The Night of the Bear

A morning in October 2007.

"Seon-woo, I hardly ever see you these days."

At my mother's words, I paused mid-scoop of rice and looked up.

"I'd say Seon-ah's harder to catch than I am."

"Seon-ah got fired up by your perfect score on the CSAT, so she's been working hard ever since. She left early again today for morning study sessions."

The corner of my mouth lifted slightly.

I hadn't expected my perfect score to spur Seon-ah on, but it was a good thing.

Breakfast together as a family was the rule in our house, but lately both Seon-ah and I had been absent more often than not—she for her exam preparations, and I for an entirely different reason.

"I've been even busier since I went back to school. There's my coursework, and a lot of other activities on top of that."

I still hadn't told my mother about my double life.

No—something told me I never would.

If I told her, she would worry, and I didn't want to be a source of worry. In this life, all I wanted to be was a son who studied hard and did as he was told.

"I see. Well, I understand."

Mother smiled and ladled soup into my bowl.

"By the way, how's the company doing these days?"

"The company? It's doing well."

There was a time when she would have hesitated at a question like that. She'd probably figured there was no point discussing business with her young son.

But things were different now. I ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠had aced the CSAT, gotten into a good university, finished my military service. She had come to see me as an adult.

"We're getting calls from China every single day begging to charter more of our ships, and there are plenty of companies at home wanting to lease our vessels too."

Good news.

The equity restructuring was proceeding smoothly as well. It would have been wonderful to untangle the circular shareholding web in one stroke, but that was easier said than done, so we were working through it piece by piece, methodically.

"If things are going well, I'd say maintaining the status quo is your best move."

I said it casually, taking a spoonful of rice.

"Status quo?"

"Yes. The mood in American finance is anything but normal. That's actually what I've been studying at school lately."

"I've heard something about that myself. In fact, there's been talk at the company about expanding the fleet—but we put that on hold."

As expected.

Executive Director Choi Dong-soo was always at my mother's side. He wasn't the type to push for aggressive expansion, but he was exactly the kind of man who would apply the brakes faithfully whenever someone started heading in the wrong direction.

It seemed he had been looking after my mother well in my absence.

"This could get much bigger, and it could drag on for a long time. I'd recommend securing as many dollars as possible."

Mother smiled.

She didn't take my word as gospel, of course. Hers was simply the expression of a mother quietly pleased to see her son growing up. But that was fine. The seed had been planted.

"I'll keep that in mind. Thank you for the advice."

Deciding that was enough, I glanced at the watch on my wrist.

"I'll get going."

"Have some more first."

"I have to leave now to catch my bus. I'll see you tomorrow morning."

"All right. Have a good day."

With my mother seeing me off, I stepped out through the front gate.

A short way down from the house, at the mouth of the alley, a black sedan was parked. I glanced around, then got in.

"You've arrived, sir."

"Sorry I'm late. I was talking with my mother."

Jung Tae-sung greeted me as I climbed into the car.

"Not at all. I only arrived five minutes ago myself."

"Let's head straight to the office."

As the car pulled away, I picked up the newspaper lying on the back seat.

The business section's headlines were all about the stock market. Article after article about the domestic market wailing under the drag of the American collapse.

Ever since Merrill Lynch's earnings announcement, the mood in the market had been shifting visibly.

"How are things at SJ Holdings?"

At my question, Jung Tae-sung met my eyes in the rearview mirror.

"As you instructed, sir, we've liquidated nearly all risky assets and repositioned the portfolio around defensive stocks."

A relief.

SJ Holdings had the finest asset managers—hand-picked by Jung Tae-sung—on staff, which made running the company's capital a smooth affair.

"Please contact Shinhwa Weltech and Synapse Robotics as well. Tell them to hold at current levels for the time being. And as for raw materials, tell them to secure whatever they can, in advance."

"Understood. I'll pass that along."

The Seoul morning scenery swept past the window. The commute was packed bumper ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠to bumper. An ordinary October morning. Today's headlines were different from yesterday's, and tomorrow's would differ from today's again.

November 2007.

"Citigroup's gone down too."

Han Jae-yi said it the moment I walked into the office. Her eyes were glued to the Bloomberg terminal.

A month had passed since Merrill Lynch's earnings announcement. A great deal had changed in that time.

