February 17, 1997 – Tokyo, Japan
John Porter, the head of Eldorado Fund's Japan branch, sat leisurely behind a wide desk, speaking on the phone with Shoichi Nakamura, Head of the Derivatives Division at Nomura Securities.
"So, you're asking to cancel the CDS option contract with us—is that correct?"
[Yes. I'd be very grateful if you could be understanding about the situation.]
Normally proud and full of bluster as a top executive at Japan's leading securities firm, Nakamura was now speaking in a surprisingly deferential tone.
Porter, in contrast, leaned back in his chair, exuding calm and control.
Nakamura's desperation came down to one thing: the collapse of the Thai stock market, triggered by the assault on the baht.
Just last year, the Thai SET Index had soared past 1,279, riding a wave of prosperity. But as the current account deficit widened and economic conditions deteriorated, the bubble began to deflate rapidly in the second half of the year.
Still, Japanese securities firms like Nomura hadn't been overly concerned. After all, the CDS option would only trigger if the SET Index fell below 600 points—a scenario they considered highly unlikely.
But that changed last week.
The moment hedge funds began their attack on the baht, the Thai stock market was hit with collateral damage. Panic spread, and the index began to nosedive. It broke below the psychological support level of 1,000 almost overnight, and was now plunging past 700. Panic had turned to crisis.
Glancing at the live feed of the SET Index continuing its freefall at market open, Porter spoke into the phone with measured ease.
"If you'd like to cancel, we'll of course honor your request."
[Thank you so much!]
Nakamura's relief was audible, but Porter's smirk widened as he held the receiver to his ear.
"You do understand what the penalty clause says in the event of cancellation, correct?"
[Well… about that…]
As soon as Porter brought up the penalty, Nakamura faltered, clearly uncomfortable.
"Just to refresh your memory, the party requesting cancellation pays 80% of the total CDS contract value as a termination fee."
If even one contract was canceled, the other two—linked to Korea's KOSPI and Indonesia's market—would be automatically voided as well. That meant Nomura would owe a staggering $2.4 billion in penalties, or 80% of the total contract value.
[Isn't that a bit excessive?]
Nakamura pleaded, sounding almost pitiful.
"I assume this contract was reviewed thoroughly by your legal team before it was signed and notarized."
[Yes, of course. But it's just the Thai SET Index that's the issue. Penalizing us for the other two, when they haven't even come close to the trigger conditions, feels... unfair.]
It was obvious he was grasping for any way to reduce the damages. But Porter's voice turned steely.
"You're fully aware that all three options are bundled into a single contract. That's why your firm's been paying a combined fee."
[Even so, the other two options are still far from their trigger points... Isn't there any way you could take that into consideration and lower the penalty a bit?]
Nakamura, though clearly walking on eggshells, persisted.
"And what amount are you proposing?" Porter asked, not because he intended to negotiate, but to see what they'd offer.
[How about six hundred million dollars?]
Hearing the offer, Porter let out a short, incredulous laugh.
"Six hundred million? That's not even half. Are you aware Nomura's already paid $150 million in fees just to maintain this option?"
[Still… even then, you'd be walking away with a $450 million profit…]
Porter's tone instantly turned colder.
"No, not at all. If the Thai SET Index drops below 600, we stand to make one billion dollars. Accepting your offer would mean forfeiting nearly $400 million in potential profit."
[But the index hasn't dropped below 600 yet, so that profit isn't guaranteed.]
Porter scoffed at the desperate reasoning.
"Let's be honest, shall we? You're trying to cancel because you believe the SET Index will drop below 600 soon. Isn't that right?"
[N-no, it's more about risk management…]
Cornered, Nakamura stumbled through a vague excuse. But Porter cut him off mid-sentence, his voice turning firm.
"You have two choices: pay the penalty as per the contract, or keep watching the Thai SET Index and hope the option isn't triggered."
[Wait, can't we at least discuss this and find a middle ground—]
"I'm ending the call now."
Without waiting for a response, Porter lowered the receiver.
"Tch. Calls me up out of desperation and then tries to haggle."
Clicking his tongue in irritation, Porter turned his gaze to the monitor in front of him.
The Thai SET Index was still in freefall, sliding downward without the slightest pause—an uninterrupted nosedive. Even Porter was impressed.
"Honestly, when I got the directive to sign those CDS options, I thought the returns would be marginal at best. Who could've predicted Thailand's booming market would crash like this?"
He drummed his fingers lightly on the desk, thinking back to the phone call he'd had with Seok-won that morning.
"Truly impressive…"
Suddenly struck by a thought, Porter reached for his mouse and pulled up charts for Korea's KOSPI (labeled KDSPI) and Indonesia's main stock index.
"…Don't tell me those are going to crash too, like Thailand's?"
Staring wide-eyed at the screen, he quickly shook his head as if to dismiss the idea.
