» The Youngest Son of Sunyang
The Youngest Son of a Chaebol - Chapter 281
[281] Den of Intrigue, Wall Street 2
"I fully understand that you simply cannot comprehend why we're doing something like this, so I'll decline any fundamental questions. Your task is to focus on the numbers and accurately calculate the payment capacity of these financial institutions. Understood?"
In the conference room, analysts and fund managers, surrounded by each financial institution's accounting data, PCs, and laptops, listened intently, their eyes gleaming.
Among them were even people who, several years prior, had taught me about funds and financial derivatives, yet they too listened in silence.
There is nothing more frustrating than having to complete a given mission that you simply cannot comprehend.
Everyone's skepticism was palpable, and some, unable to bear it, finally spoke up.
"Howard. These companies are the mainstream of Wall Street. They manage dozens of times more money than our Miracle Investment. Isn't it a bit ridiculous to calculate the limit of their payment capacity?"
They waved a list of companies that controlled the world's money, checking if this was truly a meaningless endeavor.
I didn't expect them to fully understand, but I had to explain at least the minimal possibilities.
"Think of it this way. All of our Miracle Investment clients simultaneously withdraw their money. No problem so far, right?"
"That's right. If clients are willing to bear the losses themselves due to sudden withdrawals."
A perfectly normal answer. We manage client money; we don't gamble.
"But what if someone suddenly appears, hands us a credit default swap contract, and demands 100 million dollars? This 100 million dollars must be paid from Miracle Investment's own funds, not the clients' money. Is it possible?"
The premise of the question was flawed.
It's unheard of for all clients to simultaneously withdraw their money as if by prior agreement. But now was the time to think only in numbers.
They hesitated to voice the answer they already knew.
"Our Miracle Investment can do it. However, you'd all have to give up your bonuses this year, and some of you would have to pack your bags and leave this place. A 100 million dollar loss is a sum someone has to be accountable for."
Seeing their uneasy expressions, I continued.
"Now imagine the same thing happening to Goldman Sachs, Deutsche Bank, Morgan Stanley, Merrill Lynch, and so on. Except the demanded amount is 10 billion dollars. Can they endure it by foregoing bonuses and cutting staff, like us?"
The figure of 10 billion dollars, more than 10 trillion Korean won, seemed to have stripped them of their confidence, as they remained silent.
"This is what I want. How much can these major financial institutions pay out using their company's own funds, not their clients' money? What is the exact amount that would push them to the extreme choice of declaring default and bankruptcy, even if they technically have the capacity to pay?"
One of them, who had been listening in silence, finally spoke.
"It seems it's time for the kidnapper to calculate the ransom."
Everyone's gaze turned to him.
"Ah, it was a study I conducted in school. It was about calculating the appropriate amount a parent would pay to a kidnapper for their child, without reporting it to the police."
He looked slightly flustered by the attention but shrugged and explained.
"If the ransom is too low compared to the parents' assets, it doesn't justify the criminal risk the kidnapper takes. Demanding more than their payment capacity is also foolish. And one more thing, you have to understand the parents' character."
"The parents' character?"
His words piqued my curiosity.
"Exactly. That's why most kidnappings involve someone known to the family. In the case of parents who can't stand injustice, even if they have the means to pay, they'll inform the police if they think the demand is even slightly excessive."
"So, in this case, are the parents the CEOs of these financial institutions?"
"That's partly true, but you also have to consider their management philosophy, reputation, shareholders, public perception, and so on."
"Meaning it's impossible to determine the maximum payment capacity by just looking at the numbers?"
"The appropriate payment amount might be found purely through numbers, but it won't reach the maximum."
Without further thought, I pointed at him.
"You are the leader of this TFT. The deadline is two weeks. Don't just find the appropriate amount; extract the maximum possible figure and report it to me."
Not just the person I pointed at, but everyone looked flustered, yet my decision remained unchanged.
* * *
While one team was assessing the payment capacity of financial institutions, I had other experts as assistants, drafting swap contracts.
This was because mortgage-backed securities weren't single products but rather a jumbled mix of countless debts, making it absolutely necessary to set criteria for each security.
I sifted through the top 50, those trading at the highest value, and assigned them an internal AAA rating. To others, AAA was a symbol of safety, but to me, it was nothing short of a lottery ticket that could offer the biggest payout.
While I was deep in security analysis, Rachel Arieff quietly called me aside, her expression urgent.
"What's wrong? Your expression is quite..."
"I've been gathering information around Wall Street, and... Howard, I've found a few people who are thinking exactly like you."
Of course they exist. I already knew how they made their money, and I was following the exact same path.
Nevertheless, I feigned surprise and asked,
"Already? Who are they?"
"Greg Lippmann, Steve Eisman. John Paulson, Ben Hockett... There are individuals and institutions..."
"When did they start?"
"The earliest started two years ago. The real money only began pouring in last year."
"They must have lost a lot of money. Heh heh."
It was a bet that lost money as the value of mortgage bond products rose. Having bet continuously for two years, if they were institutional investors, client complaints would have flooded in, or a lot of investment capital would have withdrawn.
"Goldman Sachs alone manages over 200 billion dollars in mortgage-backed securities. The largest amount bet against them is only 700 million dollars. A simple comparison shows they must be incurring massive losses right now. They might even be down by half."
