Wall Street 5: The Den of Corruption
The financial world was in turmoil. The payment suspension declaration from Dubai and the tightening grip of the Korean financial sector were pressures that Vice Chairman Jin Dong-gi could not withstand.
Korean financial institutions would be eager to recover their loans, and there would be no extensions on existing ones. If there was any escape route, I would block it.
“Howard, what’s on your mind?”
“Oh, nothing much. Just pondering how this situation might impact Korea.”
“Ah, right. You’re also an executive at Sunyang Group. I keep forgetting.”
“For now, yes.”
“What’s the worry? Even if Sunyang Group bleeds from this crisis, you have enough to transfuse, don’t you? Heck, you could probably bail out the entire Korean financial system.”
“I’m not interested in playing the hero. By the way, make sure we’re ready to send funds to Korea Miracle whenever necessary.”
“All 56 billion dollars?”
“No, I don’t think we’ll need that much.”
“But you know the swap money won’t come in immediately, right?”
“Of course. It varies by financial institution. I expect all the funds to be in by the end of the first half of next year. The American financial system is so massive that even as it sinks, it takes a long time.”
On April 14, 1912, at 11:40 PM, the Titanic, weighing 52,000 tons, took only three hours to sink completely after water started flooding in through the hole made by the iceberg.
Some companies might hold out until the end, but most of the 56 billion dollars will be collected before next spring.
“What about the money left after sending it to Korea? Where should we invest it?”
“Stick to what you know. Avoid derivatives and buy blue-chip stocks. Keep an eye on Apple.”
“Keeping an eye on it sounds like you’re saying we should buy it.”
Rachel immediately checked the stock price.
“It’s holding at around 15 dollars per share.”
“It wouldn’t be a bad long-term investment.”
“Did you catch the Macworld event in San Francisco earlier this year?”
“No, did something new come out at Macworld?”
“A capacitive touchscreen cell phone, called the iPhone. It’s about to go on sale.”
Is it out already? I thought it was next year.
“Really? Maybe I should buy one to take back with me…”
As it turned out, the first-generation iPhone OS never made it to Korea. We started using it from the second model onward.
Sunyang Electronics is a powerhouse in the mobile phone market, but in the smartphone era, it’s just a fast follower. Can it maintain its market dominance this time?
While I was lost in these complex thoughts, Rachel glanced at me and spoke cautiously.
“What about China?”
“China?”
“Yeah. I’m thinking of opening offices in Hong Kong and Shanghai. What do you think?”
A wise CEO’s judgment should be followed.
“Do as you see fit. If you’re investing with a long-term perspective, you won’t lose.”
Maybe after letting it sit for about ten years, we could reap tenfold returns and buy up all the stocks held by Korean pension funds.
After confirming the start of a fund run on Wall Street, I boarded a flight to Korea.
No one can stop this crisis now. The funds pouring out will be ignored, and prices will plummet.
When mortgage defaults exceed 15%, the media will declare the U.S. housing market dead. Of course, financial institutions will stubbornly deny it.
They’ll shamelessly lie to redeem as much of their funds as possible until the very end.
Upon arriving in Korea, I paid close attention to newspapers and news broadcasts.
There wasn’t a single article about subprime mortgages, only an overflow of stories about the opposition party’s presidential primary.
Winning the primary practically guarantees victory in the presidential election.
The two candidates were tearing each other apart as if the primary was the actual election.
Their most critical weaknesses were exposed to the world, but they were busy denying them and trying to erase them. Yet, they knew.
Even if all their flaws were laid bare, winning the party primary meant a direct path to the presidential inauguration in February next year.
So, they had no qualms about exposing each other’s weaknesses.
Meanwhile, the ruling party was in disarray, with multiple candidates bickering like children, but no one paid them any attention.
I wasn’t interested either.
“How’s the redemption status?”
“We’ve been liquidating in small amounts to avoid impacting the market. There’s still a bit left.”
Vice President Jang Do-hyung handed me a list of financial products held by Sunyang Financial Group.
A perfect result arouses suspicion. Sometimes, even if there are losses, if the overall profit is positive, it’s best to turn a blind eye.
“The stock market will crash soon. Liquidate everything except Sunyang Group stocks. When the prices drop, we can buy them back.”
“What about the remaining funds?”
“Just hold onto them.”
“Are you saying you’re willing to take a loss?”
Jang Do-hyung asked again, seemingly surprised.
“When others are bleeding, we should at least sweat a little, don’t you think? We need to be the lucky ones, not the odd ones out.”
“Ah, I see what you mean.”
“The domestic market will be turbulent. Tell the staff to stay calm and avoid rash short-term investments. We won’t evaluate this year’s performance. No matter how good the results are, make sure they know it won’t favor their evaluations.”
It’s a misconception that institutional investors have an advantage over individual investors.
Individuals have a significant advantage. When the market is bad, they can simply put their money in the bank and earn interest.
