Bloody Monday
New York Stock Exchange, the NYSE.
…flutter.
A newspaper slipped from someone’s hand and fluttered to the floor.
It was Monday morning, ten minutes before the opening bell.
The room should have been boiling with the heat and shouts of thousands of traders, but instead it was as quiet as a funeral home.
None of the brokers, who should have been glued to their phones taking client orders, had a receiver in their hands. They were all sucking on cigarettes and staring blankly at the front page of the paper.
Black Bog's Black Ledger: Evidence of Systematic Accounting Fraud and Environmental Crimes
Just like the oil they had spilled, the black ink that formed the bold Gothic headline seemed almost alive.
BBG (Black Bog).
Until last night, Black Bog’s ticker had been holding firm. Now it felt like a time bomb, ticking toward detonation.
The traders’ fingers drifted instinctively toward the sell button.
Like sprinters tensing every muscle before the gun, they started their own biological countdown in their heads.
One minute before the opening bell.
Fifty-nine seconds, fifty-eight, fifty-seven...
Every trader held his breath, staring only at the display boards.
Then ten seconds, nine, eight, seven, six, five, four, three, two...
The instant the second hand struck twelve.
…ring!
A single phone in the corner of the trading floor burst into shrill, desperate life.
…ring! …ring! …ring!
It was the first signal of the collapse.
“Sell! Dump everything at market! Now!”
Someone’s shout to liquidate the position rang out across the floor like a gunshot.
The opening bell sounded.
And in that moment, the floor turned into a hell of ringing phones.
…ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring! …ring!
The numbers on the display boards began to plunge like they’d gone mad.
[BBG: $38.00 ▼10.6%]
Traders recoiled in terror as the price was struck down by lightning from the forty-two-dollar range.
“Hey, hey! Why isn’t the circuit breaker kicking in?!”
[BBG: $31.25 ▼26.5%]
“How the hell would it? It’s an individual stock! Just dump it, dump it!”
[BBG: $24.50 ▼42.4%]
“This is insane, it’s been cut in half! Cut in half!”
Every time the number changed, another red arrow slammed down in relentless succession.
The huge monitors in the trading room were soaked in a single, brutal color: blood red.
The traders shook like pigs in a slaughterhouse, unable to do anything but tremble.
…tatatatatatatak!
The sound of keyboards firing off in bursts came like machine-gun fire.
Three phones were jammed against each trader’s ear as they shouted themselves hoarse.
“There are no buy orders! Nobody’s taking the other side!”
“We already lowered the price! Don’t talk to me about twenty bucks! Nobody’s buying at fifteen!”
“I’m telling you, they won’t even take it at thirteen! Nobody wants Black Bog right now!”
A wad of papers someone had thrown struck a colleague in the back of the head and dropped to the floor, but nobody cared.
[BBG: $19.75 ▼53.5%]
Black Bog’s stock price was falling in free descent, utterly ignoring gravity’s laws.
-15%, -22%, -30%, -40%, -50%, -60%
Before the circuit breaker had any chance to engage, investor confidence collapsed in on itself.
Fear bred fear, and stop-loss orders triggered more stop-loss orders, a chain reaction that swallowed the entire Monday session.
“The stop-losses are getting hit! It’s cascading sell orders!”
Someone screamed the words like a man being strangled.
Stop-losses triggered stop-losses, fear bred fear, and the vicious cycle kept swelling like a snowball.
“Damn it all! Goddamn it!”
One trader smashed his keyboard with his fist.
He had been the one who went all in, hoping for a dead-cat bounce when Black Bog hit negative forty percent.
But what he had done was closer to trying to catch a falling guillotine blade with his bare hands.
Once the rope snapped and the blade dropped, it never rose again, and both his hands were severed for his trouble.
All that remained in his seat was a set of red down arrows, bright as bloodstains.
[BBG: $15.25 ▼64.1%]
“Minus sixty percent! It’s past sixty! This—this can’t be right! No matter what, this just shouldn’t be happening!”
He wasn’t wrong. No stock should have fallen this far, no matter how bad things looked.
But in a place where fear had already devoured greed, reason was nothing but a luxury.
Screams, curses, and phone bells tangled together like blood, guts, and corpses on a battlefield.
...But there was one place only.
One space perfectly cut off from the chaos on the floor.
Wolfman Hamilton’s private office on the upper level.
Thick soundproof glass reduced the shrieks from below to little more than a distant, muffled hum.
Wolfman was watching the monitor with a Cuban Cohiba clenched between his teeth.
“...”
The wall separating the upper and lower floors felt like the glass wall of an aquarium.
