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This is a prime example of how joint Funds Accounts have been kept so secret for so many years. There are over 20 nonpublished letters in the 1996 GM-~AW National Contract. This-was done to give certain information a degree of anonymity.

The work of the Joint Programs is performed by employees of GM, Ford or Chrysler, as the case may be. Some of those employees are members of management on assignment. For example, the HRC reimburses GM for the costs of these members of management. Some of those employees are active hourly ., members of our bargaining unit, who are on special assignment the Program. Some of those employees are commissioned International .Representative.s., assigned to work on these Programs. The HRC reimburses the UAW for the cost of these International Representatives. Beyond this, the Programs hire clerical and other direct employees, and make their own decisions about when to contract with outside firms- for goods. and services.

December 31, 1994

The Guaranteed Fixed Account unallocated insurance contract is valued at contract value as estimated by Lincoln National Life Insurance Company. Contract value represents contributions made under the contract, plus interest at the contract rate, less retirement benefits and the insurance company's administrative expenses.

The fair values of participant units owned by the Plan in the Lincoln National Core Equity Account, Government/Corporate Bond Account, Medium Capitalization Equity Account and Balanced Account are based on quoted redemption values on the last business day of the plan year. The change in fair value is reflected in the statement of changes in participants' equity as realized or unrealized appreciation/depreciation on investments.

Plan participants may, at their election, invest in life insurance policies using available balances in there. Individual accounts. Amounts set aside for this purpose, including subsequent investment return, are excluded from Plan assets.

All costs and expenses incurred with regard to the purchase, sale or transfer of Plan investments and insurance premiums are borne by the Plan. Other administrative expenses are borne either by the Plan or by UAW-GM Human Resource Center (the '1HRC'4)

Participants terminated without becoming fully vested forfeit employer contributions made to their account; Forfeitures will be used to offset future contributions from the HRC.

2. Description of the Plan

The UAW-GM Human Resource Center Money Purchase Pension Trust is a defined contribution money purchase plan that covers substantially all eligible full-time salaried employees of UAW-GM Human Resource Center and provides for retirement, disability and death benefits.

The HRC contributed to the Plan 9% and 6%, in 1994 and 1993 respectively, of each participant's compensation below the maximum social security taxable wages base (the "wage base") in effect at the beginning of the Plan year plus an additional 3% of each participant's compensation above the wage base. Plan participants may not contribute to the Plan. The Plan has met the ERISA MINUMUM funding requirements.

2. Description of the Plan (continued)

Participants become fully vested in the Plan upon completion of 5 years of service, as defined in the Plan.

Although the HRC intends to continue the Plan indefinitely, it has reserved the right to amend or terminate the Plan at any time. If the Plan were to be terminated, the amount in each participant's account would become fully vested as of the date of termination of the Plan. Plan funds would be distributed to each participant in accordance with distribution policies set forth in the Plan.

Information about the Plan agreement, including eligibility, vesting and benefit provisions is contained in the Summary Plan Description. Copies of this booklet are available from the plan administrator.

3. Investments

The fair value of individual investments that represent 5% or more of the Plan's assets are as follows

December 31

Guaranteed Fixed Account $646,212 $902.010

Core Equity Account 355,710 143,365

Government/Corporate Bond Account 195,078 100,096

Medium Capitalization Equity Account 302,706 89,353

Balanced Account 176,350

4. Income Tax Status

The Internal Revenue Service has ruled, in a determination letter dated November 7, 1994, that the Plan qualified under §401(a) of the Internal Revenue Code (the "Code") and that the trust is, therefore, not subject to tax under present income tax laws. The Plan is required to operate in conformity with the Code and ERISA to maintain its tax-exempt status. The Plan Administrator is not aware of any course of action or series of events that have occurred that might adversely affect the Plan's qualified status.

7

Plan Administrator

UAW-GM Human Resource Center

Money Purchase Pension Trust

We have audited the accompanying statements of net assets available for benefits of UAW-GM Human Resource Center Money Purchase Pension Trust (the "Plan") as of December 31, 1994 and 1993 and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 1994 and 1993. and the changes in its net assets available-for benefits for the years then ended, in conformity with generally accepted accounting principles.

Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental schedules of assets held for investments and reportable transactions as of and for the year ended December 31. 1994 are presented for the purpose of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the Department of Labor's Rules and Regulations of Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

The schedule of assets held for investment purposes that accompanies the Plan's financial statements does not disclose the historical cost of certain plan assets held by the Plan trustee. The schedule of reportable transactions that accompanies the Plan's financial statements does not disclose the net gain (loss) on the sale of transactions. Disclosure of this information is required by the Department of Labors Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.

