The Return of the Ruined Chaebol's Third-Generation Heir - Chapter 58

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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 — Episode 058
“Bear Stearns is going to collapse soon. And after that, there could be a cascade of financial institution bankruptcies.”
I nodded quietly as I listened to Danny Kim.
First, I needed to test how much this man actually understood.
“Do you know what a subprime mortgage is?”
Danny Kim pulled a napkin from the table and began to speak.
“It’s a type of real estate loan made to low-credit borrowers. But if the banks that issued these loans just hold on to them, it’s risky, right? Since they’re low-credit borrowers, you never know when they’ll default.”
“That’s true.”
“So the banks bundled these together and turned them into securities. Mortgage-Backed Securities, MBS. They pool multiple loans and sell them to investors. The ones that don’t sell well get pulled out and cooked up one more time. That’s what CDOs are.”
Collateralized Debt Obligations. CDOs.
Wall Street hailed this as the pinnacle of financial engineering.
Banks issue loans, and to hedge against the risk of default, they engineer derivatives. That’s MBS.
Bonds from creditworthy borrowers flew off the shelves, but the problem was the unsold dregs—loans from low-credit borrowers.
Banks bundled this toxic inventory and repackaged it. That was the true nature of the CDO Danny was identifying.
“So what did the geniuses of Wall Street do?”
Danny Kim drew several circles on the napkin.
“They collected all these dregs and cooked them up again. They even gave it a fancy name—CDO, Collateralized Debt Obligation. They took garbage, created a new security, paid credit rating agencies to give it an AAA rating, and sold it.”
“You get an AAA rating from garbage?”
Han Jae-yi cut in.
“That’s the magic of financial engineering.”
Danny Kim let out a dry chuckle.
“They slapped diversification logic onto it. The probability of one low-credit borrower defaulting is high, but if you pool a thousand of them, the probability that all of them default is low? So the risk is diversified? That’s how they packaged it.”
“But that logic doesn’t hold up?”
I deliberately threw out a counterargument.
“Derivatives are supposed to be insurance that protects against risk, right? If the risk is broken into small pieces and thousands of investors share it, even if something goes wrong, everyone just gets a little hurt and that’s it.”
Danny Kim shrugged.
“That kind of thinking is what created the reality we’re in now. Want to hear an interesting story?”
Danny Kim alternated his gaze between Han Jae-yi and me as he continued.
“Last year, most of the drivers who died in speeding accidents on American highways were wearing seatbelts.”
……
“They thought, ‘I’m wearing a seatbelt, so speeding is fine.’ That kind of psychology took hold. The same psychology exists in the derivatives market right now.”
Danny Kim drew something on the napkin as he continued speaking.
“Subprime mortgages? Every time I hear about them, I don’t know why I find it so funny. Why would a bank lend money to a low-credit borrower?”
……
“Because the bank makes money from issuing loans and wants to earn more. They think there’s no risk of default because they can hedge with derivatives. It’s exactly the same—I’m wearing a seatbelt, so I can speed.”
Danny was laying bare the core of this crisis.
I almost laughed to myself.
I’d been playing the fool, asking questions, because I needed to see into Danny’s mind.
If Danny Kim had only seen this as a money-making opportunity without grasping the fundamental issue, I would have taken the profits and walked away.
But Danny was articulating the essence of the problem beautifully.
I wanted him. Not just for this deal, but as someone to manage our money in America going forward—he seemed more than adequate.
“And here’s the real problem with these derivatives.”
Danny Kim lowered his voice.
“Everyone at the table is holding one million won and betting on a hundred-million-won game.”
Leverage.
Drawing borrowed money into investment.
Danny was pointing out that exact problem.
“Because derivatives let you use Leverage with just a small margin, everyone at the table is running 10x Leverage as a baseline. CDO prices have dropped 15% already, but nobody’s batting an eye. Why?”
“Because on the balance sheet, the value is still intact.”
Han Jae-yi picked it up.
“Bingo.”
Danny Kim snapped his fingers, pointing at Han Jae-yi.
“Even though there’s nobody in the market to buy it, everyone’s lying on their balance sheets saying our principal is safe.”
