Golden Spoon Investment Portfolio - Chapter 456

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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456. A trillion dollars… Phew.

September 22, 1998.
The Federal Reserve Bank of New York stood at the very heart of Wall Street, the epicenter of global finance.
Unlike the gleaming skyscrapers that soared skyward around it, the building itself possessed a sturdy, austere appearance—a historic structure completed in 1924.
Beneath its foundation, laid upon solid granite bedrock, the vaults held thousands of tons of gold bullion, more than anywhere else in the world.
Consequently, each arched window was fitted with robust steel frames, and armed security guards in dark uniforms stood at the main entrance, barring outsiders from entry.
From early morning, black limousines descended one after another into the underground parking garage of the Federal Reserve Bank of New York.
They carried the heads of Wall Street’s major banks—JP Morgan, Merrill Lynch, Morgan Stanley, Goldman Sachs, Chase Manhattan, Salomon Smith Barney, Bear Stearns, and others—all summoned by the so-called “invitation” of Chris Murphy, President of the Federal Reserve Bank of New York.
As Joseph Saluchi, Chairman of Goldman Sachs, stepped out of the limousine that had come to a halt in the underground garage, a Federal Reserve Bank employee approached him and spoke with measured courtesy.

“A conference room has been prepared on the 10th Floor. I shall escort you there.”

Just as Chairman Saluchi gave a slight nod and was about to take his first step, another black limousine descended the ramp.
As it drew near and came to a stop, the rear door opened, revealing Dan Perry, Chairman of Merrill Lynch, dressed in a bespoke two-button suit.
At the sight of this familiar face, Chairman Saluchi turned and extended his hand first, speaking cordially.

“I heard you were taking a family trip to Greece. Did you have a good vacation?”
“That idiot Wiseman ruined the whole thing.”

Chairman Perry’s face twisted with irritation as they exchanged a light handshake.

“Is it true that LTCM lost over five hundred million dollars in just yesterday alone?”

Chairman Saluchi responded not with words, but with a bitter smile.

“Damn it.”

Seeing this, Chairman Perry cursed, and Chairman Saluchi spoke in a soothing tone.

“For now, we must focus on damage control. Let’s go hear what solution Chairman Murphy has prepared.”
“Right. Let’s do that.”

Since there was no other sharp method available, Chairman Perry let out a small sigh and nodded his head.
The two men followed a New York Federal Reserve employee who had been quietly waiting and took the elevator to the Conference Room on the 10th Floor.
It was a spacious conference room where an old portrait of George Washington hung above the fireplace mantel alongside paintings of former Federal Reserve Bank presidents, with an antique grandfather clock standing on one side.
As the two men entered, they could see the heads of Wall Street banks who had arrived first gathered in small groups, whispering among themselves.
As if to demonstrate how massive the impact of LTCM was, they all wore deeply displeased expressions.
And understandably so—major investment losses had resulted from the collapse of emerging market bonds and stock markets, particularly Russia, and the financial sector at the center of the crisis had suffered the steepest declines.
Goldman Sachs alone had seen its planned stock listing become uncertain due to the market crash.
Chairman Perry’s Merrill Lynch stock, which had traded at $108 per share until July, had been cut in half to $54.
So the atmosphere could hardly be good.
Saluchi and Chairman Perry exchanged light greetings with other bank heads they were acquainted with and shared information about the current situation.
Of course, they had gathered because of the common problem of the LTCM crisis, but since each fundamentally prioritized their own interests, it was a conversation stripped of substance—the truly important matters were absent.
Then the Chairman, dressed in a navy pinstripe suit, looked around the room and spoke in a somewhat loud voice.

“Now that everyone has gathered, we’ll begin the meeting. Please take your assigned seats.”

The scattered attendees then moved to their designated seats marked with nameplates.
Not only the heads of Wall Street investment banks but also the chairman of the New York Stock Exchange and representatives of major European banks were in attendance, making the number of people substantial.
Though the conference room was spacious, the original premium leather chairs were insufficient, so chairs hastily brought from elsewhere were mismatched in both style and size.
As a result, an almost comical scene unfolded where figures who controlled the global financial markets had to sit squeezed tightly together, careful not to let their shoulders touch.

“Ahem.”
“Mm….”

Amid sounds of uncomfortable shifting from various places, the Chairman let out a soft clearing of his throat and began speaking in a weighty voice.

“As you all know, since last August—that is, since Russia declared a moratorium—the global bond market has been in a state of considerable instability.”

Looking around at the attendees who were listening quietly, the Chairman continued speaking calmly.

“Furthermore, LTCM, which has been engaged in large-scale leveraged trading, has suffered massive investment losses, which could potentially trigger a global financial crisis. This is why I’ve invited all of you here.”

Then a representative from Deutsche Bank seated on one side raised his hand and interjected.

“It seems we should first accurately disclose the asset scale of LTCM, which is becoming the problem.”

The other attendees nodded in agreement.
Since the Chairman had intended to disclose the situation anyway to gain the cooperation of the attendees, he answered without hesitation.

“Based on our current understanding, they’ve used $4.7 billion in equity capital to leverage and purchase bonds and stocks exceeding $120 billion in scale.”