April 7, 1995

Attachment to Form 5558

Detailed Statement of Need for Extension of Time

Plan(s) covered by this application:

Plan Plan year ending

Plan name number Month Day Year

UAW-GM Human Resource Center Disability Plan 501 1231 94

UAW-GM Human Resource Center Life insurance

and AD & D Plan 503 12 31 94

UAW-GM Human Resource Center Health Plan 504 1231 94

UAW-GM Human Resource Center Tuition

Assistance Plan 505 12 31 94

UAW-GM Human Resource Center Money

Purchase Pension Trust 001 1231 94

Detailed statement of need for extension of time:

All information needed to complete the return has not been received, The plan sponsor requests additional time in order to prepare a complete and accurate return.

Sunday, October 25, 1998

More than a decade ago, the Jointness Partnership Program was introduced to UAW members with great fanfare. The jointness program was to improve the quality of life on the job; to empower workers at the work place in the decision making process, and to lead to greater job security. It was supposed to replace "adversarial unionism" and bring about a cooperative partnership between the union and the company. It was touted as a workers' empowering movement. The 54 day, 1998 GM, strike demonstrated that jointness failed to provide job security.

What follows is an analysis of the vast funds generated by GM's Jointness Memorandum letters and its enormous appointment structure. It will be shown that the corporation has c<mtrol of all of the funds and has veto power over all union appointments at the national and local level.

Attached are two letters of understanding that were in the last G. M contract (1993-96.) They are titled Memorandum of Understanding: Jointness Activities (page 257) and Joint Program representatives page 414). (The operative phrases are highlighted.) These G. M letters are representative of the big three contracts.

The Memorandum of Understanding begins by stating "there is a mutual recognition that.... Challenges .... require a fundamental change to the potential of our human resources."

This means that the union and company will cooperate to get the maximum work from labor. The

last sentence in that -paragraph promises that employees will get job security (page 257)

When these programs began, in the early '80s, the UAW had 1,500,000 members, who produced 10 or 11 million cars per year. There are now about 700,000 members. They produced 15 million cars last year. The company has surely maximized the "human resources' but the union has lost half of its membership. In Flint the UAW membership has been reduced from 70,000 workers to 33,000 workers. So much for job security program. Meanwhile, job security of the union bureaucracy at Solidarity house fared better. It remains roughly the same size as it was fifteen years ago.

JOINTNESS STRUCTURE

The organizational structure of the jointness program consists of an executive board with codirectors. The co-directors are Vice President of Industrial Relations- General Motors Corporation and the. Vice President and Director of the UAW's G. M. department. (Page 258)

The UAW director delegates some of the appointments to the UAW regional director, local union president and shop committee. The General Motor Company's national director and his subordinates have veto power over the union appointments. This is because LU actions of the jointness, program must be arrived at by mutual consent,

This key authority is reaffirmed many times in both the memorandum and the letter on representatives. The two directors have total control over all money expenditures and all job

appointments. G. M's director has veto power over any program or appointments that the UAW might want to institute. No program can go forward unless the company think - that- it will "maximize... human resources." Maximizing resources is a euphemism for speed UP. By the same token the UAW can also cancel any part or the whole jointness, program if it chose to do so. (page 262 paragraph D, agreement of expiration.) The company does not have to use its veto power often as there is a self censorship by the UAW in putting forth programs and appointments which would not be in line with the concept of the jointness program

JOINTNESS FUNDS - NATIONAL AND LOCAL

FUNDING OF THE PROGRAM appears on page 261. The first sentence says "It is agreed that the corporation WILL MAKE A VAILABLE FUNDING... " This odd language is designed to obscure the fact that the vast sums generated for the program come from the workers wage package. It also conceals that there is no accountability by the union over these funds.

The funding is done in three categories: five cents per hour for the national program add to this ten cents per hour for national and local programs, and a sliding scale provision of overtime penalty, that can run as high as five dollars per overtime hour worked each year. These funds run into multi million dollars as shown below.

Let us assume that there are 200,000 employees at GM working 40 hours per week for 50 weeks per year or 2,000 hours per year.

200,000 workers

400,000,000 total hours worked

$20,000,000. This is the National Fund. Doubling this amount or.10 per hour for the Local and Reservoir Fund equal $40,000,000.

Thus in a normal years work , the$.05 and $. 10 per hour taken out of workers wages PRODUCES $60,000,000 PER YEAR. The above is the minimum income created by the jointness formula at straight time.

In recent years overtime has become a way of life for auto workers. The sliding scale formula, from $1.25 to $5.00 per hour worked, was supposed to discourage overtime. It appears to have done the opposite.

Let us again assume 200,000 GM workers work two hours of overtime per week and 50 weeks per year (or 100 hours of overtime per year at $1.25 per hour, will generate $25,000,000. If however, 200,000 workers average 8 hours of overtime for 50 weeks at the rate of $5.00 per hour as the sliding scale provides (or 400 hours overtime per year) it will generate $400,000,000. The figure boggles the mind.