Danny Kim looked between Han Jae-yi and me.
For the first time, his playful expression shifted to something serious.
“Home prices keep falling, and the loan delinquency rate has climbed to 14%. Do you know what that means?”
“CDO prices will plummet.”
“Correct. And those CDOs aren’t just held by Bear Stearns subsidiaries. Merrill Lynch, Lehman Brothers, Morgan Stanley, Goldman Sachs—every major house holds them.”
I watched Danny Kim quietly.
Good. This matched the future I knew, and his explanation was superb.
Most importantly, I’d learned exactly what was in Danny’s heart.
“So what?”
I asked.
“What do you want to do, Danny? From listening to you, you seem less like someone trying to invest and more like someone troubled by the current situation.”
A faint smile leaked out.
“You seem more troubled by how the game is being played than eager to profit from it.”
Danny Kim didn’t answer and simply looked at me.
His manner and behavior seemed superficial, but my long experience told me that what lay beneath was something else.
Then he finally spoke.
“You don’t strike me as someone who wants to profit from shorting the market.”
“You’ve been testing me in a subtle way since earlier. What exactly do you want to do?”
“Me?”
I paused for a moment before speaking.
“If we can’t change the current situation, then I’ll choose to profit from it.”
In this new life, I’ve thought about many things.
Whether it’s right for me to profit while others bleed. Moral questions always made me hesitate.
“My thinking is this: my hesitation won’t change anything. Someone will profit from this situation regardless. So it should be me. I’ll hold that money and gain power.”
That was the conclusion I’d reached amid such deliberation.
Gain power, and later, when something like this happens again, I’ll crush the people who created it and save someone.
“You seem to be hesitating too.”
I picked up the napkin. The one Danny had drawn on so intently while explaining.
On one corner, I wrote a phone number for the hotel.
“If you want to gain power with me and change the situation the next time something like this happens, call me.”
I set the napkin down on the table.
“I’ll be waiting.”
I stood and left the banquet hall with Han Jae-yi.
I felt Danny’s gaze on my back.

* * *
We returned to the hotel after 10 p.m.
“Yes, yes. I received the email. I’ll go back after finishing work here and meet with you.”
As I hung up, Han Jae-yi, who was sitting on the sofa, asked.
“It was Jung, right?”
“Yes. I asked him to gather information on Danny Kim as I was returning to the hotel, and he sent it by email right away.”
“You’re incredible, but Jung is something else. He seems to know everything.”
I let out a small laugh at her words.
I opened the laptop and checked the email Jung Tae-sung had sent.
[Danny Kim Profile]
I downloaded the attached document file and began reading.
The more I read, the wider my eyes grew.
“Danny Kim is quite an impressive person.”
“Why?”
Han Jae-yi came closer and peered at the laptop screen.
“He graduated from Harvard with a degree in Economics and immediately joined Salomon Brothers’ derivatives management team.”
“Salomon Brothers? I’ve never heard of them.”
“Senior, what did Danny Kim say was the problematic derivative earlier?”
“CDO.”
“What’s the underlying asset of a CDO?”
“MBS.”
“That was created by Salomon Brothers.”
“What?”
Han Jae-yi’s eyes widened.
Salomon Brothers.
It was a legendary investment bank of Wall Street.
While Goldman Sachs and JP Morgan were collectives of elite bankers, Salomon Brothers was called the street gang of finance.
In an era when equity profits were the norm, they pioneered new markets by reaping enormous gains from bonds and derivatives.
MBS and CDOs now shaking the world.
Salomon Brothers was where it all began.
“Danny Kim became a division head of the derivatives management team in his second year and rose to the position of team lead within seven years.”
“Is that even possible, even in America?”
“Salomon Brothers was that kind of place. If you make money, you’re king; if you don’t, you’re fired on the spot. A place that judges by results, not by skin color or pedigree.”
Han Jae-yi tilted her head.
“Listening to you, it sounds like an incredible place, but why don’t I remember ever hearing about it?”
“Because it’s bankrupt now.”
“Bankrupt?”
In 1991, there was the U.S. Treasury bond auction scandal.