But institutions can’t do that. Even when the economy is a mess, they have to keep the money moving to earn fees and generate profits for the company.
Putting money in the bank means not working.
Also, individual investors can hold onto a stock for a year or two. They can wait for a fallen stock to rise before selling.
But institutions can’t hold onto a falling stock indefinitely. They need to quickly cut their losses and find other blue-chip stocks. They know it’s okay to hold, but year-end performance pressures force their hand.
Individual investors fail when they try to mimic institutional investing.
“Director, observing is fine, but shouldn’t we be working?”
“No, we should take a break. Under pressure in a crashing market, people tend to make all sorts of mistakes. Oh, tell everyone to take their vacations. It’d be good to use up all their leave.”
“Are you sure about this?”
It’s the first time Vice President Jang has heard that it’s okay for employees to take a break. It might feel strange, but also welcome.
“When chaos reigns, performance pressure makes sound judgment difficult. It’s not too late to work once we’ve regained our composure.”
This decision soon proved to be a great help to Sunyang Financial Group employees.
A few days before the opposition party’s primary, the KOSDAQ index plummeted over 10%. A sidecar was triggered in the morning due to a sharp drop in the futures market, and in the afternoon, a circuit breaker was activated for the second time in history, halting stock and futures trading.
A staggering 293 stocks hit their lower limits, and the KOSPI fell across all sectors. Major securities stocks plunged over 10%, and Sunyang Securities wasn’t spared.
Foreign investors sold over 1 trillion won in the securities market, while institutional investors bought a whopping 1.5 trillion won.
There was no fund run.
Korea had only seen the effects of the U.S. stock market crash, not the cause.
Or perhaps they knew but were keeping quiet, buying time to pass the bomb onto the public with shameless lies.
Mirae Asset Management claimed there were no significant issues with their large equity funds, and UBS’s Asia division whispered sweet words about attractive valuations, saying stability would return in a month or two.
Even as UBS’s U.S. headquarters was in chaos from the explosion.
“How much is it?”
Even my simple question left Vice President Jang stammering, his face pale.
“We bought 3.5 billion dollars just last week. I don’t know what they were thinking…”
“It’s not us, so it’s fine. And what else?”
“Over 11 trillion won will pour out from domestic equity funds alone. Overseas equity funds exceed 15 trillion won.”
“Domestic funds will be halved, and overseas funds will become worthless, so 20 trillion won will evaporate. What’s the scale of U.S. derivatives?”
“Pathetically, Korean financial institutions can’t even grasp it accurately. The products are so complex that they don’t know their composition. They just bought them blindly because Moody’s and S&P rated them AAA.”
“That’s music to my ears. Haha.”
“What do you mean…?”
“Ah, nothing.”
I hid my laughter, ignoring Jang’s bewildered expression.
“Vice President Jang, there’s something we need to investigate thoroughly from now on.”
“Please tell me, Director.”
“Investigate the banks dealing with Vice Chairman Jin Dong-gi’s affiliates. Find out each bank’s debt, collateral, and the extent of the impact they’ll suffer from this crisis. Down to the branch level!”
“Not the affiliates, but the banks?”
“Yes. Do you know why?”
Jang didn’t avoid my gaze and smiled slightly.
“You’re planning to shift the banks’ financial pressure onto Vice Chairman Jin Dong-gi.”
“Bingo.”
A bank without money isn’t a bank. After experiencing the IMF crisis, they know banks can fail and be dismantled.
This foreign exchange crisis will revive their horrific memories of the past.
“Then we should deposit our financial group’s surplus funds into those banks immediately.”
I like how quick you are.
As the bank vaults empty, they even withdraw the money we’ve deposited. To refill those vaults, they have no choice but to squeeze the debtors dry.
A bank that fails to meet its BIS ratio, or capital adequacy ratio, is more ruthless than the most unscrupulous loan shark.
Loan sharks ruin individuals, but banks can bring down entire corporations.
They forget how many families depend on those companies, or that a little breathing room could revive them. Instead, they launch into merciless recovery efforts to ensure their own survival.
“I’m going to deposit the funds from Korea Miracle into that bank. When I pull it all out at the perfect moment, they’ll be left reeling.”
Vice President Jang Do-hyeong paused, then spoke quietly.
“Vice Chairman Jin Dong-gi… it seems you’ll have a tough time ahead. But Director, what’s the target this time? It used to be Sunyang Card… which subsidiary are you aiming for now?”
“It’s not a subsidiary.”
“What?”
Vice President Jang’s eyes sparkled as if trying to read my mind.
“This time, I’m going after a big fish. Not a company, but a person.”
His eyes widened in surprise.
“Could it be Vice Chairman Jin Dong-gi…?”
“Yes. Our second uncle has worked hard, but it’s time for him to take a break. He’ll have to decide whether to retire completely or continue as vice chairman under my leadership.”
A man as proud as he is wouldn’t settle for a mere figurehead position.
I intend to leave a little room for sentiment. His two sons will still have the opportunity to work for Sunyang.