The Dow had fallen nearly ten percent from its peak, and Wall Street was churning out loss announcements day after day. UBS had gone down, and the crisis at Morgan Stanley had begun.

There wasn't a single day the word subprime stayed out of the news.

And through it all, we moved according to plan. Danny had completed the second of three tranches of staggered buying in the US, and Han Jae-yi monitored the markets from her terminal every day. I kept up my double life—classes at school by day, the office by night.

"How much?"

"Eleven billion dollars in subprime-related losses. The CEO's resigning."

Eleven billion dollars—over ten trillion won. On the heels of Merrill Lynch, now Citigroup. The giants of Wall Street were toppling one by one.

"How many times is that this month alone?"

Han Jae-yi muttered, "Merrill Lynch, Citigroup, UBS… what's the combined loss?"

‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠

"Over thirty billion dollars, easily."

I sat down, shrugging off my coat.

Just a month ago, the market had believed the Fed cutting rates would fix everything. Reality had proven ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠otherwise.

"What about our positions?"

"CDS prices keep climbing. Bear Stearns CDS is nearly double what it was a month ago."

There was an undercurrent of excitement in Han Jae-yi's voice. This was the same woman who'd been anxious when the market kept rising. Not anymore.

"It's only beginning."

"I know. It's just…"

Han Jae-yi looked at me.

"Honestly, it scares me a little. Because it's all happening exactly like you said."

I didn't answer.

I understood the fear. A prediction coming true meant a catastrophe of equal size was bearing down on us.

Ring—

The phone rang. It was the number I'd given to Danny alone—a dedicated hotline of sorts.

"Danny."

I nodded. It wasn't time to sell yet. This was merely the overture.

"We hold. How much buying power do we have left?"

"Plenty. We haven't deployed the third tranche yet."

"Focus on Bear Stearns and Lehman. Lehman especially."

"Got it."

Danny paused for a moment.

"…Hey, listen."

"Yes?"

"You remember the guy at GS who sold us the CDS? My old colleague."

Him. The one who'd tried to talk Danny out of it.

"He's barely been in touch lately. He used to call every day mocking me—'still doing that crazy stuff?'"

Bitterness seeped through Danny's voice.

"I guess he's not laughing anymore."

"…"

"Anyway, I'll keep watching. Call if anything comes up."

"Thanks. Take care."

Hanging up, I turned around to find Han Jae-yi watching me.

"What's the return?"

"Bear Stearns 80 percent, Lehman 60, Merrill Lynch almost double."

Han Jae-yi's eyes went wide.

"Insane. That is absolutely insane."

"Not yet, it isn't."

I looked at the terminal screen. Red numbers were flooding the display.

"The real collapse comes next year. What we're watching now is just the skirmish."

"…How much bigger does it get?"

Instead of answering, I shrugged and took my seat.

That, I couldn't tell her.

That a 158-year-old investment bank would vanish overnight.

March 2008.

Wall Street, New York. Bear Stearns headquarters.

A great deal had changed. The new year had dawned, but the mood on Wall Street remained bleak. Far from subsiding, the subprime crisis was sinking into deeper and deeper quicksand.

In January, Bank of America staggered under subprime losses, and stock markets around the world crashed in sympathy. In February, Northern Rock was nationalized in the UK—the first nationalization of a bank in a developed nation in decades.

And then, March.

Every eye in the market was fixed on Bear Stearns.

"What's going on?"

It was deep in the night, past three in the morning, when Alan, the chairman of Bear Stearns, rushed to the office after an urgent call.

The moment he entered the building's lobby, the CFO came to his side, and the two men talked as they walked toward the elevator.

"The cash left in our vault has hit bottom."

Alan's face hardened.

Just yesterday morning, Bear Stearns' vaults had held seventeen billion dollars in cash. When reporters swarmed him on his way to work, he'd declared boldly: with seventeen billion in hand, we will survive.

That was a mere twenty-four hours ago.

"The repo market is refusing to lend to us."

Repo—repurchase agreements—were the lifeblood of an investment bank.

Investment banks didn't trade on their own money. Every night they posted their bond holdings as collateral and borrowed cash from the giant banks, then repaid it with interest the next morning. Repeating this ritual day after day was the daily rhythm of an investment bank's existence.

But early this morning, every investor in the market had, as if on cue, notified Bear Stearns that they would lend it nothing.

"They say they won't accept MBS as collateral anymore. They want different assets."

