Matthew Quirk is a former journalist for The Atlantic who spent five years reporting on crime, private military contractors, the opium trade, terrorism prosecutions, and international gangs before moving on to the more entertaining terrain of thriller writing. James Patterson described his debut novel, The 500, as "The Firm goes to Washington, only with a whole lot more action." His second novel, The Directive, is quite possibly the world's first monetary policy thriller. A bank heist caper where the objective has nothing to do with anything in any vault.
In an interview conducted in mid-June, Quirk spoke to me about insider trading, break-ins, and the real source of security vulnerabilities in the modern American workplace.
The transcript has been edited for length and clarity.
Matthew Yglesias: How did you start thinking of the idea of doing a heist around economic data?
Matthew Quirk: I was casting about for the biggest hoards of money in the world, and you get to the Federal Reserve Bank in New York fairly quickly. But that's been done. Then I learned more and more about the trading desk, and my mind was blown.
You get to have this great line where you say, "There's $300 billion worth of gold in the basement, but the real money is on the ninth floor."
Yglesias: The Federal Reserve is in the news a lot, but people would be surprised to learn what's actually going on up there, right?
Quirk: Yeah. I was a reporter in Washington for a while, and I thought, "Oh, the Fed sets interest rates," because that's always what people say. But as you dig into it, you realize that the Fed just has to induce interest rates to where they want to be. They have to trade back and forth with these 19 or 20 banks, and they have 8‑10 guys at this trading desk, trading about $5.5 billion a day. That's actually how the government prints money and expands and contracts the monetary supply.
It's this high wire act. You explain it to people and they say, "Oh, it's a conspiracy thriller." You say, "No, no. That's the real part. I haven't gotten to the conspiracy yet." But it's a miracle that it works.
Yglesias: The point is, if you know what the trading desk is going to do you could make a lot of money.
Quirk: Yeah, you could, especially if it were a contentious time, like this year where everyone's freaked out about the taper.
Yglesias: As far as we know, there haven't been any high‑profile break‑ins at the Fed. But are there examples we know of insider trading based on government data?
Quirk: Yes. There was a study recently that looked at the pattern of trading in gold, right around the Fed statements. It found that the markets factor in the news 15 minutes before it becomes public. They did statistical controls and it was strong evidence — it went back to 1997 and found profits as high as I think $256 million — so it seems to be coming out of the press lockups.
Yglesias: Have people tried to break into the New York Fed, maybe just to get that gold? Or is it too obviously secure and nobody goes for it?
Quirk: They had a big computer security breach last year. I don't think there's actually been a physical attack on it. The funny anecdote I heard is that after September 11th they evacuated the security guards for health concerns, and that was the first time they realized there weren't locks on the doors. It had been guarded continuously since 1923, so they had to call a locksmith.
Yglesias: But the big idea of the book is that in practice, social engineering is more important than physical security, right?
Quirk: Yes, the idea is that, rather than a heist relying on brute force like blowing up the safe, or stealth like doing gymnastics through a laser field, you get in by abusing people's trust.
When I planned out the book, I actually talked to the red teams that work for government facilities to try to break into them, and most of their techniques are based on social engineering and getting people to trust them and let them in.
It could be something as simple as having two cups of coffee — like when I went into the elevator at Vox’s office, somebody saw I was busy and they just swiped me in because I look like I belong here. Another famous one is the smokers' door. If you get to the smokers' door before the smokers come out and you seem like you belong there, they'll let you back in the building because people are very reluctant to challenge people.
To beat social engineering, you would have to challenge everyone, which just isn't in our makeup. It works at the Pentagon, they have guys with podiums everywhere whose job is to challenge people. But otherwise if you turned around and slammed the door in someone's face and said, "swipe in," you would seem so rude, and that's just so against human nature. That's the trait that these guys use to break into places.
It was fun to plot out a Fed heist that would rely on those techniques, and that would actually look like how a break‑in would occur, today.
Yglesias: Basically your security's only as good as the mindset of the people working for you.
Quirk: Yeah, and at the Fed, the outside is very intimidating. It's all limestone and sandstone, they have a turret. Once I got past security, they waved me through the man traps — which are these scary extra heavy security turnstiles — with a group of employees, and then I was on an elevator with no key control. Even your office has key control in the elevator.
I just said, "Oh, I'm on nine." Then I went up to the floor with a desk on it. Inside, it was just a culture of economists and bankers, so I was able to snoop around. I was astonished by that.
Yglesias: Of you couldn't put together a giant break‑in, you could probably hire Ben Bernanke as a consultant, or to come give you some speeches. Isn't that the real way to get this information?
Quirk: Absolutely. It doesn't make for a good thriller, to just have a private room with Ben Bernanke. But the really interesting thing about the former Fed officials is, if you do a full term as a governor, you're allowed to go directly into banking. Larry Meyer, who runs Macroeconomic Advisors, he will routinely describe Fed vote counts and other stuff that’s not public.
The former Fed officials keep their IDs to the Federal Reserve system, and they can go and use the gym and the barber shop and the dining hall.
After a dinner event with Ben Bernanke, the hedge fund manager David Tepper basically told The New York Times: "I didn't realize how good his information was. I would have traded on that. He totally told us about that bond rally," so besides the potential leaking from the lockups, there's this old boys' network.
Although sometimes those guys, even after they purport to have inside information, still bet wrong — like in 2010 a lot of them bet wrong, including PIMCO.
Yglesias: So you might think you have better information than you really do, or be getting conned by someone.
Quirk: Yeah. The Fed ... it's crazy, because the major banks own the stock of the Fed — so they technically own it — and the Fed is responsible for stability, so the last thing it wants to do is surprise these people. It somehow has to ask them about economic conditions, do everything it can to reassure them about the way it's going, and do that without tipping its hand at all.
Some people argue that it's impossible that the Fed could keep information from the major traders.
Yglesias: The book ends on a cynical note about how the legal system works. It involves this big policy institution. Is there a message you want people to take away?
Quirk: I'm not trying to score political points. I don't really like to get on a soapbox in the book. But if you look at the financial crisis of 2008 and the number of people who have been held accountable for it, if you look at the way the recovery and stimulus has been done ... I don't know if they had any other options, but it's definitely been top‑down. Banks and investors have recovered, but Main Street jobs are lagging behind.
A little bit of cynicism is in order, and it's nice when I'm writing the books that I can be more than just an action plot, and reflect the world as it is, and gesture to some larger issues.