Salomon Brothers was caught illegally monopolizing volumes in the Treasury bond auction process. The U.S. government did not forgive them.
The empire that once ranked number one in operating profits collapsed.
“Danny Kim was one of the few who kept his position even after the company was acquired. His abilities were recognized.”
“Does he still work there?”
“No.”
I scrolled down the screen.
“He left three years ago. After that, what he’s been doing is unclear—even Jung couldn’t find much information.”
It was intriguing.
A man with deep roots in the wellspring of derivatives.
And now he was prophesying the collapse of that very industry.
“I can see it on your face—you’re coveting him.”
Han Jae-yi said.
“Do you think he’ll call?”
“I’m not sure.”
I shrugged.
“If he does, that would be good. If he doesn’t, we’ll have to do it ourselves.”
A small laugh escaped.
“I think you could pull it off too, senior.”
At my words, Han Jae-yi looked surprised for a moment, then smiled.
“Okay. I’ll do my best.”
Han Jae-yi stood from her seat.
“This isn’t the time to sit around. I’m going to go do research.”
I watched her receding figure as she headed to her room.
She was definitely different from when I first met her two years ago.
The anxious look in her eyes was gone, replaced by confidence.
‘She’s growing well.’
I smiled and turned my gaze back to the laptop screen.
I began reading Danny Kim’s profile from the beginning again.

* * *
At the same moment. An apartment in Manhattan.
Danny Kim held the phone to his ear, gazing out the window.
“So? What does this Kang Seon-woo do? Not just anyone can come to our gathering.”
A response came through the phone.
-You know Seonjin Group? He’s their third-gen heir.
……What?”
-Seonjin Group. One of Korea’s top five chaebols. Well, they’ve split from the automotive sector so their ranking’s outside the top twenty now, but he’s their son anyway.
Danny Kim pulled the phone from his ear and stared blankly ahead.
That college kid from the banquet hall?
I’d thought he was full of bluster when he was talking about million-unit figures, but it was real.
-Why? Did he scam you or something?
“……No. Never mind. Thanks.”
I ended the call and sank into the sofa.
On the table, the crumpled napkin caught my eye.
The phone number written in the corner.
‘If you want to gain power with me and change the situation the next time something like this happens…’
Danny got up and walked to the window.
The nightscape of Manhattan sprawled below. Thousands of lights. Each one belonged to someone who moved Wall Street.
“Change the situation……”
A self-deprecating laugh escaped.
Two years ago flashed back. That year, major American auto companies lost their credit ratings to junk status.
The auto bond market was shaken, and the funds holding those bonds became problematic.
The sales team lied to customers.
‘It’s too big to fail. The automobile is the symbol of American industry. It’s safe.’
Then one fund collapsed.
A loss rate of 40%. The morning after hearing the news, I got word that a customer had taken their own life.
Danny pressed his forehead against the cold window. The chill seeped into his skin.
He was a man in his sixties. He’d put all his retirement savings into that fund.
Before he gave up his life, he’d come to the company begging for help, but the company’s answer had always been the same.
‘Investors bear responsibility for their own investments.’
Danny left the company after that day.
Without a word.
‘Hey, Danny. You didn’t sell it. Why are you taking responsibility?’
It was a fair point.
He hadn’t sold that product directly.
But he worked at the same company and knew how the machinery worked, yet kept silent.
From that moment on, he wanted to expose this rotten system.
He thought someone would listen.
‘Short addict bastard.’
‘Get a better repertoire.’
‘Your shtick never changes, man.’
The words his friends had thrown at him in the banquet hall echoed in his ears.
Friends who once listened to him when he was doing well now laughed off his warnings.
Danny pulled away from the window and returned to the table.
He picked up the napkin.
He stared at the phone number for a long time.
‘If you want to make those people regret it, tell me.’
Regret.
Yes, he wanted them to regret it.
Those who ignored him. The smart boys of Wall Street who knew the danger but peddled it anyway.
But that wasn’t all there was to it.
He didn’t want to watch someone die again next time.
If he could at least warn them this time.
If he could change something.
Danny stood for a long while, then finally picked up the phone.

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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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