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In our quest to shake the world financial system to its core, we had completely forgotten about Saint Patrick’s. I’m part Irish; my mother’s side are Thorntons. With that as my pedigree, O.D. and I dubbed Steve an honorary Irishman and we made our way up the outdoor stairs, through the crowd on the balcony and pushed inside the equally crowded dining room to find a table by a window with a nice view of the surrounding Maryland countryside. We sat down, ordered three pints of Guinness and some entrées and started our own “brief back,” as the Pentagon would put it.

“You know the problem with this game?” asked O.D.

“What’s that?” I said.

“There’s no market. I mean the white cell can tell us if we gained or lost ground, but there’s no price system to measure the impact of what we’re doing.”

O.D. was right. A trader could have the best trading idea ever, but losing money on a trade is nature’s way of telling you something’s wrong. The best traders always got out of a losing trade, cut their losses and sat back looking for the next good opportunity. It would always come around eventually. Bad traders would rationalize the loss, assume the market didn’t understand how smart they were, put on more of the trade in larger size, in effect doubling down, and usually go on to lose more money until some senior risk manager forced them out of the position. Whatever the strategy, it was the price signals that kept traders honest and gave traders the market feedback needed to validate their theories.

Still, it was hard to be too upset about what we didn’t have. This was the first time the Department of Defense had ever run a financial war game and they were getting it done over some internal opposition. I was glad they were doing as much as they were. At least they were forward leaning, which was more than I could say about some of the civilian agencies. When I’d warned other government officials about the dangers of financial warfare launched by adversaries, the typical response was along the lines of “Oh, they would never do that—it would cost them money and they’d be shooting themselves in the foot.” They said this as if military hardware didn’t cost money, as if aircraft carriers were free. These officials failed to grasp the fact that the costs of a financial war might be far less than the costs of an arms race and possibly be much more effective at undermining U.S. power than a military confrontation. The Pentagon deserved a lot of credit for taking this as far as it had. There would be time to add bells and whistles later in some future game.

We ordered another round of Guinness, finished our meal and then headed back to Columbia, Maryland, where we were staying. It had been a long day and we had a 7:30 a.m. start on day two. We agreed to meet in the lobby in the morning and drifted off to our rooms.

Day Two

I woke up at 6:30 a.m. feeling a little groggy from the Guinness, but it was nothing two cups of coffee couldn’t cure. I packed quickly and decided to check the news online before I stowed my laptop away. There was no time to get through the stack of e-mails that awaited me each morning, so I decided just to check the Drudge Report for a quick headline fix. Since I had been news deprived the day before and would be again today, it was a fast way to catch up with the world.

I clicked on the Drudge bookmark, waited a few seconds for the page to come up and then stared in complete disbelief at what I saw. In typical Drudge style, there was a huge headshot of a single individual dominating the center of the page. This morning it was Vladimir Putin. The banner headline underneath declared that Russia was calling for an end to the dollar and was looking for some alternative reserve currency, one possibly backed by tangible goods including gold.

These types of headlines have become commonplace in the past year, but in March 2009 it was still a new idea and one that a lot of people were just hearing about for the first time. It was