Wall Street 2: The Den of Corruption
“I know you can’t fathom why we’re doing this, so let’s skip the fundamental questions. Just focus on the numbers and accurately assess the financial institutions’ ability to pay. Got it?”
In the conference room, analysts and fund managers surrounded by financial statements, PCs, and laptops listened intently, their eyes gleaming with interest.
Some of them had taught me about funds and financial derivatives years ago, yet even they were listening quietly now.
There’s nothing more frustrating than having to complete a mission you can’t fully understand.
Doubt was written all over their faces, and finally, someone couldn’t hold back any longer.
“Howard, these companies are the mainstream of Wall Street. They handle tens of times more money than Miracle does. Isn’t it a bit absurd to assess their payment limits?”
They waved a list of global financial giants, questioning the point of this exercise.
I didn’t expect them all to understand, but I needed to explain the minimum rationale.
“Think of it this way. What if all our clients at Miracle suddenly withdrew their money? No problem so far, right?”
“Sure, as long as they’re willing to bear the loss from a sudden withdrawal.”
A perfectly reasonable answer. We’re not gambling with our clients’ money; we’re just managing it.
“But then, out of nowhere, someone shows up with a credit default swap contract demanding $100 million. This isn’t our clients’ money; it’s Miracle’s. Can we pay it?”
It’s a flawed premise.
All clients withdrawing at once is unlikely. But now’s the time to focus on numbers.
They hesitated to voice the answer they already knew.
“Miracle can handle it. But you’d have to forgo your bonuses, and some of you might have to pack up and leave. Someone has to account for a $100 million loss.”
I continued, watching their discomfort.
“Now imagine the same scenario for Goldman Sachs, Deutsche Bank, Morgan Stanley, Merrill Lynch, but with a $10 billion claim. Can they survive by just cutting bonuses and reducing staff like us?”
The sheer size of $10 billion, over 10 trillion won, seemed to rob them of their confidence, leaving them speechless.
“This is what I want to know. How much can these major financial institutions pay from their own funds, not their clients’? What’s the amount that would push them to declare default and consider bankruptcy?”
One of them, who had been silent, finally spoke up.
“It’s like calculating a ransom.”
All eyes turned to him.
“Oh, it was a study we did in school. Calculating the amount parents would pay without involving the police if their child was kidnapped.”
He shrugged, slightly embarrassed by the attention.
“If the ransom is too low compared to the parents’ assets, it doesn’t justify the risk for the kidnapper. But asking for more than they can pay is foolish. You also need to understand the parents’ character.”
“Their character?”
I was intrigued.
“Yes, that’s why most kidnappings are by someone the family knows. Parents who can’t stand injustice might have the means but will alert the police if they think it’s too much.”
“So, in this case, the parents are the CEOs of these financial institutions?”
“Partly, but you also have to consider their management philosophy, reputation, shareholders, and public perception.”
“Are you saying it’s impossible to determine the maximum payment capacity just by looking at the numbers?”
“You can estimate a reasonable amount with numbers, but not the maximum.”
Without further thought, I pointed at him.
“You’re the team leader for this task force. You have two weeks. Report back with the maximum figures, not just the reasonable ones.”
Everyone looked surprised, but my decision was final.
While one team assessed the financial institutions’ payment capacities, I was drafting swap contracts with other experts.
Mortgage-backed securities aren’t single products; they’re a mix of various debts, so setting benchmarks for each security was essential.
I selected the top 50 traded at the highest values and assigned them a self-created AAA rating. For others, AAA symbolizes safety, but for me, it was like a lottery offering the biggest dividends.
As I was deep in securities analysis, Rachel Arieff quietly pulled me aside, looking urgent.
“What’s going on? You look… concerned.”
“I’ve been gathering intel around Wall Street… Howard, I’ve found a few people thinking just like you.”
Of course, they exist. I already know how they made their money and am following the same path.
Feigning surprise, I asked, “Already? Who are they?”
“Greg Lippmann, Steve Eisman, John Paulson, Ben Hockett… Some individuals, some institutions…”
“When did they start?”
“The earliest ones began two years ago. The real money started flowing in last year.”
“They must have lost a lot of money. Haha.”
It’s a bet that loses as the value of mortgage securities rises. After two years, institutional investors would face client complaints or see significant withdrawals.
“Goldman Sachs alone manages over $200 billion in mortgage-backed securities. The largest bet against them is only $700 million. Just by comparison, they’re facing massive losses. They might have been cut in half.”
