Chapter 20 Chapter 20 Wall Street Gambling King

…Although he bet $10 billion, probably the largest bet in his history, he wasn’t worried at all, and he was falling asleep. 1st Sterling Doom September 15, 1992.Tuesday morning. Major had originally planned to visit Spain, but had to cancel it in order to deal with the crisis of the European Monetary Exchange Rate Mechanism. The Bank of England is still confident it can drive out speculators like Soros.Before lunch, traders started noticing the lira's drop.So they started trading sterling like crazy. Tuesday afternoon. The exchange rate between the British pound and the mark fell to 2.80. In the evening, there was news that the Bank of England had purchased another 3 billion pounds, but there was no response to the British pound exchange rate.

Tuesday night. In London, the exchange rate of the British pound to the Mark is only 1 pfennig higher than the lowest line determined in the exchange rate mechanism for 1 British pound to 2.778 Marks. This is the lowest price since the UK joined the Exchange Rate Mechanism.Buckingham Palace is also starting to take notice.Unless the British government takes emergency measures, the pound will continue to lose value. When a country's currency is attacked by speculators, the financial sector has several measures that work well for them.One is to intervene in market transactions and buy domestic currency.If this fails, another safeguard is to raise interest rates, on the assumption that higher interest rates will absorb money to support and stabilize the domestic currency.

The British government is forced to raise interest rates, which will undoubtedly make the economy more recessionary. With sterling piling up in the hands of banks and speculators, the chancellor was desperate.He was having dinner with the U.S. ambassador, but every 10 minutes he approached officials from the Bundesbank. He has a kind request: Please lower your interest rates. If Leman had been successful in persuading Germany to comply, it would have eased the pressure on Britain and might have allowed Britain to get through the next few days without its financial turmoil, but Germany refused.

After the meal, senior officials of the Bank of England and Lemon's treasury were no longer clear about their responsibilities in dealing with the pound crisis. They sat together at an oak table under two bright chandeliers to make plans for the next day. Plans began the next day, with the Bank of England intervening massively in the money markets, buying sterling and raising interest rates sharply if need be. Speculators, aware of the spat between the Treasury and the Bundesbank, predict Britain will be the first to worry.The most likely step the government will take is to raise interest rates.As a result, they began to speculate on the pound on a large scale.

Tuesday night, 8:00. The meeting at the Treasury Department ended, and as officials walked out, their biggest concern was whether their decisions actually worked.Things change too fast for them. Five hours earlier, unbeknownst to many officials, Schlesinger had met with Lemon, and he would not make his remarks public.The problem got worse as traders frantically bought sterling, the lira, and other weaker currencies and dumped the unlucky currencies. After Lemon heard Schlesinger's speech, he was shocked.He had tried to downplay the incident, but the reaction came anyway. Tuesday night, Wednesday morning.

In desperation, the U.S. Federal Reserve and Japan's central bank sided with Britain. Soros' confidence in the second quarter Tuesday at 5:30 p.m., New York. Soros is sitting in his office on the 38th floor of a Manhattan tower overlooking Central Park. His confidence is growing that Britain will soon exit the exchange rate mechanism. "This is obviously a gamble, a gamble that only makes money but doesn't lose."Later, he said: "In the worst case, I repay my loan with the same interest, then I lose at most 4 percentage points, this risk is too small." He saw this outcome approaching, he felt inevitable, and now he had no doubt that he would reap a huge profit.Later in his Fifth Avenue apartment, after dinner, he went to bed.While he's betting $10 billion, possibly the largest bet in his history, he's not worried at all, and he's starting to sleep.

He's that confident guy. The third quarter is in a hurry Wednesday, 7:30 am. On Thrinide Street in London, eight people responsible for handling foreign exchange transactions gathered in the office of the Bank of England, put their computers together, and began to buy British pounds. They entered the order in three parts and spent a total of 20 One hundred million U.S. dollars. But it failed, and hundreds of British companies, pension funds and insurance companies that owned stocks and bonds in the British pound eagerly sold their stocks and bonds. A gloomy air hangs over the British financial world.

