» The Youngest Son of Sunyang
The Youngest Son of a Chaebol Family - Chapter 283
[283] A Den of Schemes, Wall Street 4
Will Emerson, the Executive Vice President of Risk Management at Goldman Sachs, was staring intently at the contract signed last Friday for a long time.
Standing beside him, the red-haired man, who had been waiting for the Vice President to open his mouth, finally couldn't hold back and spoke first.
"Should we contact Miracle Investment first?"
"Wait a moment. Figuring out the exact total amount is the priority."
Vice President Will Emerson rested his chin in his hand and still didn't take his eyes off the contract.
When his phone rang, he spoke as if he had been waiting for it.
"Read it out."
Holding a pen, he quickly jotted down the numbers he heard through the phone.
"Are you sure about this?"
He tapped the paper with the numbers listed on it with his pen, checked it once more, and then ended the call. Will Emerson's face had already gone ashen.
He spoke to the red-haired man standing beside him.
"Everyone to the conference room. Now!"
The red-haired man bolted out as soon as the Vice President's words fell.
Will Emerson checked the numbers again.
The number, 70 billion, which he had circled with his pen, pressed down on his chest with terrifying weight.
As Vice President Emerson entered the conference room, a dozen pairs of eyes turned towards him.
Without another word, Emerson threw a question at one of the men.
"Michael, what's the current status of defaults?"
"Pardon?"
"Subprime mortgage loans! The debt repayment status after the variable interest rates were applied, I mean!"
"It should be around 3%."
At Michael's unconfident answer, Vice President Emerson frowned.
"Around? 'Should be'? Don't guess, give me the exact number. You have five minutes."
Michael began furiously typing on his laptop keyboard.
"Last Friday, Miracle bet 2.8 billion dollars that mortgage-backed securities would become worthless paper. Their plan was for 3.5 billion, but they lowered the betting amount in a few places. Since we can assume the contract terms aren't different from ours, if they win... they'll take almost 56 billion dollars."
Everyone in the conference room was speechless.
Miracle's actions had been the talk of every drinking session all weekend, so no one was unaware, but the total betting amount was something they were hearing for the first time.
An expletive starting with 'F' might have burst out, but everyone barely managed to hold it in due to the Vice President's stern expression.
They also wondered if the Vice President was so angry because Miracle had poured in 2.8 billion dollars, while Goldman Sachs had only managed to secure 48 million dollars.
"There were others with the same idea as Miracle before. But the amounts weren't large, were they?"
At the Vice President's words, some nodded their heads, while others exchanged glances as if unfamiliar with the topic.
"Miracle prioritizes stability above all else. They're extremely averse to principal loss, so isn't it strange that they poured in 2.8 billion dollars?"
"Emerson. The money earned from mortgage-backed securities products every year is 500 billion dollars. While 2.8 billion dollars is a large sum, it's relatively just pocket change."
As someone raised an objection, another, gaining courage, presented an optimistic view.
"At the Las Vegas Securitization Forum, it was announced that the loss rate for subprime mortgage-related securities was only 5%."
"Who by?"
"In the keynote speech by President Bruce Miller of Bear Stearns..."
Vice President Emerson cut him off and asked.
"The basis for 5%? Did you verify it?"
As the optimistic one hesitated, unable to answer, Michael, who had been assessing the default status, saved him.
But the numbers he had found turned everyone in the conference room into culprits.
"Emerson, starting this year..."
"How much? Just the number!"
"8%..."
The sense of crisis began to settle most certainly on Michael. This was because he had seen the default rate graph rising steeply.
"At this rate, next month it will be over 9%. The 10% mark is right before our eyes."
Michael also revealed an important fact that could not be hidden.
"Variable interest rates have already exceeded four times fixed rates. If things continue like this, all the mortgaged homes will be foreclosed..."
Vice President Will Emerson's eyebrows twitched.
The numbers presented in the securitization forum's keynote speech could be considered baseless. The forum was merely a gathering of hawkers spreading out their stalls to sell more derivative products.
A rosy future, safe investments, a feast of money... Weren't these charlatans just busy spouting such flowery rhetoric?
That Will Emerson had risen to Vice President through risk management alone was due to his meticulous insight. He possessed a meticulous and thorough nature, enough to find even a tiny ant-hole in a giant dam and prevent it from collapsing.
But he felt he would have to submit his resignation today.
It wasn't an ant-hole; a massive crack had already formed, and water was gushing out. The dam felt like it was about to collapse.
Blinded by the extravagant feast of money, it was already too late to blame himself for doing nothing.
He now knew exactly what he had to do.
He hadn't detected the risk beforehand, but he had to minimize the risk that had already arrived.
Now, he had to pack his bags and embark on an evacuation before the dam broke.
Vice President Will Emerson picked up the phone on the conference room table.
"Send up five security guards immediately."
At his sudden actions, the people gathered in the conference room were bewildered, but couldn't open their mouths. This was because the Vice President's stern expression was far from ordinary.
When the security guards arrived, Emerson spoke.
"While I'm gone, everyone stay put here. Put your mobile phones on the table."
When they merely exchanged glances, he yelled.
"Hurry. Or you're fired on the spot!"
The people quickly took out their mobile phones and placed them on the table.
The Vice President spoke to the security guards.
"Turn off all mobile phones and make sure they can't be used. Same for laptops. And pull out the phone lines, and prevent these people from leaving the conference room. It'll only take a moment."
