[283] Pandemonium, Wall Street 4
Will Emerson, executive vice president of risk management at Goldman Sachs, stared at the contract he signed last Friday for a long time.
The red-haired man who stood by him and waited for the vice president to open his mouth eventually couldn’t stand it and spoke first.
“Shall we contact Miracle Investment first?”
“Wait a minute. The first step is to accurately figure out the total amount.”
VP Will Emerson rested his chin on his chin and still kept his eyes on the contract.
He said as if he had been waiting for the phone to ring.
“Call me.”
He picked up a pen and quickly wrote down the numbers he heard through his cell phone.
“Are you sure about this?”
He tapped the paper with the numbers on it with a pen, confirmed it once more, and ended the call. Will Emerson has already become a contemplative.
He said to the red-haired man next to him.
“All to the conference room. Right Now!”
The red-haired man ran outside as soon as the vice president spoke.
Will Emerson checked the numbers again.
The number of 70 billion I circled with a pen terribly pressed my heart.
As Vice President Emerson entered the conference room, dozens of eyes turned to him.
Without saying anything else, Emerson threw a question at a man.
“What is Michael’s current default status?”
“yes?”
“Subprime Mortgage Loans! The state of debt repayment after applying a variable rate!”
“It will be around 3%.”
Emerson’s vice president frowned at Michael’s lack of confidence.
“Downside? will it work? Don’t guess, tell me the exact number. Give me five minutes.”
Michael started tapping frantically on his laptop keyboard.
“Last Friday, Miracle bet $2.8 billion that mortgage-backed securities would come to rest. Their plan was $3.5 billion, but they lowered their bets a bit in several places. You can guess that the terms of the contract are no different from ours, so if they win… they’ll take almost $56 billion.”
Everyone in the conference room was speechless.
Miracle’s actions were the topic of drinking throughout the weekend, so there was no one who didn’t know about it, but I heard about the total bet amount for the first time.
There were bound to be exclamations that started with the letter F, but everyone managed to hold it in because of the vice president’s firm expression.
They wondered why the vice president was so mad at Goldman Sachs for only $48 million when Miracle poured in $2.8 billion.
“There were people who thought the same as Miracle before. But it wasn’t a big amount, was it?”
At the words of the vice president, some nodded their heads, while others just glanced at each other as if they were unfamiliar.
“Miracle is a place that prioritizes stability. Isn’t it strange that 2.8 billion dollars was poured into a place that is extremely reluctant to lose principal?”
“Emerson. That’s 500 billion dollars a year in mortgage loan securities. $2.8 billion is a lot of money, but it’s relatively minuscule.”
Someone raised a counter-argument, and someone else, encouraged by their optimism.
“At the Las Vegas Securitization Forum, we announced that the loss rate for subprime mortgage-related securities is only 5%.”
“who?”
“In Bear Stearns President Bruce Miller’s keynote speech…”
VP Emerson interrupted him.
“What is the basis for the 5%? Did you check?”
When the optimist hesitated without answering, Michael, who was checking the default status, saved him.
But the numbers he figured out made everyone in the conference room guilty.
“From Emerson this year…”
“How much? Just tell me the numbers!”
“8%…….”
A sense of crisis began to be most clearly felt by Michael. Because he saw the graph of defaults rise steeply.
“If this trend continues, it will be over 9% next month. The 10% line is right in front of you.”
Michael also revealed an important fact that should not be hidden.
“Floating rates are already more than four times higher than fixed rates. If we keep going like this, all the houses that are mortgaged will be handed over…”
VP Will Emerson’s eyebrows trembled.
It’s safe to say that the numbers from the keynote speech at the Securitization Forum are groundless. A forum is nothing more than a gathering of traders who set up stalls to sell more derivatives.
A rosy future, safe investment, money feast… Aren’t they busy talking about rhetoric like this?
It is because of his meticulous insight that Will Emerson rose to the rank of vice president solely on risk management. He was meticulous and meticulous enough to find a tiny ant hole in a huge dam and prevent it from collapsing.
But he felt he had to write his resignation letter today.
It is not an ant hole, but a large crack has already occurred and water is leaking. It seemed that the dam would soon burst.
It is already too late to rebuke yourself for not doing anything because you were blinded by the splendid money feast.
He knew exactly what he had to do from now on.
Although the risk was not detected in advance, the risk that has already occurred must be minimized.
Now, pack your bags and head to the evacuation route before the dam collapses.
VP Will Emerson picked up the phone on the boardroom table.
“Send five guards up immediately.”
The people gathered in the conference room were bewildered by his sudden action, but could not open their mouths. It was because the vice president’s firm expression was unusual.
Emerson said as the guards arrived.
“Everyone stay still here while I’m gone. Put your phone on the table.”
Seeing each other, he screamed.
“hurry. Or you’ll be fired on the spot!”
People quickly took out their cell phones and placed them on the table.
The Vice President said to the guard.
