My calls were over several weeks. Paul Erdman’s salary stopped instantly, and since his only real possession was the bank stock, Helly got a job as a secretary. Teams of auditors moved onto the premises of St. Jakobsstrasse 7, but no one had any clear idea of how $40 million could disappear from a modern banking institution. Especially a Swiss bank.

  Paul Erdman was in a small single cell, with a toilet, a fold-up bed and a table.

  My bank was busted.

  Paul Erdman had come to my office one summer day in 1968. He was lean, tall and bespectacled. I forget now who sent him; we were seeking to expand our knowledge of European banks, and Paul Erdman was to tell us about the Swiss, who are not eager to tell about themselves. We went to lunch, and Erdman began to tell me not so much about the rest of the Swiss banking establishment—he would introduce me to someone who could do an even better job than he could—but about his own small bank in Basel. I liked Paul.

  Furthermore, I have an interest—or a weakness—for and in small companies that have big ideas. You would never consider running General Electric to be fun. It might be something else, but not fun. But you take a couple of guys with a sheet of yellow paper and an idea, and the idea is right, and they have an itch to make something happen, to build something that grows—that’s quite exciting. If it works, it’s exhilarating and—though the word is inadequate—fun, almost as much fun as anything else you can think of. The odds against success are quite long: the idea does have to be right, and the money—enough money—has to be there, and then more money has to be available, and then you have to have the counter-strategy ready when the existing establishment feels the sting and starts to growl. And most important, you have to have the right combination of people, and they must all bring out each other’s positive qualities to the optimum. This is hardest of all, because people are the most valuable resource of any quickly growing operation, and the fellow who first started musing on the sheet of yellow paper is likely to have a very big ego along with his imagination, and a corresponding lack of sensitivity to the people the company needs.

  I suppose I have been involved in about a dozen of these amateur venture capital situations, and the record is no worse than anybody else’s. It used to be, when the venture business was easier, that in the morning you expected to find a couple of your colts stiff, their feet in the air, but that one or two would turn out to be great winners, ten or fifteen for one, and that would more than make up for the losers. In the early sixties I was in a company that made radar antennae so successfully it went broke. It doubled its sales every year, and the Navy loved the antennae, but they sold for less than they cost, somehow, and the company ran out of money. It barely managed to sell its stock to the public before it went broke. Then there was the electronic grading machine that was going to be used in every school in America—a lot of them were sold before they found all the bugs in the machine—and the company that made the typewriter that talked back to three-year-olds when they pressed a key.

  There was one outfit that was designed to relieve office overtime. No need to hire expensive temporaries for, say, peak insurance work: you just dictated into the attachment on your phone, and Dial Dictation would have it for you the next morning. The company hit some foul weather, and at night the president used to call me in California, where I lived at the time, to talk to me. Finally I asked him why he was calling me; I wasn’t a very big stockholder and I wasn’t a director.

  “Nobody else will talk to me,” he said.

  There were a couple that worked: Control Data bought the laser company, and the company that made the radiation equipment for atomic tests not only made it to the public-offering starting gate but was given a very nice ride in the 1967 enthusiasm. So—no great fortunes, but a lot of interesting entertainment, and my basic conviction was still unshaken: you don’t get rich owning General Motors, because General Motors has already grown up. What you should do with General Motors is inherit it. What you look for—at least before technology became a bad word—was “the next Xerox.” A lot of people have gone down swinging trying for that one.

  Typewriters that talked back to three-year-olds; attachments for telephones. I had never thought about a Swiss bank.

  I took Paul to lunch at the restaurant of the American Stock Exchange, and he told me how he had started his bank.

