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# Chapter 3. Raking in a Fortune on Wall Street with 10 Billion Won
David Chen, the Chief Investment Officer (CIO) of the Korea Investment Corporation.
He had already received a report about the commotion that had broken out in the Investment Strategy Team that morning.
“A rebellion by a rookie employee, huh?”
He chuckled.
After spending twenty years on Wall Street, he had seen countless young upstarts brimming with confidence like that.
Unfortunately, very few of them managed to hold on to their positions for long.
Knock, knock.
His secretary entered after knocking on the door.
“Vice President, Team Leader Cha Minjun and Team Leader Park Yongjin are here to see you together.”
The hounds have started barking first.
“Send them in.”
The heavy door swung open, and Cha Minjun walked in with an excited look in his eyes.
In contrast, Park Yongjin, the head of the Stock Investment Team, had his jaw firmly clenched and his fists tightly balled.
Park Yongjin was the first to speak.
“Vice President, Team Leader Cha wants to stake the fate of our fund on a piece of fiction written by a rookie who's been here for a week. My quantitative model indicates that the American market will remain stable for at least the next two quarters. We should invest based on data, not gut feelings.”
David shifted his gaze to Cha Minjun.
“Team Leader Cha, this isn't like you. If something seemed suspicious, I would have expected you to dismiss it at your level. Let me see the report.”
As though he had been waiting for this moment, Cha Minjun placed the thick report on the desk.
David turned the pages.
His previously expressionless face gradually began to change.
Not bad.
The eyes of a man who had managed billions of dollars on Wall Street were drawn into the words printed on the pages.
After closing the report, he spoke in a low voice.
“An interesting hypothesis.”
The corners of Cha Minjun's mouth lifted slightly.
“Right? I think a monster has joined the Korea Investment Corporation.”
He paused for a moment before adding with a proud smile,
“No, perhaps... it might be a devil.”
Park Yongjin couldn't hold back any longer and cut in.
“Vice President, do you know how much money we'd have to bet if we followed this report? At least 100 billion won! What are you going to tell the Ministry of Finance and Economy? That we poured 100 billion won into a rookie's crazy prophecy? The moment you do that, our budget will be frozen!”
He gasped for breath.
“On top of that, this could escalate into a diplomatic issue. The sovereign wealth fund of the Republic of Korea betting on the financial collapse of its greatest ally, the United States? That means making an enemy of not just Wall Street but the White House as well!”
David pressed his throbbing temples.
Then he looked at the two team leaders in turn and spoke briefly.
“Enough.”
He immediately pressed the intercom button.
“Secretary Kim, send Gong from the Investment Strategy Team into my office.”
At those words, Park Yongjin's face twisted.
“Who is Gong?”
Cha Minjun chuckled.
“You've probably seen him before. The monstrous rookie who recently joined our team.”
He snorted before adding,
“The engineer-turned-lawyer. Gongbyeon.”
The nickname was a play on Gong Seokjun's surname and the word for lawyer, referring to him as the engineer-turned-lawyer.
I was summoned to David Chen's office.
It was my first time entering this room.
However, it wasn't my first time seeing David Chen.
On my first day at the company, during orientation, he had been one of the executives sitting in the front row, talking about global standards and risk management.
There was one thing he had said that I remembered particularly well.
“Don't fear a crisis. Control it.”
It was the kind of statement you'd expect from a man considered a legend on Wall Street.
At the time, I had simply thought it sounded impressive. Now, however, I felt as though I understood its true meaning.
A crisis is the perfect thing to take advantage of.
David Chen raised his head.
“Explain in a single sentence why I should believe your dangerous piece of fiction instead of Team Leader Park's flawless data.”
“Because Team Leader Park's data describes the past, while my argument concerns the future.”
Park Yongjin's expression hardened.
“Have you heard of the spiral of silence theory?”
David gave a slight nod.
“When the market is rising, everyone talks about optimism. Pessimistic data gets ignored or dismissed as an exception. That's exactly what's happening on Wall Street right now.”
