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# Chapter 2. Make a Fortune Short Selling
Team Leader Cha Minjun pulled me into his office.
The Korea Investment Corporation, which had made its first investment in November 2006, was a VVIP client on Wall Street.
It had been only four months since the corporation had entered the global market in earnest.
And now, a rookie who had been at the company for less than a week had thrown out a bombshell of a question.
As soon as the door closed, the smile vanished from Team Leader Cha's face.
“Gong Seokjun, you've been reviewing the reports sent by those Wall Street firms we've entrusted our money to, checking whether they're investing it properly, right?”
“Yes, that's correct.”
“But... you asked what would happen if a Wall Street bank went bankrupt?”
Team Leader Cha sat on the edge of his desk and looked down at me.
“You wouldn't ask something like that without a reason. What are you getting at?”
“Team Leader, there's a gimbap restaurant that's become the hottest place in America lately.”
“...Gimbap?”
“Yes. It's a premium gimbap shop that uses only the finest Korean beef, organic spinach, and eggs from chickens raised without antibiotics. It even received three stars from a credit rating agency and earned a AAA rating.”
Team Leader Cha let out a faint chuckle.
“So?”
“But there's a fatal problem with that gimbap. The pickled radish has gone rotten.”
“...Rotten pickled radish?”
“In America, they call it subprime mortgages. They're loan receivables issued to people with poor credit under the promise that house prices will always rise, so everything will be fine. In reality, these are loans that are practically guaranteed to go unpaid.”
Team Leader Cha's smile disappeared.
Having worked on Wall Street, he understood the implications of my words better than anyone.
“If they put rotten pickled radish into the gimbap as it is, people would notice. So they chop it into tiny pieces and mix it between the grains of rice. Then they roll it up with the finest ingredients and sell it as premium assorted gimbap.”
“...Could the name of that gimbap happen to be collateralized debt obligations, or CDOs?”
“That's right. And the Korea Investment Corporation is just about to buy that crap-filled gimbap.”
A brief silence followed.
Team Leader Cha knew the workings of Wall Street better than anyone. His face had turned deathly pale.
“But something doesn't add up. Those bankers aren't idiots. Why would they do something that could ruin them?”
I continued as though I had been waiting for that question.
“First, it's a game of hot potato. They make the gimbap, but they don't eat it themselves.”
As soon as I finished, Team Leader Cha responded with a contemptuous laugh.
“...They just sell it off to foreign sovereign wealth funds like ours before it explodes? The risk goes to us, while the fees go straight into their pockets? Those bastards would absolutely do something like that. What's next?”
“Second, it's a crazy performance-bonus party. Their performance is measured by how many rolls of gimbap they sell, not how good they taste.”
“Whether the customer is unemployed or not, as long as they get a signature on the contract, their bonuses go through the roof? Fine. Now, there's one more thing, and it's the most important of all.”
Team Leader Cha folded his arms and stared straight at me.
His eyes seemed to be testing me.
I didn't look away. Instead, I delivered the final piece of the puzzle.
“Too big to fail. They think, 'If we collapse, America will collapse with us. Surely the government won't let us go under.' That's their arrogance. If they succeed, the money goes into their pockets. If they fail, the taxpayers foot the bill. It's the perfect gambling table.”
Team Leader Cha looked at me as if he was impressed.
“Yeah... There's some merit to what you're saying.”
He chuckled quietly.
“Those Wall Street bastards have always been like that. But that's not enough.”
“Team Leader?”
“If those words had come from my mouth, the CIO might have been swayed. But this is just a hypothesis from a rookie who's been here for a week.”
He was right.
At the moment, I was nothing more than a new recruit who hadn't proven anything.
There was no way other people would believe the vision and reasoning inside my head.
Even I wouldn't have reached this conclusion if I hadn't seen that vision.
I clenched my fists tightly.
If I backed down here, the events of 1997 would repeat themselves.
There was a way to use this situation to make money instead. This was an opportunity I absolutely couldn't afford to let slip away.
After a brief silence, Team Leader Cha spoke as though he had made up his mind.