Page2

J0INTNESS PROGRAM REPRESENTATIVES

The corporate and the UAW vice presidents have the power to make all appointments. There shall be one person appointed for each 250 workers.

This same contract provides for one elected union committee person for every 250 workers. Thus the elected union committee persons are the same number as the appointees. There are differences. The elected committee person is restricted to the zone that they represent, whereas the international union appointee can roam the plant and can spend their time in the pleasant surroundings of an air-conditioned office. The elected local union committee person has the responsibility of representing conflicting views in their constituency, whereas the appointees of the UAW international bureaucracy, like all political appointees have as their first responsibility the reelection of their boss. In affect we now have one international overseer for each local union

rank and file elected committee person.

UAW workers had to strike to gain the ratio of one elected local union committee person for 250 workers, not so for the jointness appointees. The Joint Memorandum provides for the same ratio of one to 250. Thus the international union bureaucracy has an extension of about 900 appointees into the local unions at GM. 800 appointees are more people than the UAW's original staff In addition to this, hundreds of jointness appointees are added by the National and Reservoir Funds for the Human Resources Centers. What a pork barrel!

The appointive powers of the vice president of the UAW in GM are replicated in Ford and Chrysler. This may triple the size of the UAW international bureaucracy. All of these appointees are subject to veto by the corporate personnel departments.

It is ironic that millions of dollars taken from the workers' wage package is being used to expand the union bureaucracy and undermine democratic independent unionism

Enclosed is an outline of a democratic union alternative to the Jointness Program.

Page 3

The Jointness Memorandum aims to ideologically destroy independent unionism.The appointment of Jointness Representatives, allows for an extension of the international into the heart of each local union. Before this appointive ability, all local officers were democratically elected. . The invasion of appointees, into each local union is anti-democratic and corrupting by encouraging job seeking opportunism in the ranks.

To reverse this process New Directions and progressive militants should consider the following outline as a union alternative program.

UAW - COMMUNITY DEVELOPMENT FUND

*The UAW community fund is to replace the " Memorandum of Understanding Joint Activities." The UAW GM contract -1993-96 (p262 section d. agreement expiration) outlines provisions for ending the program and negotiating future and accumulated funds. All funds negotiated for the new UAW -Community Development Fund shall be under strict UAW accountability, as established in the constitution for the local unions and the international.

9 All programs under the UAW Community Fund shall be introduced through democratic action of the local union. Any programs in the old formula, which local union members find useful, may be reintroduced and continued under democratic control of the local.

* Local unions should develop outreach committee to engage in community activity; such as, childcare centers, improving school systems and environmental improvements etc. Bring present unionism into social unionism

• The local union should elect all personnel for the UAW -Community Development Fund.

• If there is a need to extend the UAW- Community Development to a regional or national structure, they should be established by locally elected delegate councils. Any jobs for these programs should be distributed proportionately, through democratic elections in local unions. Technical staffjobs, if needed, should be hired by the elected delegate councils.

The term "jointness" is understood to mean that concepts for these activities be Jointly developed. Implemented, monitored, and evaluated. Furthermore, deci5wns must be arrived at in a setting which is characterized by the parties working together in an atmosphere of trust: making mutual decisions at all levels which respect the concerns and interests of the parties involved: sharing responsibility for the problem solving process and sharing the rewards of achieving common goals.

The parties agree that the appropriate facilitating mechanism for joint endeavors is the Executive Board

The Vice President of Industrial Relations of General Motors Corporation and the vice President and Director of the GM Department of the UAW will appoint an equal number of representatives from their organizations to serve on Joint National Committees. Additional person's external to either party may also be appointed with the mutual approval of the Co-directors. (outsiders)

1. The Union will be fully involved in all phases of training including analysis and development that is directed at UAW-represented employees. When such employees will be impacted by training and manual

260

It is agreed that uncommitted funding balances accrued under the 1990 National Agreement in both the five cents (50) per hour fund and the ten cents (10c) per hour (LOCAL FUNDS) and (RESERVOIR FUNDS) as of October '14,1993, will be carried forward under the new National Agreement Subsequent to October 24. 1991 a final reconciliation and balancing of accounts, expenditures and commitments as of October 24, 1993 will occur. Thereafter, the remaining funds will be available for the parties.

V. FUNDS UTILIZATION

GENERAL MOTORS CORPORATION

A UAW-GM program to sponsor NASCAR stock-car racing events, using money from a jointly controlled fund for worker training and education, has, spawned lawsuits, unpaid bills, failed businesses and federal scrutiny.

Tom Winkle, a small town Ohio car dealer, conceived the program. He pitched it as a way for GM to boost its sales and for the UAW to boost its image and its chances of attracting new members, especially in the South.