  “Swiss banks,” he said. “The most common concept is the secrecy—numbered accounts, tax evasion, South American dictators, all that. But Swiss banks are universal banks. They operate everywhere and they are used to processing information from all over the world. But did you ever do business with a Swiss bank? Cold, formal, snooty, extremely cautious, very conservative, eh? I could see the age of the multinational corporation arriving, Polaroid and IBM building plants in Europe, Swiss drug companies expanding in the United States. The services offered by Swiss banks weren’t up to those offered by American banks. I thought, What about an American bank in Switzerland, eh? A bank that would have American management techniques and American aggressiveness, but that was operating in Switzerland under Swiss laws, with Swiss universality. With maybe some of the dynamic qualities of a top-flight British merchant bank, eh?”

  Paul was an American, but enough of Basel had rubbed off on him so that he frequently ended his statements with a Baseler interrogative, ja? Certainly if anyone was going to start an American bank in Switzerland, Paul was uniquely qualified, except that, with hindsight, maybe his knowledge of bank operating procedures was a bit sketchy. The Wall Street Journal was to describe him later as “a personnel man’s dream.” He was born in Stratford, Ontario, where his father, an American Lutheran minister, had been called to a parish. Paul’s father is now a vice-president and administrator of the Lutheran Church in Canada, responsible for such activities as Lutheran hospitals and Lutheran insurance. Paul was sent at fourteen to a Lutheran “gymnasium” boarding school in Fort Wayne, Indiana, and then to Concordia College in St. Louis, where he met Helly, a native Baseler.

  After he graduated from Concordia in 1953, Paul enrolled at the School of Foreign Affairs of Georgetown University, thinking he might be interested in the foreign service. He worked part-time as an editorial assistant at the Washington Post and graduated with an M.A. in 1955. Still not sure of a vocation, but wanting to study abroad for a while, Paul and Helly returned to her native Basel, where Paul enrolled at the University of Basel; one of his professors there later remembered him as a brilliant student. He received a second M.A. and then a Ph.D. in 1958, and his dissertation on Swiss-American economic relations was published in 1959. His academic credentials got him a job with the European Coal and Steel Community; in collaboration with a German economist, a friend of his, Paul produced another book, this one in German, called Die europäische Wirtschaftsgemeinschaft und die Drittländer, a study on the European Economic Community. Now his visibility was such that the Stanford Research Institute of Palo Alto scooped him up as a European representative. For three years he commuted from Basel to the Stanford Research office in Zurich, but, he told me, “I wasn’t there much. I was all over Europe, consulting on business problems. We did a study for Alfa Romeo on their trucks, another for a Dutch steel mill that wanted to know whether and how to build large-diameter pipe, and so on.” Stanford Research moved him back to Palo Alto, but consulting began to pall. He wanted to do more. Through Neil Jacoby, dean of the UCLA Business School and a director of Stanford Research, he met Charles Salik, a San Diego businessman who had formed an investment company called Electronics International, Inc. Salik sent him back to Basel to monitor European companies, and then bought the idea of a brand-new, American Swiss bank.

  “What’ll we call the bank?” Salik asked, and after some toying with words such as Swiss, Universal and American, Paul suggested they call it the Salik Bank.

  “Why not?” Paul said. “It was his money.” Salik and his family put up $600,000, and the bank began in two rooms.

  No one could accuse the Salik Bank of being formal or snooty. Paul himself hustled customers all over Europe, and at one time the bank claimed to be Basel’s second biggest Swissair customer, even though Basel is head-quarters for several of the world’s great drug companies. The Salik Bank not only took deposits and made loans—short-term collateralized loans in this case—but like most Swiss banks, it dealt in portfolio management, commodities and foreign exchange. Its resources grew apace: from 13.7 million Swiss francs ($3.5 million) at the end of 1966, to 37.8 million Swiss francs ($9.8 million) at the end of 1967, to 142.5 million Swiss francs ($37 million) in mid-1968.

  Paul’s particular interest was in currency speculation. In many ways, this is the headiest speculative game of all, for it involves anticipating the moves of central banks, watching the trade balances of countries, and assessing both gossip and political intelligence. Basel itself is an arena for such talk, because the Bank for International Settlements, the clearing house for nations, sits in an old converted mansion opposite the railroad station. The headiness of the speculation comes from the large sums and high debt involved, because one side of the transaction has a floor.