The fish below could thrash and scream in pain and despair all they liked; the barrier held them perfectly apart.
The same red collapse graph blazed across Wolfman’s monitor, but to him it looked less like blood spilled on a battlefield than the color of wine raised in a polished social salon.
Short selling.
The cruelest and surest way to bet on someone else’s ruin.
On Wall Street, they called it investing in death.
And Wolfman Hamilton was one of the best short sellers on the Street.
“Damn, that’s eerie. A money ghost.”
On the monitor in front of him, the balance in Lee Sanha’s custodial account updated in real time.
Every dollar Black Bog lost made Lee Sanha’s assets grow exponentially.
///////
- Account: V.G. Fund - Lee, Sanha (V.G. FUND - LEE, SANHA)
- Position: SHORT BBG - 7,000,000 shares
- Entry Price: $42.10
- Current Price: $15.25
- Unrealized P/L: +$187,950,000
- Leverage: 20x
- Total Position Value: +$202,950,000
.
.
///////
“Crazy. Absolutely crazy.”
Wolfman let out a dry laugh and exhaled a long ribbon of cigar smoke.
When Lee Sanha first said he was going to short Black Bog—with twenty times leverage, no less—Wolfman had tried his damnedest to talk him out of it.
Twenty times leverage.
That was the kind of lunatic multiple people had used only back when the Hunt brothers were shaking the silver market in 1979.
The Hunt brothers, Nelson Bunker Hunt and William Herbert Hunt, Texas oil barons at the time, had tried to corner the silver futures market using twenty-times leverage.
Silver, which had been trading at six dollars an ounce, had surged to eight times that level—fifty dollars—but on Wednesday, March 27, 1980, the New York commodities exchange suddenly hiked margin requirements several times over, and they ended up losing everything and going bankrupt.
On Wall Street, the event became known as Silver Thursday, a warning against greed.
...From the start, it was the kind of bet ordinary investors could only dream about.
Wolfman muttered to himself.
Under the Federal Reserve’s Regulation T, the average investor’s margin was capped at fifty percent—meaning a maximum of two times leverage.
But hedge funds were different.
With a separate agreement from a prime broker, they could go to ten times, twenty times, even higher.
And the Securities and Exchange Commission in 1992 was, for all practical purposes, turning a blind eye to the creation and activities of hedge funds. Lee Sanha had understood that perfectly, founded a hedge fund, and then secured through Wolfman the right to enter the leverage war.
I’d been planning this picture from the moment I first met my uncle. From the time we first met in Harvard dorms.
Wolfman thought of the youthful face of his son’s friend, his best client, and the man who, once this trade was over, he would have to treat as his boss.
...Chills.
For the first time, Wolfman realized that money could be frightening. A person could be frightening.
And that, in itself, was proof that he had to acknowledge the other side.
Someone above him. An apex predator.
“I’ll admit it. At this level, you’re certainly fit to stand above me.”
Wolfman applauded toward the monitor.
Return rate: +1,200%.
“A new monster has been born on Wall Street.”
The fifteen-million-dollar seed had crossed two hundred million in a single day.
* * *
At 9:00 p.m., on the evening news.
A worn-out living room somewhere in Texas appeared on screen.
The middle-aged Black woman giving the interview was the mother of a son she had lost seven years earlier in a refinery explosion.
With deep-set wrinkles, dried tear tracks, and a framed photograph resting on her lap, her hand kept stroking the image.
It was a photo of a twenty-two-year-old Black man, smiling brightly.
A howl of grief burst through the television screen.
The cries of an ordinary person crushed beneath the manipulation and cover-up of a conglomerate.
Viewers watching from their dinner tables had no choice but to set down their forks.
But that wasn’t all.
The anchor said in a voice thick with fury,
Everyone watching TV trembled as they witnessed the catastrophe.
It was only natural that public opinion would boil over and explode.
And then the anchor’s voice continued, raising a different problem altogether.
The scandal had spread beyond the line of Black Bog, the subsidiary, and reached Black Diamond, the parent company.
It would not end with cutting off the tail.
The public and investors were now going after the body.
The stock chart for Black Diamond, shown in one corner of the news screen, had begun to bend downward.
Not as dramatic a collapse as Black Bog’s, but still.
[BDIA: $127.50 ▼8.3%]
[BDIA: $118.25 ▼15.5%]
[BDIA: $115.37 ▼17.0%]
[BDIA: $113.98 ▼18.0%]
.
.
If it were your own money, you’d have a hard time calling that anything less than dramatic.
The anger and sense of crisis investors felt had now entered a territory beyond control.
The Wall Street sharks of short selling, already smelling blood, were now swimming in from every direction toward Black Diamond.
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