New Employees With an Annual Salary of 1 Trillion Won - Chapter 164

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This chapter was translated by Lunox Team. To support us and help keep this series going, visit our website: LunoxScans.com
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Chapter 164. Spider Web (4)

The derivatives fees that Hana Bank was earning were by no means small.

Moreover, we could earn additional fees through Everbed, so we were generating stable profits through real estate.

However, the American investment banks were operating on a completely different level.

They were selling real estate-related products recklessly, as if the world was about to end.

“The investment banks are running wild like they’ve completely lost control.”

“With low interest rates and loose regulations, there’s no reason not to. It’s a structure where money multiplies automatically just by selling real estate-backed products, so who would sit still?”

“MBS is one thing, but now they’re bundling lower-grade MBS to create CDOs to raise funds, and using that money to issue mortgage loans again.”

Ultimately, the core revenue source for investment banks was ‘loan interest.’

Moreover, with real estate-backed loans, if borrowers couldn’t repay, they could just foreclose on the property, so they were issuing loans without proper screening.

However, banks had clear limits to their available funds.

Even if they wanted to lend, they couldn’t lend more due to insufficient capital.

To break through that limitation, they bundled real estate mortgage contracts to create and sell products called ‘MBS (Mortgage-Backed Securities).’

The investment banks didn’t stop there.

They began selling CDOs that bundled multiple unsold lower-grade MBS together.

“They’re bundling lower-grade MBS again to create ‘CDOs’ that look sophisticated on the surface. Plus, credit rating agencies are giving them all AAA ratings, so they’re selling like hotcakes.”

“It’s an absurd structure. There’s no way multiple MBS with high default risk would become AAA-rated just by bundling them together.”

“Even I can see it’s not logical.”

“It’s not just illogical, it’s also statistically and probabilistically nonsensical.”

It was a nonsensical product.

American investment banks were bundling 100 mortgage loans together,

and promoting them as safe products, claiming that even if one or two defaulted, the probability of all 100 collapsing simultaneously was extremely low.

On the surface, it seemed plausible.

But those 100 mortgage loans were ultimately tied to the same market.

If interest rates rose or real estate prices fell, all ‘100 of them’ could collapse at once.

“I know it doesn’t make sense either. But who’s going to say anything? After all, it’s the investment banks that make the market rules. Credit rating agencies are also giving ratings exactly as they want.”

“Right now it might seem fine since investment banks are coordinating the entire market, but the moment they cross the line, the market is bound to explode.”

The Chairman straightened his posture.

The playful expression from moments before disappeared, and now he looked at me seriously.

“Are you saying the real estate market will collapse?”

“If the current situation continues for just a few more years, it will create a massive bubble incomparable to the IT bubble. And if that bubble bursts, it could simultaneously explode not just the real estate market but the entire American economy.”

The investment banks were running wild, drunk on money.

No one could stop them; instead, they were being encouraged.

So the bubble could only grow rapidly, and it would certainly become a time bomb beyond just a bubble.

“Hmm, if things go as you say, all the investment banks could go bankrupt.”

“Depending on how much government support they receive, there’s a very high possibility that at least more than half of the investment banks will go bankrupt.”

The downfall of investment banks.

Upon hearing those words, the Chairman smiled meaningfully.

“Could we swallow up all that money from those investment banks?”

“If we prepare properly, we could seize considerable funds, if not all of it. Just doing that would make Tiger Fund leap to become America’s number one financial company.”

“Simple short selling alone wouldn’t earn us that much, would it?”

Short selling profits had clear limitations.

To swallow all the funds from investment banks exploding in all directions from a massive blast, we needed a solid spider web.

“To maximize profits, we need new financial products.”

“You’re saying we should step forward and create new financial products. What kind of financial products?”

“Insurance.”

“You mean CDS? Even now, there are places buying CDS to prepare for CDO default risks.”

The foundation of financial companies was risk management.

Naturally, if they were earning massive profits from MBS or CDOs,

it was common sense to buy insurance in preparation for any unforeseen circumstances.

“Currently, insurance can only be purchased for CDOs you own. But if we can change that system, we can swallow investment banks whole.”

“You want to make it so we can buy insurance on assets owned by others?”

“Would that be impossible?”

“Actually, it’s not completely impossible. Discussions about insurance contracts without underlying assets began a few years ago.”

If this structure were possible,

we could collect massive insurance payouts without taking on CDO risks.

While short selling had limitations, CDS was different.

Theoretically, its scale could expand almost infinitely.

“On a single $100 million CDO, we could place over $1 billion in insurance.”

“If the bubble bursts, we could collect massive insurance payouts, but the monthly premiums we’d have to pay would also be enormous.”

“Our goal is to purchase CDS insurance worth a total of $100 billion.”

“…Are you planning to pay all of Tiger Fund’s operating capital as insurance premiums! That’s too ambitious a goal!”

The Chairman raised his voice.

My goal seemed that unrealistic.

But it wasn’t an impossible goal, nor was it a structure that required that much money.

“Of course, we won’t build a $100 billion position right away. First, next year we’ll buy $1 billion worth of CDS, increase that amount each year, and when the market expands, we plan to purchase $50 billion worth of insurance.”

“Have you calculated how much the premiums would be?”

“Total premiums would be about $4 billion. We only need to pay over $1 billion in premiums during the final year, so it’s not that burdensome an amount.”

The premiums paid during the first few years wouldn’t even reach $100 million.

So it wasn’t burdensome at all right now, and it was a scale we could manage with just the Korean Branch assets.

“Is there a reason you want to proceed this way? Instead of collecting CDS from now, couldn’t you buy CDS in large quantities after the bubble is fully confirmed?”

