ANTHONY M. [Tony] Solomon, the undersecretary of the treasury for monetary affairs, works at the nodal point of issues literally affecting how well or ill people live around the globe. He begins each day in his large, blue-carpeted office by weighing decision that will affect the price of the dollar in the world's markets.
The other morning, he listened closely as Frederick Springborn, a veteran civil servant and director of the office of foreign exchange operations, told him how the dollar was doing that day in markets aboard. It was past 3 p.m. in Frankfurt and currency trading would soon be over. In Tokyo, it was 10 o'clock at night and the business day was done
I sat in as Springborn reported that there had again been heavy selling of the dollar in Europe.
Over the preceding four days, multinational corporations, banks, speculators and others had been selling dollars to buy German marks. The dollar had bought 1.9035 marks the previous Thursday; by the next Tuesday, it bought only 1.8627.
The difference, about four pfennigs or a little more than 2 percent, may not sound like much. But for each $100 million exchanged, 2 percent is $2 million. More importantly, a slide of such dimensions in so short a time in markets that measure prices to the one-thousandth of a cent is "disorderly" and "turbulent."
However, at 1 o'clock in Frankfurt, 7 a.m. in Washington, the German central bank had made a "very deliberate, very open intervention," Springborn said.
He meant that the Bundesbank had sold marks it had held for dollars, pushing down the price of the German currency and pushing up the dollar.
This, Springborn went on, "conveyed a strong feeling to the market that the Bundesbank was digging in its heels in a very vigorous way. The tone is still shifting out of dollars into marks but the Bundesbank has made a stand and given a strong signal that it is not happy with the turbulence."
Solomon nodded in satisfaction. Over the transatlantic telephone, he had worked out the moves the day before with his opposite number in Bonn, Manfred Lahnstein, the state secretary of finance.
Later, Solomon spoke with Lahnstein again. Then the Treasury man talked with the New York Federal Reserve, which does the buying and selling of currencies for Washington. By the end of the day, the dollar had climbed about one-eight of a pfennig in New york. What one financial writer that morning had called a "sudden plunge in the dollar's value" had been arrested -- at least for the moment.
Things, of course, don't always work out so neatly. If the world's bankers and businessmen all get it into their heads that a currency is bound to go down, they can usually swamp any government barrier and fulfill their own expectations.
But last November, Solomon, a bearded, chunky, part-time sculptor, worked out a series of defenses and techniques of cooperation with the major industrial powers to provide some measure of assurance against rapid rises and falls. Businessmen, for all their talk of risk-taking, prefer a quiet life in which they know how many marks, dollars or yen they will get for the products they sell. Rapid changes frighten them and they are likely to pull back on plans to build a plant, stock up their shelves and all the other decisions that mean output and jobs.
The exchange with Springborn was one of a half dozen glimpses of Solomon at work that I was able to observe over a three-day period. There is a great mystique about money and nowhere more so than among the men who attempt to manage it, both in public and private life. So I was carefully invited to leave whenever anything thought sensitive was under discussion. I did not hear Solomon's phone call to Bonn or to the Federal Reserve. I don't know how many dollars the Bundesbank and the Fed bought to prop up the currency that day. Those things remain an oracular mystery, disclosed only to high priests.
Solomon is peculiarly equipped to preside over these rites. A quiet, contained man, a onetime teacher at the Harvard Business School, he made a personal fortune in Mexico and is a veteran economic manager who began in Washington with the Kenny administration. The murder of his 21-year-old daughter Nicky in Washington four years ago has left a scar from which he has never recovered. More than ever he is under wraps.With his subordinates, who confer in voices that can barely be heard above the air conditioning, he is subdued almost to the point of retiring -- until a decision must be made.
What is striking about this rare experience, watching a man to whom great authority is ascribed, is Solomon's limited power to command. Almost everything he does is an essay in persuasion. Nearly every move be and his colleagues make -- in Washington, Bonn, New York and elsewhere -- is heavily freighted with signs and symbols designed to influence forecs only dimly understood.
The point of that morning's exercise was not only that the Bundesbank had "intervended," but had done so "visibly," signaling dollar holders that there was a big, ready seller of marks.
I caught up with Solomon again in the office of his boss, Treasury Secretary W. Michael Blumenthal. It looks like a Waldorf suite -- light brown textured wallpaper, a handsome breakfront with books behind glass, a pair of brightly colored Chinese vases, a portrait of Alexander Hamilton [patron saint of Treasury secretaries] and a fine view of the flower beds in Alexander Hamilton Place.