Wednesday morning, 8:30. Members of the crisis management team of the Ministry of Finance gathered in Lemon's office, and everyone's face was gloomy.Lemon had just called the Deputy Director of the Bank of England's Marketing Department and the Prime Minister.After hanging up the phone, Lemon ordered the use of foreign exchange reserves for further intervention. Journalists have appeared in the main population of the Ministry of Finance. Wednesday, 9:00 am. Prime Minister Major boarded his armored car and took two minutes to leave Buckingham Palace and arrive at the Old Admiralty Building, his temporary residence as No 10 Downing Street was undergoing renovations.At the Old Admiralty building, he had a meeting with government officials, ironically.The theme of the meeting was Mayo.

As word of impending financial catastrophe reached the conference room, those present felt they had become a de facto war cabinet. Wednesday, 10:30 am. Lemon put down the phone and declared that everyone in the British financial community was at risk.Major left Mayo's conference room for the telephone room, where he listened to Lemon describe to him how the pound continued to fall.The interest rate in Germany is still fixed at the same place, and the Germans are desperate to prevent depreciation at any cost. Even the credibility of the government is at the critical moment. Lemon asked the Prime Minister to agree to raise the interest rate by two percentage points.

Major nodded. Wednesday, 11:00 am. Announcements were made and interest rates raised."This is because currency pressures and instability are waning," Lemon said.He wants rates to fall, but few believe that will happen anytime soon. Despite Leman's announcement of a rate hike, unfortunately the GBP has not stabilized.Financial officials know that government intervention is ineffective. Major also reversed his earlier refusal to reopen parliament, calling for MPs to reconvene to discuss the currency crisis and the UK economy.Congress was called to meet on September 29.This action is extraordinary.Since World War II, the British Parliament has only been called to sit 10 times.

Wednesday, 12:00 noon. The Bank of England intervened further, but it was too late.On fateful Wednesday, the Bank of England spent 5.5 billion pounds worth of foreign exchange reserves buying pounds to back the British currency, to no avail. Quarter 4 The Bonus of Confidence New York, 7:00 a.m., the phone rang, waking Soros up. It was Druckenmiller calling with good news. "George, you made $958 million," he said excitedly. Druckenmiller is a bit immature, but that doesn't matter.He knows what Britain is doing, and he and Soros will be the biggest winners. (Later, Soros would learn that he made more money because he sided with France against speculators who tried to speculate on the franc.) All in all, Soros gained $2 billion from Black Wednesday, of which $1 billion came from speculation in the British pound and another $1 billion from profits in the Italian and Swedish currencies and the chaos in the Tokyo stock market. A less injured person might be persuaded to open a bottle of champagne to celebrate surviving a major disaster, but not Soros. "I did it because I did it better and bigger than other people," he said. Section 5 Farewell to Europe Early Wednesday afternoon. Members of the crisis team circled the chancellor to discuss some chilling ideas. Wednesday, 1:30 pm. It was time for the US markets to function and the pound was sold off."It's like water flowing out of a faucet, it's perfectly normal," said a businessman. Wednesday, 2:15 pm. The Bank of England came to the rescue again, raising interest rates again, to 15% for the second time in a day. Never in British history has interest rates been raised twice in one day.Interest rates are now the same as they were when Major brought Britain into the exchange rate mechanism. Speculators have not backed down, and the pound is still below the exchange rate mechanism's minimum exchange rate against the mark.Clearly, it is no longer possible for the government's policies to have political support. In one day, sterling rates rose from 10% to 12% and then to 15%.People know that the UK cannot sustain such high interest rates for a long time.The exchange rate between the pound and the mark continued to fall, and the Bank of England continued to buy. A day's worth of effort will lead to nothing, and the UK will have to leave ERM, and the pound will have to depreciate. Major picked up the phone again, this time to the chancellors of France and Germany, and Major's message was grim, announcing that he had to take Britain out of the exchange rate mechanism and that he had no choice.