I opened the report and showed them a graph.
“This is Team Leader Park's data. The American housing price index. A perfect upward trend.”
Then I presented another graph.
“And this is what I found. The initial delinquency rate for adjustable-rate subprime mortgages.”
The two graphs moved in sharply contrasting directions.
House prices were rising, yet the people who had purchased those houses couldn't even afford to pay their interest.
Park Yongjin interrupted.
“That's a problem affecting only a portion of the subprime market! It can't shake the entire market!”
“No. This is only the beginning.”
The atmosphere in the room shifted subtly.
“Most subprime loans are adjustable-rate mortgages. Borrowers are lured in with interest rates in the one-percent range for the first two years. After that, the rates switch to variable rates exceeding ten percent. They're ticking time bombs.”
I pointed to the X-axis of the graph.
“The two-year fuses that were lit in 2005... will begin detonating this very quarter.”
David's gaze changed.
“And this isn't just one bomb.”
Cha Minjun and Park Yongjin looked at me simultaneously.
“A stripper in Miami took out loans using five houses as collateral, including her own. A parking attendant in Las Vegas bought seven houses.”
I raised my head.
“They have no intention of living in those houses. They're speculators hoping to sell them for a profit as prices rise. What happens when interest rates go up?”
Silence.
“They'll abandon all five or seven houses at once. That's when delinquency rates will explode.”
I looked straight into David Chen's eyes.
“In 1997, South Korea began to collapse with the bankruptcy of the Hano Group. What I see now is a new Hano, bearing the name New Century Financial.”
At those words, David Chen's eyebrow twitched ever so slightly.
At the Federal Reserve Bank of New York in Manhattan, a tense atmosphere hung over the Risk Management Committee meeting room on the twelfth floor.
The young economist Mark Cornell swallowed nervously.
“I'll get straight to the conclusion. The delinquency rate for adjustable-rate subprime mortgages originated in 2006 is rising far more steeply than in any scenario we've modeled.”
Charles, a senior Federal Reserve official chairing the meeting, rested his chin on his hand.
He looked bored.
“Mark, I believe I saw this report last month as well. So?”
“That's precisely the problem, Chairman. Given the current unemployment rate and GDP growth, this sharp increase in delinquencies is a serious warning sign.”
Mark refused to give up and turned to the next page.
“The bigger problem is the interest-rate resets. The initial low-interest periods on the 2/28 subprime mortgages sold heavily in 2005 and 2006 will begin ending this quarter. As interest rates soar from the one-percent range to the ten-percent range, millions of households will be hit with payment shock.”
In his view, the current delinquency rate was merely a warning.
It was like the sea briefly receding before a genuine tsunami arrived.
Another official scoffed.
“Mark, you're being far too pessimistic. This is a problem confined to the housing market, and even then, only to a portion of it called subprime. The chances of it spreading throughout the entire system are limited.”
“We can't afford to be complacent, Chairman! Those bad loans have been repackaged into mortgage-backed securities, or MBS, and collateralized debt obligations, or CDOs. They've already spread across the balance sheets of banks and pension funds around the world. This is no longer just a subprime problem—”
Charles interrupted him.
“Mark, there's something you're overlooking.”
He looked around the room and spoke with confidence.
“Even if the market experiences a little stress, we have a weapon at our disposal. The federal funds rate. If the market so much as coughs, we can simply lower the rate by 25 basis points, or 0.25 percentage points.”
“Exactly. Once we inject liquidity, the fear will disappear. That's how it's always worked, and that's how it will continue to work.”
The officials all looked relieved.
As expected of Charles.
“This isn't a crisis, so stop trying to spoil everyone's mood. Meeting adjourned.”
The officials left the conference room discussing what they would have for dinner.
Back in David Chen's office, David looked straight at me and asked,
“So, rookie. What is it you want to do?”
“We can't let this opportunity slip away. We need to take advantage of this turmoil before anyone else does.”