Blumenthal, in shirtsleeves and chewing an unlit cigar, sat behind a large desk of polished wood. He was to give a press conference in 50 minutes. This was a rehearsal.
Solomon, as always in a dark, rumpled business suit, sat on a couch covered in a gold fabric.
Blumenthal, one of the few characters I was to see with a glint of humor, played hard-boiled reporter, firing questions. Solomon, a dean of faculty earlier in the morning was now the schoolboy, reciting suggested answers.
"The main question, "Blumenthal shoots at him, "is the dollar going to hell? Do we have a dollar crisis?"
Then, smiling at his own exaggeration, without waiting for Solomon's reply, Blumenthal answers himself.
"I'll use the standard line . . . basic strength . . . OPEC."
This last meant that dollar holders feared a forthcoming OPEC meeting would lift oil prices sharply, touching off a further flight from the currency. That was foolish, however, since the Germans, Japanese, Swiss and other must import far more OPEC oil than the United States, which still has sizeable production at home.
But that answer wasn't good enough for Solomon. He wanted Bulmenthal to tell the press that the latest slippage was triggered by a technical matter.The Germans and the Swiss, to restrain inflation, has been raising their interest rates. At the same time, interest rates in the United States had dropped a little. So a corporation holding $10 million in Treasury bills, was no longer earning 4 percent more than it would from an IOU of the German government. The advantage might have shrunk to 3 percent.That could be enough to persuade the corporation treasurer to sell his Treasury IOU and buy German replacements in Frankfrut.
"I just spoke to Germany," Solonon says, "You can say we do not expect any further significant narrowing" of interest rates, of the U.S. advantage. "You can also say that the Bundesband was intervening, . . . that there was substantial intervention today."
"Can I say that publicly?" Blumenthal asks.
"Oh yes, as long as you don't give the number," Solomon replies.
The quite persuasion worked. Blumenthal was to say all these things at his press conference.
Blumenthal then warned that he would be asked about the antitrust suit filed by the International Association of Machinists against OPEC, charging the cartel with doing what it does, fixing oil prices.
Solomon quickly urged him to take the same line as the White House and refuse to discuss an issue before the courts.
"It's a little disingenuous," Blumentahl replies, gently teasing. "We're not being sued." The reporters won't stand still for that.
Solomon, concerned now, insists on "absolutely no comment at all. Anything you say might be inappropriate. This is the dynamite area."
It really is, too. The suit had gone largely unnoticed until The Washington Post that morning reported the Carter administration was so alarmed that it was seriously thinking of defending Opec against the charges.
If a federal judge found OPEC guilty -- not entirely improbable -- he could hardly send Sheik Yamani and the others to jail or oder them to mend their ways as he could with a private, domestic price-fixer. But a judge could punish OPEC with tens of millions or more in fines. In theory, the U.S. government would then seize OPEC assets in the United States, its holding of real estate or the billions that its member nations now own in Treasury bonds and other IOUS.
Long before that happened, Saudi Arabia, Kuwait, Libya and the others sell out. They might dump everything they have to put their money into German, Swiss, French, British and other foreign securities. That could drive the dollar down to unheard of depths, create a financial panic of catastrophic dimensions, freeze business and convert global recession into depression.
Just how the adminsistration will solve this headache and bury the IAM suit is still unclear.
But neither Solomon or Blumenthal had any intention of speculating out loud about it. So at his press conference, Blumenthal used the "disingenuous" formula urged by Solomon and the reporters let it go at that.
A vital audience for any official sits on Capitol Hill. So I went on a pilgrimage there with Solomon, a mission of gentle persuasion.
Solomon's government-supplied car is a modest, blue Dodge Aspen. The only marks of power are the driver, in street clothes, and, on the ledge behind the rear seat, a reading lamp and telephone.
In a crowded House restaurant, we met Rep. Henry Reuss [D-Wiss.], chairman of the House Banking Committee. Solomon is to brief [that is, win support from] Reuss on one of the most esoteric subjects in the Treasury lexicon, the international bargaining over a proposed Substitution Account.
The name itself is bloodless, in the style of money men. But what the United States is aiming at is nothing less than a gradual transformation of the international monetary system and the ultimate creation of a genuine international currency.
If the United States can convince other nations -- notably Germany, Japan and France -- the Substitution Account will eventually relieve the U.S. and a few others of their roles as nations whose currencies now serve as rainy day reserves, held in foreign central banks. That would spare reserve currency countries from at least some of the ups and downs on exchange markets to which they are now subjected. This in turn would give them a freer hand to run their domestic economies. They could be less concerned about shaping policies to prop up or depress their money.