"No way. That's ridiculous."
Still, the morning's conversation with Seok-won echoed ominously in his mind.
"No matter how much they beg, do not cancel the options unless they agree to the full penalty clause. Not under any circumstances."
Surely not…
Porter swallowed dryly without realizing it.
Just then, a beep from the intercom rang out, followed by his secretary's voice through the speaker.
[Mr. Danino, Executive Director from Yamaichi Securities, is calling. Shall I put him through?]
Porter didn't need to ask what the call was about. He already knew.
Shaking off his unease, he reached over and pressed the button.
"Put him through."
[Yes, sir.]
And so, Porter began taking calls one by one—from Nomura, Daiwa, Nikko, and now Yamaichi. Japan's four largest securities firms were all pleading with him to cancel their CDS option contracts.
***
Quantum Fund Office, 7th Avenue, Manhattan.
In the spacious executive lounge, George Soros sat at the center of the sofa with CIO Rodney on one side and Ian, the chief portfolio manager, on the other.
"Wait, you're saying Eldorado Fund went long on the baht, not short?"
George raised an eyebrow in disbelief as he set his teacup down, crossing one leg over the other.
"That's right," Ian replied. "We analyzed their trades over the past five days—both futures and spot. They've clearly taken long positions."
George furrowed his brow.
"They don't actually think the Thai government is going to win, do they?"
Irritation crept into his voice. Rodney, sharply dressed in a navy suit with a crisp white pocket square, shook his head.
"It's… a bit unclear."
"What do you mean?"
"The size of the position isn't large enough to say they've gone all-in."
"How much are we talking?"
"We might not have the full picture yet, but as far as we can tell, it's somewhere between $400–500 million."
George leaned back with a thoughtful grunt.
"For a fund the size of Eldorado, that's not a huge bet."
"Still," Ian added, "even with that amount, going long suggests they believe the Thai government has the upper hand."
George gave a slight nod.
"If that's really the case… then maybe Park's luck has finally run out."
A brief chill flickered across George Soros's face.
Was Seok-won Park—the same man who had shown such sharp instincts until now—finally making a fatal miscalculation? Rodney entertained the thought but didn't voice it aloud.
"In any case, the Thai central bank's already burned through more than $8 billion defending the baht, right?"
"Yes," Rodney answered promptly. "At this pace, they'll likely be close to $10 billion by the end of the day."
"They're bleeding reserves a lot faster than we anticipated."
"They've been throwing dollars at the market every time the exchange rate dips below their 27-baht-per-dollar defense line. It's unsustainable."
George clicked his tongue in disdain.
"They could've held out longer if they had gradually shifted the line back—played it smarter. Instead, they're trying to hold ground with all their cards face-up. Foolish."
"That just shows how poorly prepared they are for external attacks compared to countries like the UK or Japan," Rodney said with a shrug.
"When ordinary people are clueless, it's one thing. But when the people running a nation's economy are this incompetent… that's criminal. Still, makes things easier for us, doesn't it?"
Rodney gave a sly smile.
"So, is it time?" Ian asked. "Are we officially entering the fight now?"
Rodney's eyes gleamed with anticipation as he posed the question.
Catching the glint of excitement in Rodney's expression, George Soros smirked, lifting one corner of his mouth.
"Looks like the Thai government's forex reserves are already heavily drained. We'd better step into the ring before it's too late."
"I've been waiting for you to say that."
Rodney grinned back, and Ian, the chief portfolio manager, looked at the two with a face full of eager energy.
"Drip-feeding capital has been frustrating. Now we can finally place a real bet."
George leaned back with calm satisfaction, like a predator toying with its prey.
"When the Asian markets open tomorrow, unleash a full $1 billion. Make sure the world knows we've entered the game."
"Understood," Ian responded quickly, then threw in a joke.
"Looks like we're about to launch the second firebombing—not Tokyo this time, but Bangkok."
George laughed heartily.
"Hah! That's the perfect analogy."
Just like when they took down the Bank of England and rattled Japan's markets, George Soros's Quantum Fund would fire the opening salvo, signaling the other hedge funds. Like a pack of ravenous hyenas, they'd swarm and tear into the Thai government's defenses.
The three men were absolutely confident: once the attack began in earnest, the already weakened Thai central bank would crumble. It was only a matter of time before they would be forced to concede.
Rodney, however, found his thoughts drifting for a moment to the Eldorado Fund—the one firm that had taken the opposite side of the trade with long positions in the baht.
Will they realize their mistake and unwind before it's too late? Or… do they actually know something we don't?
At that moment, neither George Soros nor Rodney had the slightest idea that the Thai government they so casually dismissed was about to land a devastating and unexpected counterpunch.
And so, amid a maelstrom of greed, ambition, and hidden agendas, dawn broke on the sixth day—when the battle over the fate of the Thai baht would finally reach its first turning point.