Most of the tens of billions of dollars in bonds Bear Stearns held were tied to subprime mortgages. Assets treated like gold until last year had become refuse no one would touch.

Refusing them as collateral meant refusing to trust Bear Stearns itself.

Boarding the elevator, the chairman let out a long sigh.

"Let's talk upstairs."

Ding—

The elevator stopped at the chairman's floor. The moment the doors opened, a frantic-faced man came running—the chief operating officer.

"Alan, we have a catastrophe. GS just declared novation on all our products."

Alan's steps froze.

Novation, simply put, was the transfer of a contract. Where A and B had made an agreement, B stepped out and C stepped in. GS declaring novation meant it was pulling out of every single derivatives contract it held with Bear Stearns.

Wall Street's largest investment bank had publicly abandoned Bear Stearns. And once the news spread, every other bank was sure to follow in a chain reaction.

"Inside. All of you."

Alan strained to keep his composure.

Once inside the chairman's office, the CFO spoke.

"When the market opens at nine a.m., we'll face settlement demands on the order of six billion dollars. If we can't find cash by nine…"

Default. In other words, bankruptcy.

Client assets would be frozen, and shockwaves would ripple through financial networks across the globe. He himself might well spend the rest of his life in courtrooms and prison cells. And more than ten thousand employees would wake up tomorrow on the street.

"Whew…"

Alan exhaled slowly. Then he picked up the phone on his desk, found the number he least wanted to dial, and pressed the button.

Nearly four in the morning.

Yet before the ringing had repeated more than a few times, the other end picked up.

"Alan."

"Jamie. It's me."

The voice through the receiver was calm.

Jamie Ross. CEO of the global investment bank JPMorgan. Bear Stearns' longtime rival.

"What could this be about, at this hour?"

As if he didn't know. He was asking on purpose. Alan swallowed his pride and spoke.

"Jamie, we can't open our doors tomorrow. We don't have the cash."

He could almost hear decades of pride crumbling. Saying this to a competitor on Wall Street was the same as raising the white flag. But this was no time to weigh pride.

For a long while, silence hung on the line.

Just as Alan opened his mouth to speak again—

"Give me thirty minutes. I'll call you back."

Click.

The line went dead.

Alan set down the receiver and looked at his two subordinates. A single nod: we wait.

Tick. Tock.

Only the second hand of the wall clock filled the room. One minute felt like an hour. Five minutes passed. Then ten.

Ring—

The phone rang, and Alan snatched up the receiver.

"Jamie."

"Alan, I've finished speaking with the New York Fed."

A brief silence.

"This morning, JPMorgan and the Fed will extend you emergency funding."

Alan's fist clenched involuntarily. He squeezed his eyes shut.

"…Thank you, Jamie."

"Steady the ship for now. We'll talk again this afternoon."

The call ended. Alan lowered the receiver and let out a long, long breath.

"It's over. We have the money."

Relief spread across the faces of the CFO and the COO.

Bear Stearns. Eighty-five years of history. Tonight that history had nearly ended—but they had survived, and the joy of it settled on every face in the room.

Hours later, that same morning.

The Bear Stearns trading floor.

Employees who had come in early gathered in clusters around the television. On screen, the president of the New York Fed was delivering a statement.

"That's enough!"

Cheers erupted.

The Fed and JPMorgan had saved them. Next came an interview with Bear Stearns' chairman—liquidity was stable, and normal operations would continue, he said.

"All right, everyone, you've seen the news."

The floor manager strode in.

"Things are stable, so let's be ready for the open. Take your seats."

Employees who had come to work dreading the future sat down, their expressions noticeably lighter.

Nine a.m.

The market opened.

Beep! Beep!

Beep! Beep!

The instant trading began, warning alarms started shrieking across the office.

"What's happening?"

The manager rose from his seat.

"Our stock is in free fall!"

"It opened at fifty-six dollars and it's already down to forty-eight!"

Employees briefed him one over another. The chairman had gone on television and said they were safe—but the market didn't believe him.

"I think it was the Fed stepping in that did it. The market's already decided our company is finished."

Fear bled across the employees' faces. Hope turned to terror in less than ten minutes.

Then one employee shot to his feet and shouted:

"Our systems are melting down! The money won't stop flowing out!"

A bank run. Clients had begun pulling their funds.

In an instant, the floor descended into chaos.