Eventually, the account might even lead to the creation of an international money as good as gold and even better. For the currency that could flow from a Substitution Account would not -- like gold -- be subject to chance discovery in South Africa or the Soviet Union.
In very broad terms, the account would work this way:
Central banks like the Bundesbank would turn in to the account dollars they don't require for the ordinary business needs of other German banks. The account would hand over in exchange Special Drawing Rights or SDRS. SDRS are the "paper gold" created after tortuous international bargaining a few years ago. They are a kind of money credit whose value is expressed by a basket of currencies -- fixed percentages of yen, dollars, marks and more.
Then, instead of holding dollars as a rainy day reserve, the central banks would pile up SDRS. Should these ever be sold to private banks or corporations, and then circulate, the world would be endowed with a genuine international currency.
Little of this detail figured in the talk between Solomon and Reuss. Reuss is one of the most knowledgeable money men on the Hill. So the pair could use a conversational shorthand that assumed the mechanics.
Solomon judiciously flatters the congressman. "You and [Sen. Jacob] Javits gave this a push," he says.
The negotiations with other countries are not easy. "There are differing objectives on what a Substitution Account is. It's very undefined. There is no consensus yet."
Some, deliberately unnamed nations merely want an account for "a volatile dollar holder." That is, they see it as a place where jumpy Arab nations can lighten up their dollar investments without wrecking the exchange markets.
But the United States wants "universality," wants every big dollar holder to join in. A limited account has the flavor of a device to bail out the United States.
Reuss, who has been sipping a beer and toying with his corned beef hash, says, "I agree with everything you said" but "I haven't made up my mind" about "universality."
Solomon, who has finally gotten a chance to bite into his tomato stuffed with chicken salad, gently insists that the account must embrace "all who are significant dollar holders."
Reuss wants to know how the bargaining is going. Solomon replies that the United States aims at getting a broad agreement on the principles of an account at the next meeting of the International Monetary Fund in Belgrade in October. "I feel there is a 50-50 chance," he says several times.
The trouble is, "this is unbroken ground. They [the other nations] know what the dollar is." But they don't really feel comfortable giving them up for "paper gold."
Reuss wants to know whether the United States has a specific, detailed plan for the account. Solomon ducks.
"We will gradually be disclosing our views," he says. So far, Washington has talked only in terms of principles and criticized proposals of others."We do not want to present a structured position. It would but be advisable. Trust me on that," Solomon urges with a smile. "I'm a pretty good negotiator."
Reuss drops it, and says he would "certainly be well pleased" if Solomon's 50-50 bet comes off.
From Solomon's standpoint, it has clearly been a successful lunch, however meager his own diet.If and when a Substitution Account is agreed upon, the government can probably count on strong support from the chairman of the House Banking Committee.
Earlier that morning, Solomon had met privately with five of his aides from the Financing Group. Their chief task is to decide how much money the government needs to pay its bills and how to raise it. Before I was allowed in, they had agreed to auction $1.5 billion in bonds that would mature in 15 years.
I entered to find the aides seated on red couches, grouped around a small, marble-topped table. Solomon sat on a chair at the edge of the circle, a slightly self-conscious professor leading a seminar.
The six had turned their attention to a vexing problem, the new and fast-booming speculative markets in Treasury bills, IOUS maturing in a year or less. People in search of a quick dollar are buying and selling each day $12 to $14 billion worth of Treasury bills they do not own, promising to deliver or accept their deals three months later.
This new craze treats Treasury IOUS like wheat, copper, lead and other commodities -- creating markets of short sellers who are betting interest rates will rise and long buyers who bet they will fall. The action is furious. A down payment or margin of about $800 enables the fast buck boys to buy long or sell short bills worth $1 million. They are disposed of as soon as the contracts come due. On each million-dollar contract and for every one percentage point change in interest rates, the speculators win or lose $2,500. That is fast action over three months.
Solomon and his team don't like this game. They fear it will disrupt the orderly sale of Treasury bills, interfere with the government's financing. But they are helpless. The game grew up on the commodity exchanges and these are protected by congressional agriculture committees. The Treasury has been barred from supervision. It can only recommend.
Richard Kelly, Solomon's young-looking deputy assistant secretary for debt management, is worried. The big brokers, he explains, have been urging their clients -- "doctors, dentists and little old ladies" -- to buy T-bills [the trade term] in expectation of a fall in interest rates. The customers have been doing so with a vengeance.