  For example: let us say, as it was in 1967, that the Bank of England is committed to buy and sell pounds at roughly $2.80. That is where the value of the pound was arbitrarily pegged. But Britain has a trade deficit; no one wants to hold pounds; there are more sellers to the Bank of England than buyers. You decide that the pound is weakening; sooner or later it must be marked down to a level where international trade will once again support it, and where once again it will reflect the realities of that trading.

  So you sell, for future delivery, a million dollars’ worth of pounds. You have already sold them, so to deliver them you will have to buy them back at a future date. You have sold them at $2.80; you know that you can buy them from the Bank of England close to that price. You need put up only $50,000 or so; your only expense is the commission on buying and selling, and the interest charges on your obligation. You hope, of course, to buy the pounds back cheaper, marked down.

  But ripeness is all. Those interest charges can begin to mount.

  Analysts of World War II like to point out the influence of kendo, the Japanese bamboo-stave fencing, on Japanese military strategy. A lot of parrying, watching for the perfect moment, and then victory in one devastating, lightning stroke—thus, Pearl Harbor.

  Paul’s mentality was something like that. Not for him a slow, quiet, dust-covered compounding in some vault.

  In the fall of 1967, Paul was watching the sterling situation closely. A number of customers of the Salik Bank sold pounds for future delivery at $2.80. When Britain devalued the pound to $2.40, the customers bought their pounds in at $2.40 and delivered them, cleaning up. One client made $80,000 over the weekend. The coup, the shattering kendo stroke, had worked. Paul’s reputation on currency matters rose, and he enjoyed the role of the currency critic. He wrote papers on gold and the dollar, signed by Dr. Paul Erdman, President, the Salik Bank, Basel. Not only is there something heady about currency speculation, but there is an element of the ultimate judge when one in effect says to a whole country: “Get your inflation in check and your trade balances up, or down goes your currency.” That is the role not only of the Bank for International Settlements opposite the railroad station in Basel, but the currency speculator.

  Paul also wrote for The International Harry Schultz Letter, a breezy investment advisory letter from London with Winchell-like tones:

  “Hi-lo ratio is negative but mkt not ready for a real kachunk . . . $ trading in Germany hectic . . . frustration with biz expectations causing a rise in nationalism.” While the Winchell gossip might have been about starlets and entertainers, Schultz’s concerns trade deficits, currencies weakening, and cryptic bulletins on world markets:

  “Austria: sell into strength . . . Holland: buy, Italy: avoid, Japan: hold (reread HSL 254) . . .”

  Schultz had been a California newspaper publisher, and is the author of several investment books, including one on Switzerland and Swiss banks.

  Schultz’s readers, called HLSM, for “Harry L. Schultz men,” are a loyal group—“Take an HLSM home to dinner”—who buy HLS ceramic cuff links and spend several hundred dollars for a ticket to his seminars in London and Denmark. Schultz likes to compare the United States to ancient Rome in its decadence; in fact, he signs his letter “Slavius.” Debasing of the currency is a favorite Schultz leitmotif; he considers it not the symptom but the cause of national decline:

  “A people can only sink lower without a dependable store of value. Currency debauchery is the sole source of U.S. decline & decadence—just as it has been in every society of recorded history.”

  Schultz’s letter was a boost for Paul. It ran his short articles, detailed in one-liners some of Paul’s travels and thoughts, and even identified some customers for the bank. It was one of Schultz’s tenets that in the face of the weakening dollar, investors should not hold cash in U.S. savings or bank accounts. Instead, they could profit from the revaluation of the harder currencies: the Dutch guilder, the Japanese yen, the German mark, and Belgian and Swiss francs. Accounts in a Swiss bank could, of course, be invested in any of those currencies, and in fact an account could be left in a Swiss bank in a time deposit and denominated in Swiss francs.

