The Return of the Ruined Chaebol's Third-Generation Heir - Chapter 56

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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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Regression of a Fallen Chaebol’s Third Generation 056
“Why are you sighing so heavily as you come in?”
The next day, Han Jae-yi, who was entering the office to the sound of my voice, looked at me with a startled expression.
“Oh, that’s right. You’re here.”
“What’s there to be so surprised about?”
“No… I thought I was alone in the office, but you being here and the way you look right now…”
Ah.
Thanks to rigorous training in the military, my body had grown larger, and with my current buzz cut, it was understandable that Han Jae-yi was taken aback.
I watched with a faint smile as Han Jae-yi set her bag down at her desk.
“How is it?”
“How is what?”
“Coming in at six in the evening and leaving at dawn?”
Because I had instructed Han Jae-yi to trade on the United States market, her days and nights had been reversed.
Of course, when she left High School, she said she’d been leaving around two, but since it was now break, she was leaving after the market closed.
“Honestly?”
“Yes, honestly.”
“It’s tough. Leaving work when everyone else is coming in. But this…”
“This?”
“Somehow feels right.”
Han Jae-yi approached the sofa where I was sitting and sat down as she spoke.
“The more I do it, the more I think maybe this is my calling.”
“I’m glad you’re being so positive about it. Just hang in there until classes resume.”
“I’m not going back to school even when classes start.”
“Really?”
“It’s my last semester anyway, and I’ve already fulfilled my graduation requirements, so I filed for early employment.”
“Even so, you’ll lose grade points.”
Many professors recognized early employment and gave a D, but many others refused to acknowledge it and gave an F instead.
“From the students’ perspective, it’s good that I’m setting the floor for them, and I don’t have employment worries anyway. It’s not like you’re going to abandon me.”
Indeed, Han Jae-yi had much more composure than when I first met her.
Because of that composure, the future version of Han Jae-yi that I knew seemed to be emerging.
“That’s fine. I’ll start working from today too…”
“Hey, you’re going straight to work the day after discharge? Aren’t you resting?”
“What kind of company president makes only their employees work and takes time off? No matter how inconvenient it might be…”
“There’s nothing inconvenient about it. If anything, having one more person to work with me instead of doing this alone is great.”
At Han Jae-yi’s words, I nodded and handed her the documents.
“Starting today, what we need to do is investigate all the Noise in the United States economy.”
“Like you said yesterday, don’t trust Too Big to Fail, right?”
Too Big to Fail.
It meant that a big horse doesn’t die—in other words, the belief that massive financial institutions never collapse.
The logic was that if something becomes too large, the government has no choice but to bail it out.
Indeed, the United States government has consistently provided bailouts whenever major financial institutions faced crises.
But what’s about to unfold will shatter that belief into pieces.
“Yes, let me explain the current situation. Two hedge funds under Bear Stearns have announced a Redemption Suspension.”
In early June 2007, two hedge funds under Bear Stearns, one of Wall Street’s Big Five investment banks, declared a Redemption Suspension.
Redemption means investors in a fund getting their money back.
Redemption Suspension simply meant there was no money to return.
“The reason is simple. What they were investing in was CDOs, and because of the decline in the United States housing market, the default rate of Subprime Mortgages—the underlying assets—skyrocketed. The value of the products they invested in has plummeted.”
“Did you look into this kind of thing even while in the military?”
That was impossible.
In the military, I had struggled miserably right up to my discharge.
However, in my past life, during this period I was studying at university, and because I was in business administration, I studied this crisis in real time.
I continued without answering Han Jae-yi’s question.
“The Redemption Suspension is the biggest Noise in the market right now. It’s because the products Bear Stearns was investing in had an AAA Credit Rating.”
That meant products at the highest level of creditworthiness. The message was that even the safest products with the highest credit ratings are not safe.
That was the message it sent to the market.
“Can I speak frankly?”
Han Jae-yi, who had been listening to my explanation, spoke with a puzzled expression.
“Yes.”
“I understand why you’re worried, but right now the market isn’t viewing this crisis as seriously as you are. In fact, people are even using the word Goldilocks.”
Goldilocks.
It was an economic term derived from the English fairy tale “Goldilocks and the Three Bears.”
In the story, the girl Goldilocks chose to eat porridge that was neither too hot nor too cold—just right.
In economics, Goldilocks referred to an ideal state of neither overheating nor recession.
The market right now believed itself to be in such a state.
“And five days ago, Bear Stearns headquarters provided 1.5 billion dollars in support, and they say Redemption has resumed.”
Since almost everyone in the market at this time was thinking the same way, Han Jae-yi’s skepticism wasn’t unfounded.
If I hadn’t known the future, I would have trusted the market’s assessment too.
I needed to first change Han Jae-yi’s thinking. I set down the prepared documents in front of her.
“I just printed this. It’s the current prices of products that hedge funds under Bear Stearns invested in.”
“-15%?”
“Yes, down 15%. In five days, no less. So let me ask you this: was the 1.5 billion dollars that Bear Stearns injected actually effective?”
Han Jae-yi couldn’t answer my question.
“I doubt it. It’s like pouring water into a bottomless bucket. Why? Because the hedge funds under Bear Stearns bought these products using Leverage.”
Leverage meant borrowing other people’s money to invest. For example, putting in one hundred million of your own money and borrowing nine hundred million from others to make one billion in investments is Leverage investing.
If you make a profit, it multiplies tenfold. If you take a loss, it melts away tenfold.
A double-edged sword.
“If the product price drops just 10%, the principal is already gone, right? But now it’s dropped 15%. The 1.5 billion dollars was already melted away the moment it was injected.”
No matter how much more capital is added, there’s no money left to return to customers.
“The bigger problem is that even if they wanted to liquidate this, they can’t. Look at the trading volume in the materials I gave you.”
“It’s dried up…”
“Right, trading volume has dried up. The hedge funds under Bear Stearns want to liquidate this even at a loss, but they can’t. Why? Because there’s no one to buy it from.”
Pouring in 1.5 billion dollars to put out the immediate fire means by the next day, the market price will have fallen even further.
In a situation where not a single person will buy this product, the 1.5 billion dollars has the same effect as throwing money into the street.
As for needing to pump in more money in the future, it’s painful even to mention.
“And did that 1.5 billion dollars actually go to customers who requested Redemption?”
“…”
“I doubt it. They almost certainly used it first to pay back debts to other banks that lent them money to use Leverage.”
In my past life, that’s what Bear Stearns chose to do during this period.
“Goldilocks. A nice word, isn’t it? But the reason everyone is mistaken in thinking it’s Goldilocks right now is because they’re hiding it. It’s not because the situation is good.”
I finished speaking and looked at Han Jae-yi.
Han Jae-yi couldn’t take her eyes off the documents I’d given her.
“Pouring water into a bottomless bucket…”
Han Jae-yi, who had been quietly repeating what I’d said earlier, looked at me and nodded.
“You figured out what they’re hiding.”
“…”
I gave no answer. I couldn’t very well say I knew the future, and for now, I thought it wasn’t bad to let Han Jae-yi misunderstand about me.
“So from today on, we just don’t invest and find all the Noise, right?”
“Yes. We’ll start investing only after we’ve identified all the Noise.”
“Got it. Let’s get started right away.”
Han Jae-yi’s eyes lit up as she returned to her desk, and I smiled and nodded.