200 billion dollars is 200 trillion Korean won. Since South Korea's national budget this year, 2007, is 230 trillion won, America truly is America. For a single financial company to wield a nation's budget...
I said to Rachel,
"Are you anxious because they're down by half? Is that why you're telling me, to dissuade me?"
"No. I wanted to tell you that your prediction might not be wrong after all."
"So, betting with me?"
I said it with a smile, but she still maintained her rigid expression.
"I want to stick to my convictions. Not betting, but investing—I'll only make investments that generate stable and consistent returns. Most of my clients already support my approach and agreed to withdraw from mortgage-backed securities. But they don't want to bet. Going by the clients' demands is my way."
Rachel wanted to be a defender, not an attacker.
"As you wish. I also support your management style, Rachel. So please, continue to be Miracle Investment's CEO."
These words were sincere.
Wasn't New York Miracle's primary role to act as a safe for my money? What I wanted was for it to grow steadily, little by little, without drawing attention, rather than focusing on explosive investment returns.
Of course, this bet would make Miracle Investment's name resonate loudly on Wall Street, but the credit for that could entirely go to the people here.
They would get the fame, I would get the money.
And I knew what Rachel Arieff's anxious gaze meant.
It was because she had realized that the moment I injected a massive sum into the precarious U.S. financial market would be the very beginning of its collapse.
* * *
"Remember. You must sign the credit default swap contracts simultaneously. If you sign them one by one, someone will surely start investigating our contracts. We must execute this swiftly before any information leaks."
I could see the people holding the contracts struggling to suppress laughter, as if in disbelief.
They probably thought that such a foolish contract would be welcomed anywhere, anytime, and no one would be suspicious enough to investigate.
"New York is Friday morning, London is Friday afternoon. The London team can enjoy their weekend there."
A silent smile spread across the faces of those departing for London.
Taking a contract that offered easy money, their counterparts would be more than welcoming. It was like a vacation disguised as a business trip: easily sign the deal, then enjoy the whole weekend before returning.
They departed, suppressing the urge to cheer.
I finished all preparations and waited for Friday, drinking with Rachel in a small bar.
"How much is it all? The total investment amount?"
Rachel moistened her lips with her cocktail and asked.
"I set the insurance premiums a bit higher. By now, some people might have sensed this crisis. We have to give them enough money to blind them to their anxieties."
"How many percent?"
"A minimum of 4% to a maximum of 7%."
"And the term?"
"Five years."
"Well... if your predictions are correct, there won't be much difference between five or ten years, will there? Since it's all happening next year anyway."
Rachel offered a self-deprecating laugh.
"Exactly. We only need to pay one year's premium."
"What's the total amount?"
"If we set the average premium rate at 5%, it's about 3.5 billion dollars..."
"So, you're making 20 times 3.5 billion dollars with this bet. Is that 70 billion dollars?"
The bartender, who was filling glasses, turned around, his brow deeply furrowed.
It was probably because of the figures that the middle-aged woman and the young East Asian man were casually tossing around, as if they were nonsense.
In fact, it sounded like nonsense to me too.
70 billion dollars, which in our currency is 70 trillion won.
To me, it was an unreal figure, no different from an encrypted code or a digital signal full of zeros.
"You think Wall Street can pay out 70 billion dollars?"
"What do you think, Rachel? Did I set it too low?"
She pondered for a moment before speaking.
"Right now, it's low enough that there wouldn't be any problem. But next year, wouldn't they worry that it's an excessively high amount?"
"Since it's diversified across London and New York, it should be safe."
"By next year, you'll either catch up to Warren Buffett or surpass him. You'll likely be sitting at the top of the world's richest in one fell swoop."
"Just as I'm not publicly known, there are many undisclosed wealthy individuals in this world. So next year's Forbes richest list will still have Warren Buffett at number one and Bill Gates at number two, I expect."
Korean chaebol chairmen also fall into the category of undisclosed wealth. While their personal assets are announced as around three or four trillion won, how much hidden money do they possess, using companies worth hundreds of trillions as their personal vaults?
"I've spent my entire life buried in numbers, but when figures that transcend the boundaries of comprehension appear before me in reality, it's almost bewildering."
Rachel emptied her glass again.
"Do you have a plan for what you'll do with all that money?"
Of course, I do.
Though I can't tell her.
"My respected grandfather once said this."
Rachel's gaze, which had been fixed on her glass, now turned to me.
"The purpose of money is to earn it. Don't worry about where to spend it. As you live, there will inevitably come a time when you must spend that money. You can fret about how to spend it then."
She smiled quietly.
"Indeed, the extremely wealthy think differently. Your grandfather was also incredibly rich, wasn't he?"
"Yes. But even he, if he were alive, would be utterly astonished. He never earned 70 billion dollars in a single year."
"I'd venture to say you're the first since the advent of capitalism?"
Really? I was sure there must have been others.
"Isn't there a story that the Rothschild family earned enough money to buy all of England during Napoleon's Battle of Waterloo?"
Rachel shook her head.
"That's a story that branched out from a conspiracy theory. They just made a large sum from investing in government bonds, and even at today's rates, it wouldn't exceed a billion dollars."
The billion dollars earned by the Rothschild family ultimately came from the public's taxes, and the money I was about to make would also come from the pockets of American citizens.
At least it wasn't the Korean public, so my conscience was much lighter.