  Because of the corruption of the dollar, the faithful also saw exchange controls coming. Soon you would not be able to take dollars out of the country. After all, the English had once roamed the world, and now they were restricted at the borders to a few measly pounds and could scarcely travel abroad. The same could happen to Americans; the faithful, by getting their money out ahead of the lowering boom, could assure their future mobility. They would still be able to travel, to buy a house in France or a ski lodge in Switzerland; their foresight would be rewarded. Denuded of the rhetoric, the faithful were, of course, right. The dollar has been devalued, some say not for the last time. Specific taxes have been laid on to discourage American investment abroad, and the first limitations on transferring capital abroad have been imposed. Your bank keeps a record of each transfer into another currency of more than $5,000, and in fact you are supposed to report any such transfer to the IRS. Brand-new law. Presumably the IRS can thumb through all the microfilm any afternoon it feels like looking for fleeing capital.

  Schultz ran a short list of Swiss banks in his letter, with the Salik Bank conspicuously on the list. After one Harry Schultz seminar in London, an excursion to Switzerland was formed, with Paul and his fellow Salik Bank employees entertaining the excursioners in Basel. Paul said he did not always agree with Schultz’s apocalyptic notes, and he disparaged some of the Schultz faithful as “right-wing Texas kooks, who eat that stuff up,” but he was glad to have them as clients. For a small bank in Switzerland’s second city, the bank had an unusual number of Texas clients, and reportedly some of the clients became shareholders.

  When Paul came to see me, he was not seeking another shareholder; he was seeking a friend for the bank. He did this naturally, as an active promoter, a selling president. He sought friends everywhere, and found them. Economists, business-school deans, currency experts, commodity dealers—all found him interesting and agreeable. He even cultivated the press—unlike, I am sure, any other bank president in Switzerland. Other Swiss bankers went to lengths to avoid the press. Paul courted friends for the bank everywhere. If he were asked to write an article on currency for a magazine, he was glad to do that; if, as we did, someone requested more information on Swiss banking, he would set us up with people who could help us.

  But he could sense my enthusiasm. A dynamic young bank that had increased its resources by a factor of fifteen in less than three years—that was exciting to me. Coincidentally, the bank had grown so fast that it needed more capital, and it was just in the process of raising it. Paul himself had written the prospectus, and while the prospectus, representing a Swiss corporation, naturally did not need to be registered with the SEC in Washington, it was “just like a prospectus for the SEC, because we want to do everything right; we may come to the U.S. some day, and a New York law firm is going over it completely.”

  “It occurs to me,” Paul said, “that you would be a very good shareholder for us to have.”

  I said I was very interested. We shook hands, mutually impressed, and Paul went back to Basel that evening. The prospectus arrived a month or so later.

  “From the beginning (1965),” said the prospectus, “the Salik Bank was conceived as a bridge between conservative Swiss banking—characterized by extreme caution, stability, and a unique expertise concerning financial matters on a worldwide basis—and modern corporate and financial management techniques usually identified with the United States.” The bank had, the prospectus reported, recruited talent in the fields of portfolio management, foreign exchange, and commodities, and a Swiss financial newspaper had reported that the bank was the fastest-growing banking institution in Switzerland.

  The bank, the prospectus reported, acted as a broker and dealer in foreign exchange, metals and commodities. “This field of activity,” said the prospectus, “is usually reserved to the large commercial banks, since the private banks of Switzerland seldom have sufficient expertise in this rather esoteric area of international finance.” “The Salik Bank has sought,” it added, “to move beyond the usual areas of money management offered by many of the more traditional private banks in Switzerland, and to provide ‘total money management’ by building its capabilities related to type of investments other than the usual stocks and bonds.”

  Little did I know, but those paragraphs contained the potential for disaster. But like the hidden figures in the child’s puzzle—how many animals can you find?—my eye could not see anything but good.