Instead of responding, David pressed a button on the telephone on his desk.
Before the phone could ring three times, a cheerful voice answered.
It was Michael, the global head of prime brokerage at Goldmoon Sachs' New York headquarters.
“David, how's life in Seoul?”
David switched on the speakerphone so everyone in the room could hear.
“Michael, what's the hottest thing on Wall Street these days?”
“Everything's hot! But if you want the real deal, it's mortgage products, without a doubt. All the CDOs are AAA-rated. They're safer than home mortgages themselves. We're practically printing money with them! It's a party every single day over here.”
Michael's laughter echoed through the telephone.
A victorious smile spread across Team Leader Park Yongjin's face.
“Especially the products created by New Century Financial. They're works of art. Their cash flows are stable, too. It would be great if your people in Korea took some of them off our hands.”
David smiled faintly.
“...Got it. We'll talk another time.”
Click.
As soon as David hung up, Team Leader Park spoke up.
“Did you hear that, Vice President? That's the voice of someone actually working on Wall Street. We can't waste any more time on this rookie's delusions.”
David stared into empty space and murmured as though speaking to himself.
“Safer than a house, huh...”
His gaze turned icy.
History repeats itself.
Especially when it comes to human greed and the fear that takes advantage of it. Those things never change.
That's exactly what those Wall Street bastards said just before the dot-com bubble burst.
David turned toward Park Yongjin.
“Team Leader Park, you may leave now.”
“Pardon? Vice President, what do you mean—”
“I said you may leave.”
Park Yongjin realized something had gone wrong, but he couldn't bring himself to say anything more.
With a resentful expression, he shot me one last glare before leaving the office.
Three people remained in the room.
David Chen, Cha Minjun, and me.
David walked toward me.
A cold glint flashed in his eyes.
“Ten billion won.”
“...!”
“I'll give you exactly ten billion won. You manage it yourself.”
He tapped my shoulder and whispered in a low voice.
“This is an amount I can authorize at my own discretion, without approval from the board of directors or a stamp from the Investment Committee.”
Some people might have called it pocket change, but as a rookie, even that amount was necessary for me.
The moment the proposal went before the Investment Committee, what would happen?
They'd spend an entire month dragging it out under the pretext of reviewing its stability, and April 2 would pass before I could do anything.
Even if it was only ten billion won, it was enough. I could use it to prove myself.
“When the entire Wall Street is shouting yes, I bet on the person standing alone and saying no.”
Team Leader Cha Minjun exclaimed excitedly.
“Thank you, Vice President! In that case, we'll immediately revise the detailed execution plan to fit the ten-billion-won budget—”
“The plan is already prepared.”
“It... is? You already have a plan?”
I took out a sheet of paper.
It was the second blueprint I'd prepared after working through the night.
Team Leader Cha's mouth fell open.
David silently looked down at the cover of the report.
The title read:
[Plan B – Investment Management Plan Based on 10 Billion Won]
I'd prepared three plans in total.
The amount I'd initially demanded was 100 billion won.
But that had merely been bait for the test.
It was a calculated provocation designed to gauge David Chen's nerve.
What I'd actually been aiming for was this very Plan B.
A perfectly calibrated test bet that reduced the risk to a manageable level while maximizing efficiency.
If he had rejected even this, I would have proceeded with Plan C, which required only one billion won.
Either way, things had worked out exactly as I'd wanted.
It wasn't a large amount, but this ten billion won would be the first step toward gaining control over the Korea Investment Corporation's tens of trillions of won.
David smiled with interest and opened the report.
Inside were calculations far more sophisticated than those in the 100-billion-won proposal, all designed to extract the greatest possible efficiency from limited resources.
David lifted his eyes from the report and studied me.
“...You'd already calculated that I'd offer you ten billion won, hadn't you?”
Instead of answering, I simply smiled.
David extended his hand.
“You're quite an interesting fellow. Prove it. Prove that the entire world is wrong and you're the one who's right.”