Next he made the tactical error of buttonholing a couple of floor traders and specialists for comments. They didn't bother to mince words. Their one, terrified question: Had Japan finally decided to let the U.S. and its towering debt just twist slowly in the wind? If that happened, U.S. capital would simply dry up, sucked in by Treasury's massive money-sponge: interest rates would soar, murdering the U.S. economy. The Great Depression of the nineties.
As I watched, a bulletin started running across the bottom of the screen: bids on the new issue of thirty-year bonds had now dropped an amount equivalent to raising their return almost two full interest points. I zeroed in as the text continued. Worse news. The "coverage ratio," which measures how many more bidders there are than necessary, had plummeted from 2.7 to 1.3. And still dropping. More and more potential buyers were running for cover.
Lou, who was now surrounded by traders in blue jackets and couldn't see his own monitor, was assuring his viewers that experienced market analysts were all saying the slowdown in Treasury action did not accurately reflect worldwide demand, that deutsche marks and pounds sterling undoubtedly were already winging westward to take advantage of the new higher rates.
Sweating there in his melting pancake, the poor guy had no inkling the patient was slipping into a coma just as he'd forecast full recovery.
Well, I thought, there's always prayer. Anything's possible. But . . . as Henderson used to say, if frogs had wings, they wouldn't bump their ass.
I got up to go downstairs and pour another cup of coffee. Coming back, I decided to forget about the stock market for a moment and just focus on Treasury, so I clicked on my Telerate service and scrolled through the financial quotes.
Friends, by that time there was no, repeat no, market out there for Treasury paper. Now that the Japanese dealers appeared to be dumping everything, European banks had hit the sidelines, waiting to see what transpired. Would rates continue to move up? Would Treasury be forced to withdraw the issue? Should everybody be bailing out now before bond prices went through the deck and demolished years of interest earnings? Looming over it all was that standing terror of the bond markets: no liquidity.
Back to Cable News Network. An officer from one of the dealer banks (which bid on big chunks of Treasury paper, then retail it) had rushed over to CNN's midtown studios and was explaining to us all it was clearly nothing more than some minor trans-Pacific communications snarl. The problem, obviously, was simple: Japanese securities firms here just hadn't received authorization from their head offices in Tokyo, where it was after business hours. A clarification would be forthcoming any minute now.
Well, if you've ever been turned down for a mortgage and you fantasized a day when you'd see that high-and-mighty clerk behind the desk have to ask you for a loan, I hope you caught that one. This paper-shuffler whose secretary had a secretary had agreed a week earlier to take on three billion dollars of Treasury's new debt issues—paper he now couldn't give away, let alone resell—and he was practically on his knees begging America to save his bank.
What the hell was going on? My mild-mannered friend Matsuo Noda had inadvertently (I assumed) kicked off a major financial panic.