Winkle received a $1.9 million, no-bid contract to administer the program in March 1994.

The racing deal began to unravel last summer, however, after UAW-GM officials learned that vendors hadn't been paid out of money sent to Winkle for that purpose.

Such troubles might have been foreseen. In 1992, GM conducted an extensive audit of Winkle's dealership, looking for abuses in the purchase of company-owned cars by GM employees. A GM executive to whom he had sold cars resigned.

UAW and GM officials knew that in 1994. They had ties with Winkle, however, that extended beyond the realm of racing.

Before and after signing the contract, Winkle sold or leased dozens of vehicles to UAW officials and family members. Some vehicles, according to people familiar wit the deals, were heavily discounted.

The racing program is administered through the UAW-GM Human Resource Center in Auburn Hills. The nonprofit center was created in 1984 to provide "education, training, re-training, and/or placement of workers, and all activities incidental thereto." Supported by 19 cents diverted from the pay of UAW workers every hour, it spent $80 million in 1984.

Howard Erickson, spokesman for the center, insisted that racing is an appropriate use of training money, and that it is helping boost UAW-GM's image.

This weekend, 100 UAW workers, along with their guests and top union and company officials, are taking an expense-paid trip to a NASCAR race at Charlotte (N.C.) Motor Speedway. The workers were invited after making suggestions to improve GM's production methods and encouraging neighbors to buy GM cars.

All week, country music stations in Charlotte have been saturated with UAW-GM ticket giveaways and other racing promotions.

"The only time you hear about UAW-GM in the southeast part of the United States is when there's a strike going on in some plant." Erickson said. "Now, we're bombarding this market with a positive message."

Privately, officials from both sides say sharp debates occur-red about whether, how and how much training money should be used for racing events.

The center's by-law requires the UAW and GM to agree on major decisions. In practice, according to officials on both sides, the UAW gets what it wants.

"We look the other way," says a GM official, who asked not to be named, "to keep the union happy."

In recent months, according to people familiar with the center:

* The IRS told the center that motor sports and child care programs don't qualify as "nonprofit" activities, eligible for tax-exempt treatment. The agency, which won't comment, wants them spun off into a for-profit subsidiary.

* The FBI interviewed officials at the center about their links to companies with which they do business. The interviews were part of a continuing probe, centering on eye-care contracts for Big Three autoworkers, into possible improper financial benefits to top UAW officers.

Tom Winkle's dealership is in Paulding, a town of 3,000 residents 80 miles southwest of Toledo.

How did somebody from such a tiny place attract the attention of top UAW and GM officials?

Top GM executives are required to buy a new car every two years. When it comes time to sell them, they're often to busy to find buyers. Winkle in several cases called and offered the executives attractive, no-hassle deals.

"We try to give people good deals." said Winkle. "We try to give superior service. The name of the game is volume." He declined further comment.

Separately, Winkle specializes in GM's Performance Evaluation Program. PEP cars are usually driven by GM executives for 3,000 miles, evaluated, then sold to GM employees through a dealer.

Discounts on PEP cars range up to 29 percent on Corvettes. They're so generous that GM's eligibility rules and its caps on discounts are some-times stretched, by hourly and salaried workers, union and company officials, and others.

PEP deals between Winkle and UAW officials and their family members include:

Richard Moncrks bought a 1995 Oldsmobile Aurora with 4,127 miles in September 1994. Its sticker price was $33,956. After a PEP discount, he paid $26,685. Six months earlier, he was the UAW official who signed the no-bid racing contract with Winkle.

* Tracy Yokich, daughter of UAW Vice President Stephen Yokich, bought a 1992 Camaro with 3,374 miles in September 1992. She paid $16,670 and received $19,500 for her trade-in, not identified in public records.

* She bought a black 1993 Corvette with 3,400 miles in July 1993. Its sticker price was about $45,000. After PEP discount and rebates, she paid $31,915.

Tracy Yokich, who didn't return phone calls seeking comment on this report, failed to pay $667 in Michigan tax on the Camaro and $1,277 in Michigan tax on the Corvette. State officials are now in the process of collecting the tax.

Yokich, a state representative planning to run for judge in St. Clair Shores next year, received a $500 campaign contribution from Winkle in 1994.

GM had no comment on her eligibility for PEP discounts. She's not a GM employee or eligible dependent. Her father, who now owns the Camaro, said he was eligible for PEP discounts because his mother is a GM retiree. According to the program's rules, however, dependents qualify only through age 25; Yokich is 59.

Stephen Yokich said he requested PEP discounts on the Camaro and Corvette, and was surprised to learn they weren't registered in his name.

He said he didn't know until January that Tom Winkle was involved in the racing program. Wen asked by several top UAW officials acquired cars from Winkle, he said, "This is America. You can get a car from any dealer you wish."

