see the end of the interview.  She walked back to her office and logged on to her computer.  Sasha was a bond trader at one of the largest New York investment firms.  She queued up all of her Cali positions and triggered “Sell at market” for all of them.

Thirty seconds later she got a text from her supervisor.  “Do you know something?”  After a very short conversation with her supervisor she found herself talking to a Vice President.  That is not as impressive as it sounds.  The firm had over thirty Vice Presidents.

“What are you thinking?” the VP asked.

“Cali is at serious risk of losing half of its land area and two-thirds of its population.  That land area contains half of Cali’s collateral and the population much of its tax base, that is, its ability to make payments on its bonds.” Sasha said.

“There are a couple of other things.  One is an audio clip that purports to be a recording of Denice Delarosa being executed by a Cali hitman.  Most experts think that the recording is probably authentic.  In the clip, the hitman says that Cali is meant to fail.  If true, that leaves the bond-holders holding the bag.” Sasha said.  “If the word on the street is true, then our security people also have a copy of the clip and you may have already heard it.”

The VP nodded in agreement.

“Finally, CNN just aired a segment where Brigid Barkley is interviewing some low-level rebel on the ground.  And he pointed out that Cali recognized the rebel state due to some language in the Cali constitution.”  Sasha said.

The VP thought for a few seconds.  “Nobody ever went broke selling too soon.”  The VP looked over at Sasha’s chain-of-command, “Liquidate all of our Cali positions except for those of the very shortest duration.  Swap out of our longest term Cali bonds into shorter-term, but not Cali, bonds first.  We see how long we can keep the hounds off the scent.

The New York investment community is as incestuous and as gossip prone as any other community.  The community is tightly wired together.  Actions by any one agent are registered with milliseconds by the entire community. 

At first the other firms thought that Sasha’s firm was simply moving into bonds of shorter duration but then somebody noticed that they only selling Cali bonds and not buying any.  That is when the blood hit the water.  By the end of the day all of the major investment firms were dumping Cali bonds of all duration.  The effective interest rate for the benchmark 10 year bond was 9.5% at the close of the New York business day.

Computers in the Grand Cayman’s duly noted the fact that the bonds closed above 8% for the first time in history.  The computers sent signals to their counterparts in San Francisco, Tokyo, Seoul, Singapore, London and New York activating the derivative contracts that had been written.  The investors who had sold those derivatives, most of them in California, had thirty days to generate $120 Billion of hard currency.

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