Two Dollars a Share
The morning of March 17, 2008.
The moment I stepped into the office, my eyes went straight to the TV. Han Jae-yi sat on the sofa, watching the news.
A caption was scrolling along the bottom of the screen.
Two dollars. The stock had closed Friday at thirty dollars. A year before that, it had traded at a hundred and seventy.
And now the shares of a company like that were going for exactly two.
The broadcast cut to the lobby of Bear Stearns headquarters. Employees were filing out of the building with cardboard boxes in their arms, heads bowed, shielding their faces from the cameras. In the middle of the lobby, one woman had collapsed where she stood, weeping. A colleague beside her wrapped an arm around her shoulders, but the sobs wouldn't stop.
"...I stayed up all night last night reading the coverage," Han Jae-yi said, her eyes still glued to the screen. "Saturday morning, hundreds of people from JPMorgan's due-diligence team walked into Bear Stearns headquarters. Like an occupying army."
I sat down beside her, shrugging off my coat.
"The Bear Stearns employees came in on a weekend to make coffee for the rival bank's people going through their desks and to hand over their secret ledgers. The JPMorgan guys would look at a book of business and shout, 'This is worth zero.'"
Her voice was matter-of-fact, but there was a bitter edge underneath it.
"By Sunday, JPMorgan said it wouldn't touch thirty billion dollars' worth of toxic assets, so the Fed set up a special-purpose entity to swallow the garbage in their place. Maiden Lane, it's called."
"And the price they offered was two dollars a share."
Han Jae-yi nodded at my words. An enormous amount had happened in the two days of that weekend. On Friday, JPMorgan and the New York Fed had stepped in, and Bear Stearns had looked like it would live. Instead, the rescue proved to be the poison — the stock cratered, and the clients who had entrusted the firm with their money stampeded for the exits in a bank run that finished it off.
"Their book value was north of eighty dollars a share. The Bear Stearns board apparently went into an uproar — this is highway robbery, they said. Bankruptcy would be better than this."
"And yet they accepted it."
"The president of the New York Fed called personally. Sign by end of day, or the Fed's window shuts tomorrow and every one of you walks away with nothing. At midnight, the CEO put pen to paper."
JPMorgan and the New York Fed — the pair that had seemed ready to keep Bear Stearns alive with emergency funding. In two days flat, they had become an occupying army and seized the company for a song. An investment bank with eighty-five years of history had crumbled in two. All of it, in the end, came down to a single fact: Bear Stearns lacked the power.
Granted, the disastrous bets they had made made it look like a price fairly paid. Greed always ends this way.
Han Jae-yi pointed at the TV. On screen, the employees were still filing out in a line, boxes in hand.
"Those people were the Wall Street elite barely a year ago. People pulling down several hundred thousand a year lost everything overnight. A lot of them took their bonuses in company stock."
I watched the screen without a word.
Their misfortune was our profit.
The phone rang. The private hotline — Danny's line.
"Danny."
"You seeing this?" There was a charged excitement in his voice.
"Watching it right now."
"The Bear Stearns CDS is up over 900% from our entry. Fifteen million in, a hundred and thirty-five million out."
That was more than 130 billion won.
A CDS was, in essence, an insurance premium against a company going under. Naturally, it traded like any other financial instrument — and with nobody in the market willing to write CDS anymore, the price was soaring through the roof.
"Look, I'm just saying, we could sit on it longer. Two bucks a share is bankruptcy in everything but name. These CDS could run even higher."
"No. We close it out now."
"...Now?"
A beat of silence came down the line.
I understood why Danny wanted to hold. Two dollars a share meant effective bankruptcy, so he figured the CDS had room to climb. But I knew something he didn't. A week from now, shareholder outrage would force the deal back to the table, and the takeover price would be renegotiated to ten dollars a share. The moment two dollars became ten, the market would read it as Bear Stearns rising from the dead. And the CDS price would fall. This was the peak.
"Yes. Now is the time to sell. I want those gains locked in. There's no meaningful upside left after this anyway — surely it's fair to call this the top?"
"...Alright. If that's your call, President Kang, then I follow it. So what's next?"
"All of these profits go into Lehman — split between CDS and put options."
"You're pulling the money out of Bear to put it into Lehman?"
"Yes. Every dollar."
"...You're out of your damn mind. And I mean that in the best possible way. A gambler — no, I've never in my life seen a gambler with conviction like yours."
The curses in Danny's voice were laced with trust.
"But don't add to the Lehman position just yet. I'll give you the signal. That's when the money goes in."
"Got it. Bear fully liquidated, wait for your signal, then buy Lehman. What about Merrill Lynch and AIG?"
"We hold."
"Okay."
"Then I'll leave you to it. Good work."
I hung up and turned around to find Han Jae-yi staring at me.
"How much?"
"A hundred and thirty-five million dollars."
Her eyes went wide.
"...That's 130 billion won. And what did we put in?"
"Fifteen million dollars."
For a long while, Han Jae-yi couldn't say anything at all. Then her gaze drifted back to the TV, where the Bear Stearns employees were still trickling out of the building.
"...Such a strange feeling," she murmured. "The money we made is the money they lost."