In the racing contract, Winkle agreed to arrange a sponsorship of the UAW-GM Teamwork 500 race at Pocono International Raceway in June 1994. He agreed to prepare hospitality suites, advertising campaigns, monogrammed clothing and other items.

The contract included $215,000 in "hospitality" for UAW-GM officials and guests during six racing events in 1994. For example, 60 officials and guests were invited to lavishly outfitted skyboxes at the Pennsylvania racetrack, that included: "Carpeting, wet bar, food service catering, air conditioning, glass-enclosed, closed-circuit TV, tier chair seating, private elevator."

Also, the contract authorized Winkle, in exchange for sales commission paid to UAW-GM, to sell T-shirts, hats and jackets with the UAW-GM racing logo. He opened a store called Gold Track in Defiance, Ohio to sell the merchandise.

Much of the merchandise was made by Great Lakes Sportswear Manufacturing Industries Inc. 'The company is owned by Donald Nick, a longtime friend of Stephen Yokich. It received $120,000 in advance payments from

In addition to trying to recover money that Winkle was supposed to have paid to vendors, UAW-GM faces other problems.

* Corporate Sports Marketing, a Michigan company that helped design the racing program, is suing Winkle, claiming it has been promised $23,8000 a month plus expenses and future contracts.

* Pocono International Speedway is suing UAW-GM Corporate Sports Marketing and Winkle for at least $2 million. The raceway claims it hasn't been paid $373,177 for last year's race, and UAW-GM reneged on a commitment to sponsor races in 1995 and 1996. UAW-GM officials insist they made no such commitment.

UAW-GM officials cut their ties with Winkle in December. His merchandise store in Defiance went out of business this spring. Donald Nick's company, Great Lakes Sportswear, is in Chapter 7 bankruptcy liquidation.

Stephen Yokich, the nominee to become UAW president next month, says he's trying to find out what went wrong. "If something doesn't work, we fix it." he said. "If we can't fix it, we get rid of it."

A few lucky ones saw it coming. For them it wasn't a matter of "if" but only one of "when." I'm referring, of course, to the Crash of the Dollar.

It would never have happened had we Americans not backed ourselves into a position of being increasingly dependent on huge inflows of foreign capital. Why did we need so much money from abroad? Because of enormous trade deficits vis-a-vis the rest of the world-$300 billion a year. To balance the international books, by definition this deficit had to be matched by capital inflows in exactly the same amount, year after year after year.

That was no problem as long as the United States was considered the safe haven in a greatly troubled world, in 1997, when the Asian Tigers went down, taking their currencies with them, it was dollars everybody wanted. In 1998, when Russia defaulted on its sovereign debt and when Long-Term Capital Management almost blew up, the flight into safety inevitably involved the purchase of U.S. Treasuries. And of course, our stock market lured everyone. As it inexorably rose in the '90s while Japanese and European stocks languished, foreigners poured their money into Wall Street. They made out like gangbusters for two reasons: Stock prices here kept soaring ever higher, while the dollar did the same.

For those who had traded in their yen, deutsche marks, and Swiss francs for dollars and then invested them in Intel, Cisco Systems, Microsoft, or Chase Manhattan, it was a double whammy. Foreigners ended up owning $1.25 trillion dollars worth of American stocks. And they owned $1.6 trillion of U.S. government notes and bonds, considered by all the safest investment in the

world's safest country.

But then talk started about the bubble, the bubble on Wall Street. For a long time, this buzz was heard in Europe and Asia, so most Americans attributed it to their envy of our new computerized Internet economy and the stock prices that reflected it. Then, bam!, the almighty Alan Greenspan uttered the B-word. He talked about panics, about the unaltered propensity of man to run for cover, perhaps irrationally, when bubbles start to burst- He even referred to the tulipmania of the 17th century, when a single tulip bulb was going for the equivalent of a mansion in downtown Amsterdam. Such sentiments gradually pushed the dollar's value against other currencies down by almost 5 percent since June 1999. With stock prices reflecting an average 30 to 1 price-to-earnings ratio, valuations at the start of 2000 were way out of line. Historically, that ratio averaged 15 to 1. Which got a lot of foreign investors thinking that they had been right all along.

Still, thinking and actually doing something about it are quite different, as we all know. Until a spark lights the fire.

J A N U A R Y / F E B R U A R Y 2 0 0 0

That fire flared on April 3 in the spring of 2000, and it was the Swiss who supplied the spark

HERR DOKTOR HELMUTH SUTTER ran the Union Bank Corporation, the largest of the Swiss banks, banks that collectively ran the largest accumulation of investment funds in the world. Trillions of dollars had been entrusted to them by the tax dodgers and dictators of the world, by the new financial Mafia in Russia as well as the old

 

 

'Let's get

out of the

dollar, said

the Swiss

banker,

"before

someone

else yells

'Fire!'