“We need justification. If we consistently buy and collect CDS, won’t investment banks and insurance companies feel secure and sell them? Once they get a taste of CDS fees every year, they’ll eventually become addicted and lose their rationality, selling massive amounts of CDS.”

If we suddenly said we wanted to buy large quantities of CDS, they’d be suspicious first.

But if they got a taste of CDS fees from now on,

they’d want stronger stimulation and create and sell large quantities of CDS themselves.

“You mean to make them mistake CDS fees for stable income.”

“To make them fall into that misconception, we need to show them the taste of fees bit by bit from now.”

“So what do you think the maximum profit would be?”

“Assuming we pay a total of $4 billion in premiums, theoretically up to $70 billion in profits is possible.”

That was theoretical profit.

Theory was just theory.

Even if we made $70 billion in profits, actually collecting the money was a different matter, and the Chairman was concerned about that aspect too.

“Could insurance companies cough up $70 billion?”

“They couldn’t pay it all in cash, but we could claim priority rights to assets held by insurance companies.”

“You’re saying we’ll tear apart and devour insurance companies whole.”

“It’s not a high-risk operation. The $4 billion in premiums might seem wasteful, but it’s an amount we can sufficiently cover with other investments.”

Investment banks designed and sold CDS.

But it was a structure where insurance companies bore all the responsibility.

So practically, we had to demand insurance payouts from insurance companies, and it was designed to devour insurance companies, not investment banks.

“Are you planning to leave investment banks alone?”

“No. We plan to swallow insurance companies through CDS and devour investment banks through short selling.”

“That’s right! Short selling can’t be left out of this kind of investment.”

“Compared to CDS, it’s not that large, but short selling could yield over $20 billion in profits.”

$90 billion in one shot.

Of course, the amount that would actually come into our hands wouldn’t even be half of that.

But even that alone would allow Tiger Fund to grow several times larger than now.

“A $90 billion operation. I’ll have to take good care of my health. I should live to see Tiger Fund swallow up investment banks and insurance companies, shouldn’t I?”

“It won’t take that long. It’s achievable within 5 years at the latest.”

“Five years isn’t that long. I’ll wait patiently until then.”

“You can’t just wait. To lead the game, we must run around diligently.”

The person who had to work the hardest was the Chairman.

Especially to lift CDS regulations, he had to meet and visit many people.

“You seem to have mastered the art of tormenting old men. Alright. Let’s start with CDS regulatory relaxation first.”

“I’m counting on you. General Manager, please take charge of CDS design. As soon as regulations are lifted, please meet with investment banks and insurance companies to conclude contracts.”

“That won’t be difficult.”

The real estate collapse scenario.

An operation that no one could predict had already begun.

All of Tiger Fund was mobilized to weave a tight web that wouldn’t let even a single ant escape.

***

Chairman Robertson moved quickly.

As soon as Lee Jung-hoo returned to Korea, he immediately visited Lehman Brothers, one of the top 3 US investment banks.

Lehman, which had been showing the most aggressive moves in real estate derivatives, was the optimal partner for CDS design.

“Chairman Robertson! It’s been a while. Since you said you were coming personally, I canceled all my appointments today and have been waiting.”

“What am I that you would go to such lengths? I’m sorry for keeping the representative of America’s largest investment bank waiting.”

Chairman Richard of Lehman Brothers.

Though he was a big shot leading one of America’s top 3 investment banks, he couldn’t treat Chairman Robertson carelessly.

He was from a generation above, and Richard was from the generation that grew up hearing his heroic tales in their youth.

“Not at all. When will I get another opportunity to meet and talk with you like this? So naturally I should be the one waiting.”

“I can’t keep taking up your precious time, so I’ll get straight to the point. I understand Lehman has been making big profits from real estate-related products lately.”

“It was possible thanks to Tiger Fund. You designed derivatives so well that we got a lot of inspiration.”

Tiger Fund was the first to start the real estate derivatives business.

Of course, real estate derivatives existed before, but Tiger Fund could be considered the first to properly design a profit structure.

“So we’ve designed a new product as well. But to launch this product, we need regulatory relaxation.”

“May I know what kind of product it is?”

“It’s nothing special, just a CDS product. However, the difference from existing CDS is that you can conclude insurance contracts even for assets you don’t own.”

Chairman Richard fell into thought for a moment.

Insuring assets you don’t own was essentially no different from gambling.

But if it was guaranteed winning gambling, there was no reason not to do it, and the current real estate market was bound to generate profits no matter what products you created and sold.

“Wouldn’t this just fatten the insurance companies?”

“Naturally, insurance companies with insurance payout obligations would receive the most fees, but investment banks could still receive brokerage fees. And above all, wouldn’t it be very helpful from a risk management perspective?”

Financial companies staked their lives on risk management.

So if they created and sold CDS, there would inevitably be buyers.

Then investment banks could just sit back and collect brokerage fees, so there was absolutely no reason to oppose it.

“Just designing products and brokering would bring in considerable fees.”

“It’s also the most efficient way to manage risk.”

“If you sell such CDS, does that mean Tiger Fund will buy them directly?”

“We want to buy them but they don’t exist, so we’re trying to create them ourselves.”

Chairman Richard tried to hide his expression.

The senior he respected was making a wrong judgment.

The real estate market was a candle that would never go out.

But preparing for the day the candle would go out – his brow furrowed without him realizing it.

“I understand what you’ve said very well. I’ll review it very positively.”

“Regulations need to be relaxed as quickly as possible so we can design and sell CDS products. I’m asking for your great help.”

“I’ll contact you immediately once internal discussions are finished. At the latest, I should be able to give you results within this week.”

Chairman Richard had already made up his mind.

There was no reason not to sell such a profitable product.

He was just postponing a definitive answer because internal discussions were procedurally necessary.

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