* * *
“The derivatives market hits new highs every day.”
Mid-July 2007.
Two weeks later, Han Jae-yi and I had been collecting the Noise spreading through the market.
But the market was moving contrary to our expectations.
“We’re sitting on cash right now… and in the meantime, the derivatives market is hitting new highs, and stocks are climbing near all-time highs for both the Dow Jones and the S&P 500.”
Han Jae-yi spoke in a worried tone.
“Are we wrong about what we’ve seen?”
I too was troubled.
No matter how thoroughly I studied this case in my past life, I only studied it with the results already in hand.
The outcome is clear, but I cannot know exactly how the market moved during this specific period.
That’s why I decided to collect Noise in the first place…
“There’s talk that the Federal Reserve will cut rates too. If they lower rates at next month’s meeting, we’ll only lose opportunity costs…”
As Han Jae-yi said, we had liquidated all our positions and were holding cash.
Yet the market kept rising as if it knew nothing of my concerns.
‘Han Jae-yi seems to be caught up in FOMO.’
FOMO—Fear Of Missing Out. The terror that everyone but you is making money. There’s hardly an investor who hasn’t experienced it at least once, so I understood why Han Jae-yi was wavering now.
“How’s the Bear Stearns situation?”
“They recently sent a letter to investors. Here.”
I began reading through the documents Han Jae-yi handed me.
It was a letter sent by Bear Stearns to investors, notifying them that the two hedge funds that had previously suspended Redemption had essentially become worthless.
In other words, they have no value and therefore no money to return.
“It’s not just Bear Stearns. Credit rating agencies have downgraded the Credit Ratings of those AAA-rated derivatives en masse, along with similar products.”
I stared quietly at the documents.
Investors had made their investments based on trust in the credit ratings given by the rating agencies, and now they’re downgrading them.
It was like being stabbed in the back.
“They downgraded the Credit Ratings of similar products too?”
“Yeah. They were all AAA and AA, but now BB is about the highest they’ll rate.”
The vicious cycle was forming step by step, exactly as I had known it would. The only thing was that the market sentiment was so positive that everyone was pretending not to notice.
I paused to think and looked at Han Jae-yi.
“The market will move as we predicted. It’ll just take some time.”
“So we just keep investigating here in the meantime?”
“No. We need to change our approach.”
I stood up and headed to my desk.
“Do you have a passport?”
“A passport? Yeah, I do.”
“Then fill this out for me.”
I handed Han Jae-yi documents I’d printed from the computer.
“What is this… a United States visa application?”
“Yes. Let’s go. To the United States.”
Han Jae-yi looked at me with a confused expression.
“No matter how much we investigate here, we won’t get answers. Let’s go to the United States and meet people who think exactly like we do. And make some money while we’re at it.”
At my words, Han Jae-yi looked at me with astonished eyes.

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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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