Mafia in Sicily. Historically, the Swiss banks that managed these funds had one overriding motto: Play it safe. Capital preservation was the watchword, not trying to equal the performance of a Fidelity Magellan Fund or get rich quick on 1POs. But for a couple of years in the late'90s they had gotten friskier. And paid dearly for it, taking a huge bath on Russian bonds, another one on the derivatives of Long-Term Capital Management, and a third one on bad loans in Latin America. So the word was starting to get around Palermo, Moscow, and the Riviera that maybe Swiss banks weren't all they were cracked up to be anymore.

That's when UBC brought Herr Doktor Helmuth Sutter out of retirement. His job: to restore confidence by returning to the old way of doing things. Paradoxically, Sutter, who was now 65, had made a big name for himself in exactly the same way that LTCM got in trouble: by gambling in derivatives. The time had been the autumn of 1967. The derivatives were forward short positions in the pound sterling. The bet: that the pound was riding for a fall and that all it needed was a push in the right direction. Sutter gave that push by building up a huge short position in sterling for the bank. When word of what the Swiss were doing got out, everybody with any brains and lots of money followed suit. Sterling plunged, the Bank of England intervened massively, and in vain. Within 30 days Sutter had made a quarter of a billion dollars for his bank. Since this is a zero-sum game (meaning that for every big winner there is an equal loser), all of it came at the expense of the Bank of England. Sutter was a hero at home but regarded as a rotter by the British.

This time around it was the dollar that was under attack, and it started with a lunch in the private restaurant in the Hotel Baur au Lac in Zurich. Sutter's guest was the president of Switzerland's central bank, Herr Doktor Hans Bachmann. While they were finishing up their meal, dawdling over what remained of a second bottle of '76 Chateau Latour, Sutter broached the subject that was the reason for his paying a fortune for lunch.

"Hans," he began, "I'm very worried about the dollar."

"Yes, indeed. Aren't we all?" Bachmann replied. "Our dollar holdings represent the majority of our currency reserves. And the dollars keep pouring in. The problem is compounded by the fact that our dollars are all invested in U.S. Treasuries."

The process that led to this over-concentration in dollars was the huge and chronic U.S. trade deficit and was hardly restricted to Switzerland. Whether Swiss, Japanese, German, or Chinese, corporations that exported to the United States were paid in dollars. They took those dollars to a local commercial bank and cashed them in for the local currency. That bank then took the dollars to the country's central bank and did the same. As the final resting place for these dollars, those central banks had to invest them as safely and profitably as possible. So central banks bought U.S. government securities: T-bills, T-notes (anything maturing in I to 10 years), and T-bonds (maturing in 10 to 30 years)-36 percent of all outstanding U.S. debt by 1999, in fact.

That's why Bachmann continued the way he did. "So it is not just the dollar exchange rate or the stock exchange in New York that has us worried. It's what might happen to bonds in the United States. If everybody starts to dump them, bond prices will collapse, and we would lose a fortune in the 1980s the Japanese got caught in this trap and lost almost a half trillion dollars."

"So what are we going to do about it?" Sutter asked leadingly.

"Get out the door before somebody else yells 'Fire!'. That worked in Asia in 1997 and it will work in the U.S. now."

So the Swiss central bank started it dumping Treasury bonds and then dumping the dollar-with the big Swiss banks getting a jump on the rest of the banking world. The Germans followed, then the British. They all began switching from dollars to euros. The portfolio managers of the European banks, following the lead of UBC (its strategy had inevitably begun to leak out) started massive switching out of the New York Stock Exchange and the NASDAQ and into stocks and bonds listed in Frankfurt, London, Tokyo, even Shanghai.

The run on the dollar had begun.

THE PRESIDENT of the Federal Reserve Bank of New York, William McDonough, who handles the foreign-exchange operations of both the Fed and the Treasury, was in the eye of the developing hurricane, a place he often found himself lately. It was McDonough who, by phone, had alerted Greenspan to the liquidity crisis developing from the looming collapse of Long-Term Capital Management in the fall of 1998. An even more urgent phone call was required this time. At 8:45 a.m., he dialed.

McDonough: "Alan, we've got a problem. Everybody is starting to dump dollars."

A pause in Washington.

Greenspan: "So the risk premium on dollar assets is rising?"

McDonough, rolling his eyes at the ceiling: "Alan, it's pretty simple. They're selling. The Swiss started it. But the Brits, the Japanese, the Germans, they have all joined the parade. So the dollar is plummeting. Who cares about risk premiums? What I care about is what we should do."

Greenspan: "Who are we to make a judgment as to what risk premiums are justified by market forces?"

McDonough: "Well, my judgment is this. If the exodus from the dollar continues and is accompanied by massive selling of Treasuries and stocks, that panic you were talking about last year is going to become a reality."