As the security guards began collecting the mobile phones, Will Emerson ran towards the Chairman's office at Goldman Sachs.
The conference room had transformed into an isolated island, completely cut off from the outside.
* * *
"John. It's an emergency."
"Sit down first. Have a glass of water."
John Rogers, Chairman of Goldman Sachs, calmed down Vice President Will Emerson, who had rushed in.
"This is about Miracle, isn't it?"
"Yes, but the real problem lies elsewhere..."
Chairman Rogers raised his hand and pointed at the TV, stopping Emerson from speaking.
"Watch that first."
On the TV, a CNN breaking news report was playing.
"New Century Financial, the second-largest subprime lender, filed for bankruptcy protection on the 2nd at a court in Wilmington, Delaware. On this day, the company also announced restructuring plans, including reducing its workforce by 54%, or 3,200 employees, and selling off affiliated companies.
Recently, as subprime mortgage interest rates rose and housing prices fell, it had faced increasing difficulties due to mounting bad debt, and although it had provided loans totaling nearly 60 billion dollars last year, it halted lending as of last month.
Furthermore, it explained that CIT Group and Greenwich Capital had agreed to provide 150 million dollars in funding, but its stock price had already fallen by 97% compared to last year."
Will Emerson squeezed his eyes shut.
Alas!
It had already exploded.
"You know who New Century's largest creditor is, don't you?"
At the Chairman's question, Emerson merely nodded. It was Goldman Sachs. And all financial institutions within the world's top 10 were also major creditors.
"Miracle signed a 1 billion dollar swap contract?"
"That's right."
"Is that Rachel woman exceptionally intuitive? Or is she a meticulous mathematician? She strikes and pulls out exactly one day before."
"John, Miracle's 1 billion dollars is nothing. We need to quickly liquidate our CDOs (Collateralized Debt Obligations) first."
Unlike the urgent Vice President, Chairman Rogers still had composure.
"If we start liquidating CDOs, will others just stand by and watch? All mortgage-based securities will instantly flood the market, won't they?"
"But we can't just stand by and watch, can we?"
"Will."
"Yes, sir."
"Do you know why Miracle only contracted for 1 billion dollars?"
Emerson's stomach churned due to the Chairman's unhurried and abrupt question.
"1 billion dollars is not a small amount."
"No, it's not. You said the total amount was 60 billion dollars, didn't you?"
"It's 56 billion dollars."
"Even if it's 56 billion, it's not even 2% anyway. Miracle accurately assessed our ability to pay. We've already signed quite a lot of credit default swap contracts."
"H-how much, exactly...?"
"25 billion dollars."
Vice President Emerson realized that the Chairman's composure stemmed from resignation, and that as Vice President of Risk Management, there was nothing he could do.
Looking at the dazed Emerson, Chairman Rogers burst into hearty laughter.
"Don't be so glum. Because 10 billion dollars of that is ours."
"Pardon? What do you mean...?"
"Just in case, we took out insurance too. You know Gary Trust, which spun off from our company, right?"
"Yes. Isn't it an independent investment team? Composed of exceptional talents..."
"That's right, Goldman Sachs signed a credit default swap with that company. Since our subsidiary effectively earned 10 billion dollars, it'll give us some breathing room."
He was so dumbfounded that no words came out.
The headquarters had been loudly proclaiming that the housing market would thrive, while the subsidiary had bet on the housing market's collapse.
What would Goldman Sachs' shareholders think if they knew? It was clearly a betrayal of corporate ethics.
If Emerson had known that 10 million dollars out of that 10 billion was personally contracted by Chairman John Rogers, he would have despaired.
John Rogers slapped the sofa and stood up.
"It's late, but it's best we make the first move, isn't it? I'll instruct them to dispose of these worthless pieces of paper as quickly as possible. You, on the other hand, try to prevent this information from spreading as much as you can."
He might be able to manage the internal affairs of the company, but externally, it was already hopeless.
Other companies weren't fools either. They would analyze why Miracle had swept through, and they too would come to the same conclusion as him.
On Wall Street, the bomb had already exploded.
All that was left was to ensure that individual investors learned this fact as late as possible.
As always, weren't the biggest victims the ordinary investors?
* * *
"Goldman Sachs is the fastest. They're struggling, dumping assets to mitigate the damage, aren't they?"
Rachel, who had been hounded by phone calls all day, took a breather, sipping her coffee.
"By tomorrow, everyone will be dumping their assets. And some foolish places will surely rush to buy them."
"Now, only time remains until everyone realizes that US mortgage loans are unrecoverable."
A dark shadow lingered on Rachel's face.
"Howard. From what I've gathered, mortgage-backed securities are merely a pistol."
"You're talking about derivatives, then."
"Yes. Do you know the scale of synthetic derivative products, like complex CDOs, square CDOs, double CDOs, and other bundled CDOs?"
"Yes. Over 20 times."
Rachel shook her head, looking at me speaking calmly.
"Why? Because I can hear the sound of the global economy collapsing, should I also fuss about it?"
"No. The global economy is collapsing, and you've raked in an enormous amount of money. But you don't seem to be feeling any particular emotion."
"Joy and regret clashed and canceled each other out. Although I earned 56 billion dollars, due to the evaporating wealth of America, millions of innocent citizens will wander the streets. I can't be joyful forever."
In truth, earning money wasn't such a joyful thing. The truly joyful thing was that this economic crisis would be the bullet to bring down Vice Chairman Jin Donggi.