“Then prove it.”
“...”
“Can you write a report that proves everything you've just said so thoroughly that not even the most skeptical person could refute it?”
“Of course. I'll prove with numbers why the credit rating agencies' data is wrong and why Wall Street's models are bound to collapse.”
“Fine. Let's meet again tomorrow.”
The team leader smiled and added,
“Eat lunch first, though. Today's cafeteria menu is kimchi stew, I think.”
“I don't feel like eating kimchi stew right now.”
“Then should I get you some gimbap?”
I shook my head.
“That either.”
Team Leader Cha chuckled.
“You can trust me. The gimbap I'm offering isn't made with rotten ingredients.”
Something about the atmosphere changed after his laughter.
When lunchtime ended, my colleagues surrounded my desk like hyenas.
As expected, Assistant Manager Choi was at the center of all the commotion.
“Gong Seokjun, what on earth did you say to the team leader?”
“You said Wall Street was going to collapse? Have you been reading fortunes or something?”
Another employee joined in with a laugh.
“Got some good information? Which stock is going to crash next? Tell us, too!”
“What good would knowing do? We can't use that information anyway.”
“Ah... Damn these procedures.”
For employees of the Korea Investment Corporation to make personal investments, they needed approval from the Compliance Team.
Forms such as a Personal Investment Pre-Approval Request and a Conflict of Interest Declaration had to be submitted.
“The paperwork is more trouble than it's worth. I can't even be bothered to try.”
“Gong Seokjun, you used to be a lawyer. You know the law, so filling out those forms should be a piece of cake, right?”
While everyone was exchanging pointless jokes, Senior Associate Kim Taewoo suddenly cut in.
“Gong Seokjun, have you finished reviewing the reports I asked you to look at this morning?”
“No.”
“What did you say?”
“Now isn't the time for that. The report I need to submit to the team leader is more urgent.”
At those words, Senior Associate Kim had nothing more to say.
The people around us shifted uneasily, and the gathered colleagues gradually dispersed.
Left alone, I opened a blank Hangul document.
If I presented this report, Team Leader Cha would immediately order the CDOs removed from our portfolio.
But simply running away was the mark of an amateur.
I ran both hands through my hair and smiled.
“If you've come to a battlefield, you should at least collect the spoils.”
Rotten, putrid gimbap.
While everyone else ran away and abandoned it, I intended to use it to make a fortune.
It had all started with a strange vision and an inexplicable smell.
But before I knew it, I was constructing the coldest, most rigorous logic in the world to prove something that had initially seemed completely illogical.
Tap, tap, tap—
I continued writing the report until dawn broke.
The following morning, Team Leader Cha Minjun summoned everyone from the Investment Strategy Team.
The conference room was already buzzing with conversation early in the morning.
“Why are we having a meeting first thing in the morning?”
“Team Leader Cha had a private meeting with the rookie yesterday. Is this about that?”
At exactly nine o'clock, more than a dozen employees took their seats with disgruntled expressions.
A copy of the report I'd written the previous night had been placed on each person's desk.
Their expressions were peculiar.
“Rookie, did you write this? Why is it so thick?”
“That's insane... You did all this in one night?”
One employee flipped through the report and muttered under his breath.
“But... this isn't shoddy work.”
There was a reason for that.
I'd extracted and attached evidence from hundreds of pages of contracts, highlighting the toxic clauses that offered investors virtually no protection in the event of a crisis.
I'd even specified the date.
April 2.
Just as the murmuring in the conference room reached its peak, Team Leader Cha entered and closed the door.
He took the seat at the head of the table and quietly began to speak.
The traces of a sleepless night were still visible on his face.
“I'm sure you've all read the report, so I'll get straight to the conclusion. This... has a high probability of actually happening.”
The conference room erupted into commotion.
“Before that happens, we need to remove the CDOs from our portfolio. We'll notify the Risk Management Team and...”
It was exactly what I'd expected.
I interrupted Team Leader Cha.
“No, Team Leader.”
Everyone's gaze turned toward me.