Greenspan: "Such is the nature of man."

A pause in New York.

"Screw the nature of man. Do we step in and start to intervene or not?"

"How serious is it?"

"Extremely. The stock market opens in a little more than half an hour. We stop it now, or..."

"Where are they going?"

"Well, you know the old argument. If you bailed out of the dollar, there was no place to go. Well, there is now. The euro."

"Who's doing it?

"The Swiss National Bank. The Bank of England. The Scandinavians. The Japanese will be next. They will all reallocate their reserves out of dollars and into euro, or yen, or whatever."

"Step in."

"With how much?"

"The Exchange Stabilization Fund has $41 billion. The Treasury's holdings of foreign currencies are $32 billion equivalent. Use what you need to stop the hemorrhaging."

"Don't we need Treasury's agreement?"

"I'll take care of that. Get moving." "Yes, Sir." Of course it didn't work. Intervention never does.

IN BOSTON AT FIDELITY in Hartford at Phoenix Investment Partners, in San Mateo a Franklin Templeton the scene at 11 a.m. EST was the same. The mutual fund managers were paralyzed. They were all committed to be fully invested. They were all dependent upon rising stock and bond prices for their bonuses. So were those running the nations pension funds. They all knew that every body leading the companies in which they were invested had the same vested interest: Their stock options, as well as those of their key employees, depended upon ever-rising stock prices

For a while they just sat there in Boston, Hartford, San Mateo, watching their computer screens as everything tanked. Then Fidelity decided to move in. After all, they controlled, on average, 5 to 8 percent of the trades on the New York Stock Exchange. They sent Peter Lynch to the floor o the exchange to let everybody know that they were and would remain net buyers of stocks across the board. But, like the New York Fed now, and like the Rockefellers in 1929, they failed because they were facing superior firepower. When word got out about what UBC was doing massively shorting the dollar--everybody decided to get out while the getting was good. Even alot of Americans.

IN OLD GREENWICH, Connecticut, Laura Hastings was glued to CNBC. She and her husband had just bought a new house there for a shade over $1 million. She had chosen to stay home for the past five years to nurture her two young girls, but had done her graduate studies at the London School of Economics and Political Science and knew all about the "wealth effect." If stocks tanked, so would real estate. And so would the economy. And so would her husband's bonuses that were the primary means of support for their $800,000 mortgage. And what would that do to their marriage? To be sure, they had managed to save enough to invest just over $200,000 in mutual funds. They had another $240,000 in their 401(k), more or less split

between stocks and bonds. But that was for a very rainy day, or, preferably, for their retirement years.

What to do? Talk to her husband, a management consultant, when he came home from his office at McKinsey & Co. She took care of the family's money, but whenever she tried to talk to him about it, he always managed to change the subject. Not this time.

The kids were in bed and asleep at 8:30. Laura and her husband, Jeff, were back at the kitchen table, finishing off a bottle of-no, not '76 Chateau Latour-a'99 Sonoma County Gallo cabernet, $8.99.

"Jeff, you heard what happened on Wall Street today?"

"Sure. We probably got whacked pretty good."

"I checked with Quicken on the Internet. We lost almost a fifth of our money. In one day."

"That bad, huh?"

"I called my sister in Fort Wayne. Her husband's farm equipment-company stocks and stock options are the only securities they own. She's afraid that after what happened in New York today, a recession is bound to follow in the Midwest. She's worried about his job."

"What about your brother in L.A.? If anybody deserves to lose their jobs, it's people like him, in the entertainment industry."

"Now Jeff, just because he wears his hair long. I think he'll do just fine. People watch movies and TV no matter what. Besides, he doesn't have a killer mortgage like we do."

That was a conversation stopper.

"Laura, if you're asking me whether my job will remain intact, the answer is yes. We are the best in the business. If things go bad for a while, our clients will need us more than ever."

"So we can ride this out?" she asked anxiously.

"Yes. But let's both keep our fingers crossed."

HERR DOKTOR SUTTER OF THE Union Bank Corporation was not riding anything out. He was busy pouring it on, adding to his already massive short position in the dollar. This would make his currency coup of 1967 look like nothing. He'd finished off the Brits then. Now he was burying the Yanks. it gave him great satisfaction, since he had always despised the AngloSaxons with their superior attitude.

In Tokyo, the same feeling prevailed because they all shared the memory of what had happened to them in the'80s, when the Americans had taken them for the ride -of the century.

From 1980 to 1994, when Japans economic prowess seemed unbeatable, its cumulative current-account surpluses had totaled $900 billion. They invested all of it in America. By the early '90s, as a result of the dollar's depreciation and falling American real estate prices, they had lost $400 billion of that.