"This has put a trememdous squeeze on the professionals who are short in the futures markets," Kelly says. The professional dealers are those who promise to sell bills to the doctors, dentists and little old ladies at a fixed price in the future.
"They had to liquidate their positions with extremely large losses," Kelly goes on. "I'm concerned about what has developed in the last four weeks. The professionals just don't have the money. They've been overwhelmed by the little guy."
Kelly can speak with some feeling. He came to the Treasury from G. Aubrey Lanston, one of the biggest professional bond dealers in New York.
A big dealer, however, could strike back by what Philip Fitzpatrick, the ruddy-faced assistant fiscal assistant secretary [finance], calls, "a corner or squeeze." He means that a determined dealer with enough resources might gobble up so much of a share of the bills that are auctioned each week that he could force all those who have sold short, promised to sell paper they don't own, to pay an exorbitant, monopolist's price.
To prevent a "squeeze," Solomon and his team have just laid down new rules, limiting the amount of Treasury bills any one dealer can buy at an auction.
That week for the first time, each bidding dealer was supposed to report if he already had in stock $200 million or more. But some didn't get the forms.
"It's like Murphy's law acting," says Fitzpatrick, the nearest anyone comes to levity.
Kelly suggests that the team rely on "judgment," informal guidelines. But Roger Altman, Solomon's assistant secretary for domestic finance, is uneasy. What if Tony is in Tokyo an he, Altman, has to decide. He will have only two hours to exercise "judgment."
Solomon, who has been listening quietly, now decides. "Give me a memo," he tells Kelly, meaning that the "informal guidelines" should be reduced to writing.
The decision evolved naturally from the discussion. It was less a Solomonic order than a response to the logic of the talk.
One morning, we went to Vice President Walter Mondale's cluttered office in the West Wing of the White House, just off the lobby where correspondents once sat. The vice president, genial and in shirtsleeves, is smoking a cigar.
Solomon is there to tell him of the fruits of "trigger price," a Solomon invention to preserve the steel industry from overly rigorous foreign competition. Any foreign producer offering steel below the cost of Japanese production will trigger an immediate inquiry that could lead to stiff money penalties.
The public relations trade would call this a "Jack Horner," with Solomon demonstrating "What a good boy am I." Apparently, it helps the Treasury to have a Mondale in its corner.
So Solomon tells him that the average American steel plant is now running at 93 percent of its capacity. Two years ago, before "trigger price," the industry was down to 76 of 77 percent.
"That's almost a revolution in utilization," Mondale exclaims.
Moreover, the number of steelworkers receiving special aid because of layoffs from imports has fallen from 55,000 to 38,000.
"That's good," says Mondale, puffing away.
Even better, Solomon reports, the industry, which lost $150 million in 1977, made $1.3 billion in profits in 1978 and the first quarter this year was stronger. "So the situation looks good and the prospects for the rest of the year look good," Solomon sums up.
Now it is Mondale's turn to profit from the exchange. His native Minnesota, he observes, is a big producer of taconite -- upgraded iron ore for steel plants. But the ice in the Great Lakes freezes shipments during the winter months. Taconite piles up and costs for producers rise. If only the industry could get a Coast Guard ice breaker, just one, it would gain more shipping months and costs would fall. Mondale looks expectantly at Solomon.
Solomon is a bit unfomfortable. Ice breakers are the business of the Department of Transportwtion, not the Treasury. He asks a few questions, however, and suggests he will look into it.
He will, too. Solomon will have his staff get figures from Transportation to determine whether the gains from an ice breaker outweigh the costs.
Solomon has performed his "Jack Horner" and Mondale has launched is bid for Minnesota.
The pair then talk briefly about the difficult struggle against inflation, against rising prices. They never discuss, however, whether the steel "trigger mechanism" has worked against them, propping prices for the metal higher than they otherwise would have been.
A different style of selling is employed by Robert McNamara, on whom Solomon calls that afternoon. McNamara comes from the auto industry, where understatement is sin and hard sell second nature. That is the way McNamara tried to convince Americans of the virtues of the war in Vietnam. Now he is an equally zealous envagelist for the World Bank, which he heads.
McNamara too sits in shirtsleeves in his enormous office that seems two stories high and is lined with conventionally abstract paintings. It is now clear that in Washington's air-conditioned offices, shirtsleeves are a high executive prerogative -- McNamara, Blumenthal and Mondale. Lesser mortals wear business suits.
