CHAPTER 2

Five Crisis Scenarios

■ Enemy Hedge Fund Scenario

A country like China or Russia could conduct a financial attack
on the United States using the trillions of dollars of reserves
they have in their sovereign wealth funds.
China is a good example. They have $4 trillion dollars in
reserves. By reserves, I just mean their savings account. If you
make $50,000 a year and you spend $40,000 on rent or car
or whatever and you’ve got $10,000 left over, you can put it
in the bank or you can use it to buy stocks and bonds. That
$10,000 is your savings, or your portfolio, if you will.
Individual countries are no different. Countries earn money
by having a trade surplus or getting direct foreign investment
and they have to decide how to invest it. That’s what’s called
their reserve position.
A lot of it goes into liquid assets, but the sovereign wealth
funds are set up to invest in less liquid instruments, normal
stocks and bonds too. They could, however, also be used to
fund a hedge fund with layers of Cayman Island trusts, Maltese
banks, cyber center intermediaries and, perhaps some corrupt
lawyers or bankers, though, you could also have unwitting,
unknowing lawyers and bankers who think they’re working for
a legitimate hedge fund and don’t know who’s really behind it.
That’s what’s called layering — it’s the use of trust and other
vehicles to disguise the true ownership.