Never again. Despite the fact that the Europeans had already started driving down the price of both the dollar and American bonds, the Japanese knew from bitter experience that worse was yet to come. Once again they had many hundreds of billions of dollars at risk in the United States. So everybody from the Bank of Japan to the Japanese insurance companies to Nikko Securities started selling U.S. bonds and stocks and trading in for yen, euro, Swiss francs, and sterling. China, with its holdi4 of over $200 billion, was not far behind.

At the closing bell on April 3,2000, the dollar was down 19 percent against the euro, more against the yen, the Swiss franc, and the pound sterling. Bonds had collapsed. The futures market for them in Chicago was "limit down," meaning that bonds had dropped the full amount allowed by the exchange trading session, essentially freezing any further trading that day. And the Dow? Off 1,636.

THE FEDERAL RESERVE BOARD went into an emergency meeting at 2 p.m. that afternoon and remained in session until 6 a.m. the next morning. The Secretary of the Treasury, as an ex-officio participant, was there the entire time. Their decision: Stem the panic by stabilizing the dollar. Intervention had failed. So the only viable alternative was to raise short-term interest rates to sky-high levels. At some point, the return on dollars would become so enticing that the flight from the currency would cease.

The Fed-funds rate was jacked from 5.5 percent to 16 percent. It worked quickly. But with killer interest rates now prevailing in the United States across the yield curve from overnight funds to 30-year bonds-the economy went into an instant tailspin. The financial sector was hit the hardest. Then cyclicals like steel, vehicles, aircraft, and construction equipment suffered as the high interest rates seeped into the economy. As prices for agricultural products sank worldwide, demand for farm equipment dried up, causing losses at many of those manufacturers. This had happened in country after country in Asia in 1997. Nobody had thought it could ever happen to Supertanker America.

AS THE CHRONICLER OF THE dollar's crash, I can show you the economic landscape two years after this interest-rate equivalent of it "nuclear event." While Herr Doktor Sutter and his copycats around the world made a killing in the short run, it looks like Laura Hastings made the right decision. She had faith that the United States was destined to once again end up on top and held on to all their stocks. The reality was that, yes, the stock market had developed into a bubble in the late'90s, with price-to-earnings ratios for stocks that would take a lifetime to pay out. As a result of the collapse of P, those P/E ratios had been corrected from an "exuberant" 30 to 1 to a reasonable 20 to 1. The dollar was overvalued. That was also now corrected, in fact overcorrected: Less than a year after the crash, as a result of recession in the United States and accelerating economic recovery abroad, exports soared. High-tech exports were the biggest winners. That sector survived the best, because, with so little competition from elsewhere in the world, high-tech companies were able to control prices even when faced with falling demand. Exports of agricultural products were not far behind. And with the dollar so much cheaper, foreign tourists flocked to Florida, New York, San Francisco, and Las Vegas.

Imports collapsed, and America's trade deficit, which had been averaging $25 billion a month, disappeared. As a result of that recession, interest rates had plunged back to "normal" levels-a 5 percent Fed-funds rate and just over 6 percent for the long bond-making U.S. Treasuries the buy of the century.

After this catharsis, it again became clear that the United States was still far and away the most productive, the most innovative, the hardest-working nation on earth. In that sense, 2002's new reality did not differ from the old one predating the Crash of the Dollar. All that was different was the price of the dollar, the price of stocks, the price of bonds, the price of real estate, and the price of believing in easy money. All were more in tune with reality.

And although it had been a rough period for Laura Hastings of Old Greenwich, Connecticut, she was able to keep her house, her stocks, and her sanity. Her husband kept his job. She once again knew they had a future, and a good one. She kept her promise to arrange for a family skiing vacation if and when everything worked out all right. (It helped that her parents were -gifting" her now, to the tune of $10,000 a year, in an effort to get some money out of their estate.) In the spring of 2002, the Hastings went to the most exclusive mountain resort in Switzerland, Gstaad, and stayed at its swankiest hotel, the Palace, for five days. They had the best time of their lives.

Unfortunately, Laura's sister in Fort Wayne did not fare so well. The plant that her husband managed closed six months after the Crash of the Dollar. Six months after that, the farm-equipment company that had owned it went bust, taking down his stocks and stock options with it. So her parents were helping out since they now had no savings except for their money in the bank, and he was still looking for a job.

On the other hand, Laura's brother, the one with the ponytail-who did not know anything about financial markets, and didn't care-produced a miniseries for HBO that went over big. He had just bought a Jaguar and paid cash for it using dollars that were once again king.

Contributing editor Paul Erdman's many best-selling novels include The Swiss Account and his new thriller, The Set-Up, which is now in paperback by St. Martin's Press. His most recent fictionalized BLOOMBERG PERSONAL feature, "The Crash of 1997" (October 1997), can be found at www.bloomberg.com/personal.

HOW MUCH DO THEY OWN?