“If a house is on fire, what's the point of trying to save the furniture inside?”
“Hey, rookie! Of course we should at least try to save the furniture. We need to protect our lives, too!”
Someone shouted, but I shook my head.
“Now isn't the time to run away. We need to pour oil on the flames where the fire will burn hottest, then claim the land once everything has been reduced to ashes.”
“...What exactly are you trying to say?”
I slowly surveyed everyone gathered in the conference room.
Then I dropped the bombshell.
“Let's short-sell.”
The conference room froze.
The first to break the silence was Senior Associate Kim Taewoo.
He shot to his feet and leaned over the table.
“Have you lost your mind? Short-selling! Have you seen what the media is saying about our company? Two years of losses, accusations of wasting taxpayers' money! Are you suggesting we gamble with public funds?”
The employees from the Ministry of Finance and Economy nodded in unison.
Team Leader Cha mulled over my proposal.
“Gong Seokjun, Senior Associate Kim isn't entirely wrong. If a sovereign wealth fund starts short-selling like a hedge fund, the political and social risks would be considerable.”
I answered as though I'd been waiting for this objection.
“Under Article 31 of the Korea Investment Corporation Act, we're permitted to trade financial investment products, including credit default swaps, futures, and swaps. So this isn't gambling. It's a legitimate investment permitted by law and regulations.”
Their expressions changed.
But my real point came next.
“While everyone else is betting on New Century Financial's success, we should be betting on its bankruptcy.”
New Century Financial was the factory producing the rotten pickled radish—in other words, subprime loans.
If we struck that factory, it wouldn't just be the gimbap made there that would rot and collapse. The entire collection of Wall Street's gimbap rolls, made from those same ingredients and sold throughout the market, would crumble as well.
I continued in an unwavering voice.
“We should use the Korea Investment Corporation's capital and network to borrow that company's bonds, sell them, and bet on their prices falling.”
Everyone in the conference room went stiff.
Since it might not be immediately clear what I was proposing, let me give an example.
Suppose there's a used car, Car A, with a market value of 20 million won.
If you know that its price will drop to 2 million won in a month, there are three ways to make money.
The most amateurish approach would be to sell your own car right now.
That's merely a defensive move.
But the Korea Investment Corporation should be playing offense, not defense.
First, borrow cars from friends who own Car A.
Then sell all those cars immediately, while the market price is still 20 million won.
What happens a month later, when the price crashes to 2 million won?
You buy identical cars for 2 million won each and return them to your friends.
What's left in your hands?
A net profit of 18 million won per car.
That's short-selling.
The second method is to visit an insurance company.
“Give me 100 million won if the price of Car A falls below 15 million won a month from now.”
If your prediction is correct, you make 100 million won. If you're wrong, all you lose is the 1 million won insurance premium.
That's buying a put option.
Put simply, it's like purchasing insurance against a price decline.
I intended to do both at the same time.
Team Leader Cha swallowed hard.
“You want to short-sell through a sovereign wealth fund? And against the largest mortgage lender in America, no less? Do you understand what that means? You're proposing an all-out war against Wall Street itself, and perhaps even the United States government.”
I shrugged.
“Why shouldn't we? Weren't we established to generate returns?”
My voice was low and firm.
“If all we wanted was to manage money as conservatively as a central bank, there would have been no reason to establish the Korea Investment Corporation in the first place. We were created to increase the nation's wealth. Aren't we supposed to grow it rather than merely protect it?”
The faces of the former Ministry of Finance and Economy employees flushed red.
“What do you think the media will write? 'Korea Investment Corporation Gambles with Taxpayers' Money on Wall Street.' If that happens, we're all finished.”
“If we fall out of favor with the Ministry of Finance and Economy, they'll freeze our entire investment plan for the next quarter.”
The opposition was fierce.
Meanwhile, the younger employees who had come from securities firms in Yeouido exchanged glances.
“That rookie is insane.”
“But if that lunatic is right, just how high would the returns be?”
“I'm suddenly getting a rush of dopamine.”
“If the CIO sees this report... things are going to get exhausting.”