"It is."
I didn't deny it.
"But if we hadn't made it, someone else would have. That's how the market works. Still—"
I looked at Han Jae-yi.
"Someday this feeling is going to go numb. When that day comes, let's both remember what we're feeling right now."
At least here and now, I preferred the sight of Han Jae-yi's conflicted face to her celebrating. Once all you can think about is the money, you start doing things you should never do.
Han Jae-yi nodded, though her expression remained tangled.
"So who's next?"
I was quiet for a moment before answering.
"Lehman."
"Lehman Brothers — the one you've been shouting about since the beginning?"
"That's the one. And it's going to dwarf Bear Stearns. They're holding far more product tied to subprime mortgages."
On screen, the news anchor was speaking.
"Relief, they say." Han Jae-yi gave a wry smile. "Even after everything you've predicted comes true — will people still be saying things like that?"
Instead of answering, I sat down in front of the terminal.
I pulled up Lehman Brothers' CDS spread. The market was finding its footing again, exactly as the anchor said.
"They'll say the exact same thing then, too. Looking away from the truly frightening truth — that's simply what people do."
At that same moment — New York.
Danny Kim sat in a lounge in Manhattan. It was the kind of place Wall Street people gathered constantly; if you wanted information, you had to show your face at tables like this one.
"Word is some guy made tens of millions shorting Bear Stearns."
"No kidding. Who?"
"No idea. But the timing was apparently unreal. Loaded up on CDS right before Friday."
The chatter drifted over from the next table. Danny laughed to himself.
Tens of millions. That's cute.
The position he had just closed out was worth a hundred and thirty-five million dollars. Not that he had any intention of saying so out loud.
"Danny?"
A familiar voice. He turned to find a face he knew standing there. Mark Chen — a colleague from his old team. The guy who had called it a death wish when Danny walked out of the firm, and had tried to talk him out of it.
"Long time. Sit."
Danny gestured, and Mark took the seat across from him. His face was dark. The old swagger was gone without a trace.
"How you been?"
"...Y'know. Getting by."
Mark's answer was short. They traded small talk — the Bear Stearns mess, the mood on the Street, the Fed's maneuvering — but Mark's expression stayed rigid the whole time. The face of a man working up to something.
"Whatever it is, spit it out."
Mark hesitated, then opened his mouth.
"Is it true? That you made a killing?"
"Come again?"
"Dustin over at Goldman says you grabbed the Bear Stearns CDS and cleaned up."
Word was getting around. Danny said nothing.
It wasn't that he didn't want to say it. That you were all wrong and I was right. That every single one of you who laughed at me back then was wrong.
But then the face of the young CEO in Seoul floated up in his mind.
Kang Seon-woo.
Seon-woo kept his existence hidden to the letter. He had never said so outright, but Danny had noticed. There seemed to be reasons the man couldn't afford to be seen.
Danny shrugged.
"Who knows."
"Hey — I'm sorry. Genuinely."
Mark lowered his head.
"The way I brushed you off before... I swear, I never thought anything like this would actually happen."
Danny didn't answer, and Mark kept going.
"I'll be straight with you. I took a serious loss this round. The firm says if I can't make it back, I'm out..."
His voice dropped low.
"Could you throw me a bone? Some kind of information."
"Information?"
"Yeah. You called Bear Stearns collapsing. You've gotta know something, right?"
A sneer nearly escaped Danny.
Miles away. These people were miles away.
They still couldn't bring themselves to admit it was skill — they'd rather believe he was sitting on some secret information nobody else had. So much for the elites of Wall Street.
But Danny swallowed the laugh and probed.
"Tell me what's coming out of your shop first. If it's worth anything, we'll talk."
Mark weighed it for a moment, then nodded. He lowered his voice.
"The Fed saved Bear Stearns this time, but the internal line is there's no next rescue."
Danny was quietly startled. The man did work at a big house — he apparently had threads reaching into the Fed itself. Making a name on Wall Street and rotating into the Fed or the federal government was one of the standard career tracks, after all.
"I know that much."
What the Fed was actually thinking, of course, he didn't know. But his young CEO had already known that line long before. Before Bear Stearns had even blown up.
The more he thought about it, the more staggering the kid was. For someone supposedly just a college student, his eye for reading the era was anything but ordinary.
Mark seemed thrown off by Danny's flat reaction. He agonized a moment, then spoke again.
"...IndyMac or Freddie Mac could be the next to go. I've seen internal figures — the loan recovery rate is falling every single day."
IndyMac and Freddie Mac. Neither was an investment bank — they were real-estate-focused lenders. Fresh intelligence, and serious: if those two went down, it meant the subprime crisis was sinking deeper still.
Danny rose from his seat. This had to reach Seoul, and fast.
"Now that's a good piece of intel."
"Then your information is...?"
"AIG."
"AIG?"
"Take a very close look at how many CDS contracts AIG has sold into the market. If this keeps going — you really think they can cover everything they'll owe?"
With that, Danny walked out of the lounge.
Mark stayed in his seat, turning Danny's words over in his head — and then, as if some hint had finally landed, he snatched up his jacket and hurried out after him.