“Turn off all cell phones and stop using them. Same goes for laptops. And unplug the phone line and keep these people out of the conference room. It will be over in a moment.”
As security began collecting cell phones, Will Emerson ran to the Goldman Sachs president’s office.
The meeting room has turned into an isolated island completely cut off from the outside world.
* * *
“John. It is an emergency.”
“Sit down for now. Drink a glass of water.”
Goldman Sachs Chairman John Rogers calmed down Will Emerson, who rushed over.
“Is it because of Miracle?”
“Yes, but the real problem lies elsewhere…”
Rogers put his hand up and pointed at the TV, covering Emerson’s mouth.
“Look at that first.”
CNN Breaking News was on the TV.
『New Century Financial, the second largest sub-prime company, filed for bankruptcy protection with the Willington, Delaware court on the 2nd. On this day, the company also announced restructuring plans, such as cutting 3,200 people, or 54% of its employees, and selling affiliates.
It has recently struggled with growing insolvency as interest rates on subprime mortgages have risen and home prices have fallen.
He also explained that the CIT Group and Greenwich Capital had agreed to provide $150 million in financing, but the stock price had already fallen by 97% compared to last year.”
Will Emerson tightly closed his eyes.
Alas!
already exploded
“Do you know who the biggest creditors of the New Century are?”
To the chairman’s question, Emerson only nodded. That’s Goldman Sachs. And all financial institutions in the world’s top 10 are also major creditors.
“Miracle signed a $1 billion swap?”
“That’s right.”
“Rachel, does that woman have a good intuition? Or are you a meticulous mathematician? You hit and run just one day ago.”
“John Miracle’s $1 billion is nothing.
Unlike the urgent vice president, Rogers still had time to spare.
“What if we start cleaning up the CDO? Are you looking elsewhere? All the securities on the mortgage loan base will pour out in an instant?”
“Isn’t that something we can’t just watch?”
“Will.”
“yes.”
“Do you know why Miracle only signed a $1 billion contract?”
Emerson’s stomach was burning with the chairman’s leisurely question.
“A billion dollars is not a small amount.”
“No. You said the total amount was $60 billion?”
“That’s $56 billion.”
“Even if it is 56 billion won, it is not even 2% anyway. Miracle is an accurate picture of our solvency. We’ve already entered into quite a few credit default swap agreements.”
“How much…?”
“$25 billion.”
Emerson knew that the chairman’s ease came from giving up, and as vice president of risk management, he realized there was nothing he could do about it.
Looking at the bewildered Emerson, Chairman Rogers chuckled.
“Don’t be so. Ten billion of them are ours.”
“yes? what is that…?”
“We bought insurance just in case. You know the Gary Trust, which spun off from our company?”
“yes. Isn’t it an investment team with an independent personality? Composed of talented people…”
“Yes, that company and Goldman Sachs signed a credit default swap. The subsidiary has earned 10 billion dollars, so it’s a little bit of a breather.”
I was dumbfounded and didn’t say anything.
The head office boasted that the housing market would rise, while the subsidiaries bet that the housing market would fail.
What would Goldman Sachs shareholders think if they found out? It is clearly a betrayal of business ethics.
If Emerson had known that $10 million of the $10 billion was contracted personally by John Rogers, he would have been devastated.
John Rogers thumped the sofa and got up.
“It’s late, but it’s right for us to play, right? I instruct you to dispose of the scraps of toilet paper you have as soon as possible. You do your best to prevent this from spreading.”
The inside of the company will try to do something, but the outside is already dirty.
Other companies aren’t stupid either. We will analyze the reasons why Miracle swept away, and they will come to the same conclusion as himself.
Wall Street has already exploded.
There is no choice but to let individual investors know this fact as late as possible.
As always, aren’t the biggest victims the regular investors?
* * *
“Goldman Sachs is the fastest. Are you pouring out and struggling to digest?”
Rachel, plagued by phone calls all day, took a break from drinking coffee.
“Tomorrow it will be thrown everywhere. There will also be stupid places that will try to buy it.”
“It’s just a matter of time before everyone knows that US mortgages are unrecoverable.”
A dark shadow did not disappear from Rachel’s face.
“Howard. From what I understand, mortgage-backed securities are nothing more than handguns.”
“You mean derivatives.”
“huh. Compound CDO Square CDO Double CDO, etc. Do you know what the size of synthetic derivatives bundled with CDOs is?”
“yes. More than 20 times.”
Rachel shook her head as she saw me speaking calmly.
“why? Do I have to make a fuss about hearing the world economy collapse?”
“no. The world economy is collapsing and you’ve amassed a ton of money. But I don’t think I’m feeling particularly inspired.”
“Happiness and sadness clashed and offset each other. America’s wealth, which has earned $56 billion but will evaporate, will leave millions of good citizens roaming the streets. You can’t be happy forever.”
In fact, earning money is not a very pleasant thing. The real joy is that this economic crisis is the bullet that will knock down Vibrator’s vice president.
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