Free To Trade

'But why would depositors place their money with you if all you are going to do is gamble with it? What if your investments went wrong? Local people would lose everything.'

'That's the beauty of the whole thing,' Jack said, smiling. 'All deposits are guaranteed by the US government through the Federal Savings and Loans Insurance Corporation. We can borrow as much money as we want, to play with however we want. The depositor doesn't care because he can rely on Uncle Sam to bail him out. It's easy.'

'But what happens to the shareholders? They may lose everything, surely?'

'Yes, that's true. But the potential returns are huge. For every $10 million they invest, they can borrow another $90 million, government guaranteed. That means, if they invest well, they can earn several times their original investment. As long as they can afford to lose the original stake if they are unlucky, then it's great odds for a bet.'

So, that was it! Uncle Sam's Money Machine was a savings and loan! The $40 million investment on Waigel's diagram referred to Tremont Capital buying a savings and loan. Using a government guarantee to borrow money, it could turn the initial $40 million into several hundred million dollars. And if the savings and loan got it wrong, well, then Tremont Capital would just have to default on its bonds. It was just the kind of innovative financing technique which Marshall Mills himself would be proud of. I had a pretty good guess which Money Machine Tremont Capital had bought. I hoped Jack would confirm my suspicions.

'I was reading your annual report outside,' I said. 'It mentioned a sizeable capital injection a year or so ago. Where did that come from?'

'I'm sorry, I'm afraid I can't tell you that,' said Jack.

Oh well, I thought. I could probably check it up later.

'What are the more interesting things you invest in?' I asked.

'Oh, real estate, junk bonds, a theme park, even a casino.'

'A casino. That sounds fun. Is it one I might have heard of?'

'Well, it's this really neat place in Las Vegas,' Jack began. Then he cut himself off. 'I'm sorry, I think some people would be quite upset if they knew I talked about it. Let me just tell you it's big. Real big.'

I was sure Jack was sorry too. He was dying to brag about his investment.

'Sounds interesting. I'm sure you can tell me something about it. No need to tell me the name,' since I could guess it already, I could have added.

'It's a great deal,' he said. 'We teamed up with a top-class operator to build one of the best, if not the best casino in the country. The project is almost completed. All we need to do is wait for the junk bond financing to be closed and we will get paid out.'

'What sort of return will you make?' I asked.

'Oh, double our money,' Jack said, smiling.

'Whew! Not bad, not bad at all,' I said. So Uncle Sam's Money Machine was taking government guaranteed money from local depositors and using it to buy a piece of Irwin Piper's Tahiti. The question was, who was behind Phoenix Prosperity's investments? It was obvious Jack Salmon wasn't the brains behind the operation. 'Are you given guidelines on what you can invest in, or can you do what you like?'

'It varies,' said Jack. 'Sometimes they tell me what to buy. Sometimes they just accept my suggestions. I think they value my judgement. Hey, tell you what. I've been thinking about that Fairway deal. Do you want to help me buy some bonds? I'd like to pick up five million.'

'I'd love to,' I said. 'But I think I should just watch. You go ahead.'

'OK. Just a minute while I call the boss.'

Jack dialled a number and drew away from me so that I couldn't hear. Up until then he had been all braggadocio, but now he took on a sort of submissive posture, rather like a naughty puppy expecting a beating from his master. After a few minutes of solemn conversation in which Jack did most of the listening, he put down the phone, his eyes shining.

'Wow, he really liked that one,' he said. 'He doesn't want me to buy five million, he wants me to buy twenty million. At last these guys are beginning to appreciate my ideas. Let's get to it.' The puppy was wagging his tail. His master had given him an unexpected bone.

I watched as Jack set to work to purchase his $20 million of Fairway bonds. For all his claims of extensive experience, he did a lousy job of it. Buying $20 million of bonds in the junk bond market requires extreme delicacy. I knew how Hamilton would do it. He would subtly nose around the market trying to find dealers who owned the particular issue he was looking for. He would disguise his enquiries by throwing in several red herrings, so none of them could be sure what he was about. Then, when he had found the dealer who seemed to be able to provide him with the most bonds at the cheapest price, he would open up to him, telling him exactly what he wanted to do. The dealer could then work hard to try to buy the bonds from his customers quietly without disturbing the market.

But Jack wasn't Hamilton. He started off by asking ten brokers for prices in the issue. He bought two million each from those three which had the lowest prices. So far, so good. The problem was that when Jack tried to buy the rest, lo and behold, the price had gone up three or four points. All the dealers had worked out what he was trying to do, and what was worse, they knew that every other dealer knew. Jack spent most of the rest of the morning shouting at dealers for putting up their prices against him. When I left him, he still had eight million left to buy and was in a thoroughly bad mood.

I took a taxi back to the hotel. Before checking out I made a quick phone call to Tommy in New York.

'Good to hear from you,' came Tommy's voice, relaxed as ever. 'I trust you are sporting a nice tan after your vacation in the sun.'

'If I hear one more smug chief executive talking about operating synergies and enhancing shareholder value, I think I will explode,' I said. 'How are you getting on?'

'Nothing, yet. The police aren't very co-operative. Also, it's difficult to get hold of Shoffman's files. But don't worry, I haven't given up. Have you found anything?'

'Yes, I have done rather well.' I told him about my chat with Jack Salmon and my discovery of what Uncle Sam's Money Machine was. 'I wonder if you would do me one more favour,' I said.

'Sure,' said Tommy.

'See if you can find out who it was who took over Phoenix Prosperity sometime in the last two years. They paid forty million dollars. Some of the press-cutting databases may have something, although I suspect that the deal was kept private. I bet Bloomfield Weiss had something to do with it. They could have been advisers to either Phoenix Prosperity or the purchaser. See if you can find anything about it there.'

'It's tricky stuff snooping through corporate finance files like that. You can go to jail for that sort of thing.'

'I know. I can have a good guess who the purchaser was, but I need evidence. Sorry, Tommy. If you don't want to do it, I will understand.'

'Oh no. You can't get rid of me that easy. This is fun. I'll have the information for you. Where can I get hold of you?'

'I'll be at the Tahiti for a couple of days,' I said. 'You can get in touch with me there. Good luck.'

I was glad Tommy thought the whole thing was a lark. I felt bad about asking him to do something which carried so much risk, but he seemed genuinely eager and willing. It gave him a chance to get his own back on Bloomfield Weiss. He had been fired, what else did he have to lose?

I was not quite so happy about the whole thing. Whoever was behind it all was dangerous. Debbie and Greg Shoffman had both died on the trail of Tremont Capital. I didn't feel at all safe following in their footsteps. But I was getting somewhere, especially with the discovery of what Uncle Sam's Money Machine was. If Tommy could get answers to my questions, I would be a long way towards figuring it all out. I was doing well; it would be impossible for Hamilton not to concede as much. I would show him he had been right to place his trust in me.