The House Appropriations Committee has cut $500 million from the $1.26 billion that the World Bank seeks from the United States. McNamara wants it back, and badly.
The size of the bank's loans depends, dollar for dollar, on the amounts member governments put up. To be sure, the committee hasn't cut a penny from the $1.92 billion requested for the bank's International Development Association. This is the arm that makes subsidized loans to the poorest countries. But all the attention is on the $500 million.
McNamara, at Solomon's request, opens up with a "Jack Horner" review of loans to find and exploit oil in the so-called developing nations. This is a new venture for the bank.
"In the last year, I think we've made tremendous progress in this area," says McNamara.
The bank has identical potential projects -- oil and coal -- in 70 nations. Five years ahead, it expects to be lending up to $5 billion for energy projects costing $14 to $18 billion. This could yield the equivalent of 2 million barrels a day [about equal to Britain's consumption.]
"I think it's a tremendous program," McNamara repeats.
Solomon, almost drowned in the sea of numbers and adjectives, responds in a weak voice. "That is impressive," he says.
"We're on the way," McNamara comes back. "It's a hell of a lot. A contribution to everybody."
Unintentionally Solomon deflates McNamara with a question. Of the 70 countries with potential projects, how many are likely to receive energy loans in the next five years?
McNamara barely pauses. "I pick a figure," he says airily. "12 to 18."
Solomon mildly deflates again. He asks whether the bank is getting "seismic cooperation" from the "companies."
"Most companies consider that proprietary."
English translation: Solomon has asked whether oil companies are showing back experts their geological findings to determine the existence of oil in poor countries. McNamara has answered, "No."
Oil companies certainly don't want outsiders finding oil and some don't want any more oil found at all, perfectly content with things as they are. Indeed, as J. P. Smith of The Washington Post reported, Clifton Garvin, chairman of Exxon, the world's mightiest oil company, wrote Blumenthal privately, urging him to oppose exploration financed by the World Bank. On this occasion, the government did say "no" to Exxon.
McNamara turns to the bank's programs to lift life for the world's impoverished. Here too, there is "fantastic" progress, a view shared by few below his 12th-floor office.
"The average congressman doesn't realize what we're doing with this poverty thing," McNamara says. "We just gotta get that money" or the poverty and energy programs "can't continue."
He appears to have forgotten that he had earlier observed that most of the energy schemes are financed by the International Development Association, whose request for money has been left untoched.
"The administration is sensitive to it," Solomon reassures him. "We'll be consulting widely on the Hill. It's got a high priority."
What is remarkable in Solomon's crowded day -- which often begins at 7 with a phone call from Bonn an ends in his office near 9 at night -- is the quiet, unruffled way in which the government's business is done. Judgments or decisions are made quickly, almost automatically, with an outer show of confidence and assurance that, as often as not, is frustrated by events. The communicats speak a common vocabulary, barely intelligible even to informed laymen. If the high priests of money ever doubt their ritual and calling, they show no sign.
The pace does show, however. Solomon is pale and drawn. Blumenthal looks puffy and pasty-faced compared to the vigorous health he once enjoyed on the shores of Lake Geneva, negotiating the Kennedy trade round.
Solomon promised to call me the day after my watch on his work to answer a few summary questions.
I began by asking whether he ever found time to reflect.
He replied, "I make a point of carving out time for higher priority stuff. . . ."
Then he broke off abruptly to take a call from overseas. He never came back on the line and left the next day for the Tokyo summit and Seoul. CAPTION: Picture 1, Little understood by the general public rarely explained in the press, the arcane world of government finance has enormous influence over our daily lives. Recently Post national staff writer Bernard Nossiter, a veteran economic reporter, had a rare chance to look behind the curtain, watching Undersecretary of the Treasury Anthony M. Solomon [above] as he met privately with other officials over a three-day period. This is Nossiter's report; Picture 2, "The main question, is the dollar going to hell? Do we have a dollar crisis?" -- Treasury Secretary W. Michael Blumenthal; Picture 3, "I agree with everything you said said," but "I haven't made up my mind" about universality [of substitution accounts]. -- Rep. Henry Reuss [D-Wis.], chairman of the House Banking Committee; Picture 4, "That's almost a revolution in utilization." -- Vice President, Walter Mondale, on being told the American steel plant is running at 93 percent of capacity; Picture 5, "The average congressman doesn't realize what we're doing with this poverty thing. We just gotta get that money." -- Robert S. McNamara, president of the World Bank.