Leverage investing was something everyone did, so no one was particularly surprised.

“The situation deteriorated and prices collapsed, but once time passes and the market stabilizes, it will recover. Honestly, that’s not the real problem. What’s truly serious is that they didn’t just invest in bonds and equities—they entered into numerous derivative contracts of various types to maximize returns.”
“….”
“And the counterparties who provided leverage to LTCM and entered into those derivative contracts are all of you sitting here.”

The implication that Wall Street banks bore responsibility for the current crisis made the attendees’ expressions turn sour.
Chris Murphy continued regardless.

“When we calculate those derivatives at current prices—which have experienced far greater volatility than originally anticipated—the total comes to over one trillion dollars, an astronomical sum.”

The room erupted in commotion.

“One trillion dollars….”
“What is this….”
“Hmm.”
“No. How is this possible.”

It was a natural reaction—no matter how powerful a Wall Street investment bank was, this sum was beyond their capacity to absorb.
Observing their reactions, Chris Murphy spoke again, his voice grave.

“If LTCM collapses as things stand, your counterparty vanishes, and you’ll bear the full brunt of the losses. If you liquidate the collateral assets at fire-sale prices to cover those losses, the already unstable market will collapse entirely—I don’t think I need to spell that out for anyone here.”

A heavy silence fell over the room as the attendees listened with hardened expressions.

“If each of you tries to save yourselves by dumping bonds in this situation, a chain reaction will trigger a global panic.”
“….”
“Conversely, if you each make modest concessions and cooperate, we can avert catastrophe.”

Fuller of Bear Stearns then asked, his brow furrowed.

“Are you asking us to support LTCM to prevent its collapse, or to acquire the fund by dividing its equity?”

Fuller, who was overseeing LTCM’s liquidation settlement and thus knew the fund’s condition better than anyone, made no effort to hide his discomfort.
As the other attendees also looked on with dissatisfaction, Chris Murphy set his expression firmly and replied.

“As I just said, if LTCM collapses without any countermeasures, hasty and disorderly liquidations will cascade throughout the entire financial system, causing severe and catastrophic damage.”
“….”
“The market chaos and panic might settle within a day, but there’s a high probability it will remain paralyzed for weeks—or possibly far longer.”

Though Chris didn’t spell it out directly, everyone sensed that the Federal Reserve Chairman was worried about another Great Depression.
Everyone harbored doubts, unable to shake the conviction that the LTCM crisis wouldn’t trigger a depression.
The financial crisis, which they’d initially thought would remain confined to Asia, was now showing signs of spreading through Russia, across South America, and into Eastern Europe—a reality that only deepened their anxiety and dread.

“I’m sure you’re all aware that the yield on the Treasury bonds auctioned yesterday has fallen to 5.05%.”

The fact that the yield—representing interest—had sold below the Federal Reserve’s benchmark rate meant an extraordinary surge in demand for U.S. Treasury bonds, that safest of safe assets.

“I trust you all understand that Treasury bond yields serve as a barometer for current market fear.”
“….”
“Whether we like it or not, the market is already at the threshold of economic contraction, and this moment represents our final opportunity to prevent ourselves from plummeting over the cliff. Don’t forget that.”

Though they understood intellectually, the moment it became clear they had no choice but to absorb losses and mobilize capital to resolve the crisis, everyone’s faces contorted as they let out groans of anguish.

“Ugh.”
“This is something else.”

After a brief, heavy silence, the conference room—its walls lined with portraits in gilded frames—soon erupted into heated debate.

* * *

The heated discussions that began in the morning stretched into late afternoon, yet the first day’s meeting ended without reaching consensus, ensuring another session tomorrow.
Caught in severe traffic, vehicles crawling along the road like sluggish turtles, Joseph Saluchi, Chairman of Goldman Sachs, sat buried in the plush leather seat of his limousine, looking exhausted.
As he gazed out the window at the bustling crowds, he pulled his mobile phone from his inner pocket and called Gavin Phillips, Chairman of Berkshire Hathaway.

Brring, brring.

After the ringtone sounded twice, the other end picked up.

“Hello.”
“The meeting just wrapped up.”

At that, Chairman Phillips, with whom he’d maintained a cordial relationship, responded with an air of ease.

[How did it go?]
“As expected, Chairman Chris wants the banks to jointly acquire LTCM.”
[That’s the only way to prevent the market from collapsing further here.]
“They’re all bickering to minimize their own losses, but everyone knows time is running out. A conclusion should come within days.”
[That’s problematic. I’ll have a sales proposal sent to Wiseman tomorrow. You need to control the atmosphere in the meeting to favor our position.]
“Understood.”

Chairman Saluchi lowered his phone, a dark smile playing at the corners of his mouth.
Having already joined forces with Chairman Phillips to swallow LTCM at a bargain price alongside AIG, Saluchi had been feigning innocence while attending the meetings, secretly feeding information about the Federal Reserve and Wall Street banks’ movements to his allies.
The plan was to strip the other Wall Street banks of their assets, carve out the rotten parts, and divide the core holdings with Chairman Phillips and AIG.
Saluchi’s smile widened as his eyes gleamed with naked desire.

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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