$200 billion is 200 trillion won. In 2007, South Korea’s budget was 230 trillion won, so America is indeed America. A single financial firm handling a national budget.
I told Rachel, “Are you worried because they’re halved? Is that why you’re warning me?”
“No, I wanted to say your prediction might not be wrong.”
“Then, are you betting with me?”
I joked, but her expression remained serious.
“I want to stick to my principles. Not betting, but investing—stable, consistent returns. Most of my clients support my approach and agree to withdraw from mortgage-backed securities. But they don’t want to bet. Following clients’ demands is my way.”
Rachel prefers defense over offense.
“Go ahead. I support your management style. So please, stay on as Miracle’s CEO.”
I meant it.
New York Miracle is primarily a vault for my money. I prefer it to grow quietly rather than chase investment returns.
Of course, this bet will make Miracle’s name echo on Wall Street, but the credit will go to the people here.
They get the fame; I get the money.
And I understand the meaning behind Rachel Arieff’s anxious eyes.
She realized that the moment I inject a large sum into the precarious U.S. financial market, it could trigger a crash.
“Remember, execute the credit default swap contracts simultaneously. If you do it one by one, someone will investigate our contracts. We must act swiftly before any information leaks.”
The people holding the contracts tried to suppress their laughter.
They probably thought no one would question such a foolish contract; it would be welcomed anywhere.
“New York on Friday morning, London on Friday afternoon. The London team can enjoy the weekend there.”
The people heading to London smiled silently.
Carrying contracts that seemed like free money, the other side would welcome them with open arms. After easily sealing the deal, they could enjoy a weekend getaway.
They left, barely containing their excitement.
I finished all preparations and waited for Friday, sipping drinks with Rachel in a small bar.
“How much in total? What’s the total investment?”
Rachel asked, sipping her cocktail.
“I set the insurance rate a bit high. Some might sense the crisis by now. We need to offer enough to blind them with greed.”
“How much?”
“Minimum 4%, maximum 7%.”
“For how long?”
“Five years.”
“Well… if you’re right, it won’t matter if it’s five or ten years. It’s next year anyway.”
Rachel gave a self-deprecating smile.
“Exactly. We only need to pay one year’s premium.”
“What’s the total amount?”
“With an average insurance rate of 5%, about $3.5 billion…”
“You’re going to make 20 times that with this bet. $70 billion?”
The bartender frowned, overhearing the numbers we tossed around like nonsense.
It sounded like nonsense to me too.
$70 billion, 70 trillion won.
To me, it was just a string of zeros, like a digital signal without any real-world connection.
“Do you think Wall Street can pay $70 billion?”
“What do you think, Rachel? Did I set it too low?”
She pondered before answering.
“Right now, it’s low enough to be no problem. But next year, they might worry it’s too high.”
“Splitting it between London and New York should keep it safe.”
“Next year, you’ll surpass or match Warren Buffett. You’ll be the world’s richest person.”
“Just as I’ve remained hidden, there are many wealthy people who stay out of the spotlight. So next year’s Forbes list will still have Warren Buffett at number one and Bill Gates at number two.”
Korean conglomerate chairmen are also among those who stay hidden. They might declare personal assets of 3 or 4 trillion won, but they use companies worth hundreds of trillions as vaults, with untold hidden wealth.
“I’ve spent my whole life buried in numbers, but when numbers that defy logic appear in reality, it’s downright disorienting.”
Rachel emptied her glass once more.
“Do you have any plans for what you’ll do with all that money?”
Of course, I do.
But it’s not something I can share with her.
“My grandfather, whom I greatly admire, once said something.”
Rachel’s gaze shifted from her glass to me.
“Money is meant to be earned. Don’t worry about how you’ll spend it. Life will inevitably present you with opportunities to use it. Worry about spending it when the time comes.”
She chuckled softly.
“Rich people really do think differently. Your grandfather was quite wealthy, wasn’t he?”
“Yes. But even he would have been astounded. He never made seventy billion dollars in a single year.”
“You’re probably the first since the dawn of capitalism, right?”
Am I? Surely there must have been others.
“Isn’t there a story about the Rothschilds making enough money during Napoleon’s Waterloo to buy all of England?”
Rachel shook her head.
“That’s just a tale spun from conspiracy theories. They made a fortune from government bonds, but even by today’s standards, it wasn’t more than a billion dollars.”
The billion dollars the Rothschilds made ultimately came from taxpayers, just as the money I earn comes from the pockets of American citizens.
At least they’re not Korean citizens, so my conscience feels a bit lighter.