Those who worked for him had never seen Volkmann smile, much less laugh, and only a severe financial upheaval would elicit a slight downward tug at the corners of his mouth.
Around him were similarly severe men whose dedication to money was no less intense. They were presidents of banks whose decisions affected billions of dollars and millions of lives. And today they were gathered because the very foundation of the world’s economy was about to crumble.
On the table in front of Bern Volkmann a simple black cloth covered a small rectangular object. When the men were settled around the table, water poured, and attendants withdrawn, Volkmann reached out and pulled away the cloth.
The bankers and their guest were among a handful of people in the world who wouldn’t noticeably react to the object on the table. Yet Volkmann saw that even these seasoned professionals couldn’t mask all emotion. A few drew shallow breaths, one contemplatively stroked his chin. Another’s eyes widened for an instant, then the person glanced around as if he’d given a tell in a poker game. The six billion other people on the planet would have gasped in wonder and rushed to touch the object as their minds filled with possibilities.
The trapezoidal bar weighed twenty-seven pounds and was known as a London Good Delivery. Its facets radiated a warm buttery yellow, and it possessed an almost oily sheen in the subtle lighting of the great hall. Refined to 99.9 percent, the ingot of pure gold was worth approximately one hundred sixty thousand dollars.
“Gentlemen, we have a crisis,” Volkmann began in accentless English. He spoke crisply, enunciating every word so there could be no confusion or misinterpretation. “As you are all aware, the world will run out of gold very shortly. In fact, demand far outstrips supply for a very simple reason. Some of you became greedy.
“Starting more than a decade ago many of you approached your country’s central banks with a proposition that at the time seemed profitable for everyone concerned. You, as bankers, would borrow the gold held on deposit with the promise to repay at one-quarter percent interest. The gold, as it sat in vaults in New York, Paris, London, and elsewhere, had no value so long as it was kept out of circulation. By paying a quarter point you would make the gold work for the central banks as it never had in the past.
“Had it ended there, we would not be facing a crisis. But it did not end. You turned around and either sold the gold on the open market or used the value of your holdings as leverage and collateral for other ventures. In essence you pledged or sold a commodity you had only the right to borrow. The central banks gave tacit approval to this action yet maintained the right to recall the gold at any time. Had this scheme taken place in only one country or on a small scale, there would remain enough surplus gold on the market to cover such a call.
“However, your greed got the best of you all. As it stands today, twelve thousand tons of gold valued at one trillion euros is on the books of central banks but is, in fact, on the fingers and around the necks of women all over the world. In a word, gentlemen, it is beyond redemption.
“Several central banks are aware of the situation and continue to accept their quarter percent on the gold’s value, but some are asking for the gold’s return. Two years ago the French national bank announced they were going to sell some of their reserves. We got together to finance the purchase of enough gold to replenish their treasury so the sale could go through. As you recall, the price of gold rose fifty euros in just a few weeks when traders realized such buying was taking place. The French then sold their gold, and the price stabilized once again. Our scramble to cover the call cost us nearly a billion euros. We told our stockholders it was a one-time charge-off, but in truth it is a charge-off we will face any time a central bank calls in their assets.”
“Bern, we don’t need a history lesson,” a New York banker said testily. “If you look around you’ll see there’s a few familiar faces missing because they were canned by their boards of directors.”
“Being ‘canned by their boards’ as you put it, Mr. Hershel, is now the least of our worries.” Volkmann gave the American a stare that silenced any follow-up rejoinder.
“Banking is a business of trust,” he continued. “A worker cashes his paycheck, spends what money he needs to survive, and trusts a bank to hold the rest. What happens to it afterward is frankly beyond his understanding or threshold of interest. He has done his job of converting labor to capital and trusts us to do our job of maximizing that capital. We lend it to entrepreneurs who build new businesses to employ more workers to transform more labor into more capital in a system that has worked well for centuries.
“But what happens when that trust is abused? Surely there have been banking scandals in the past; however, what we now face is a crisis of confidence of unprecedented proportions. The store of capital that governments use to assure their people of the country’s strength, their gold reserves, has been sold off for what is in essence an IOU that can no longer be paid. We cannot honor our promise to the central banks. Even if we had the money to buy the gold to return to the central banks, there isn’t enough of it in the world to cover what we owe.”
“Production can be increased to buy us the time to fill a call order.” This from an Englishman in a Savile Row suit.
“It can’t.” The answer was short and blunt, like the person who gave it. He, too, had an accent, somewhat British in nature but with a Colonial twang.
“Mr. Bryce, would you care to explain.”
Bryce stood. Unlike the others, he had tanned, weathered skin, and his blue eyes were hidden behind a permanent squint. His hands were large, with swollen knuckles. He was someone who’d worked to obtain his wealth, toiled in ways the bankers could never understand.
“I’ve been chosen to represent South Africa’s mining concerns here,” Bryce said. “Mr. Volkmann told me what we were to discuss, so I talked with my people beforehand to give you accurate information. Last year South Africa produced about thirty-four hundred tons of gold at a cost of around two hundred and eighty dollars an ounce. This year we project the same tonnage but at a price of three hundred and eighteen dollars an ounce. Labor costs have risen since the end of apartheid because of the power of the trade unions, and we’re under heavy pressure to sign a new contract that’s even more generous.”
“Don’t give in to them,” the president of Holland’s biggest bank interjected.
Bryce shot him a look. “Hard rock mining isn’t assembly line work. It takes years of training to become proficient. A strike now would cripple us all, and the unions know it. They see gold trading near five hundred an ounce and know the mines aren’t losing money.”
“Can you increase production?” Another at the table asked.
“Our mines are two miles deep now. Every level we sink farther is a geometric increase in cost. It’s like building a skyscraper. To make it taller you can’t simply add a floor to the top. You must first reinforce the foundation and the structure. You must make sure the elevators can reach and that your water and sewer lines can take the additional capacity. Adding a floor to the top, architects say, costs as much and is as difficult as slipping a new floor under an existing building. Every new level we dig in our deepest mines costs two to three times as much to excavate as the one above it. We could get the gold, sure, but the expense far outweighs the profit.”
“Then we need to find alternative sources of bullion. Russia perhaps? Canada? The United States?”
“Not enough capacity to make a dent in the shortfall,” Volkmann answered. “Also, environmental protections in North America add a thirty to forty dollar premium per ounce.”